[OPE-L:7598] Re: Value of information

From: michael perelman (michael@ECST.CSUCHICO.EDU)
Date: Wed Sep 04 2002 - 23:41:33 EDT

This is a very primitive version of a paper I am preparing for the URPE
sessions in Washington.  Any comments would be appreciated.

Intellectual Property Rights and the Commodity Form: New Dimensions in
the Legislated Transfer of Surplus Value
Karl Marx analyzed how markets first create surplus value and then
transfer some of this surplus value from capitalists to rentiers,
landlords, and other capitalists.  Intellectual property rights are
rapidly expanding the scope of the commodity form, often converting the
products of what Marx called universal labor into an entirely new type
of commodity.  This new commodity form radically deepens the
contradictions of the capitalist system.
  I am now going to restrict my discussion here to intellectual property
in science and technology.  Markets for goods with high intellectual
property content are unlike typical commodity markets.  The owners of
existing intellectual property provide no material good or even a
service, yet can nonetheless demand payments for use of their
"products."  Since intellectual property is a monopoly, owners of
intellectual property do not feel the direct force of competition, only
cross product competition.  In addition, the cost of production is more
or less irrelevant in markets for intellectual property, since
reproduction costs are trivial compared to market prices.
  Payments to owners of intellectual property are more like the
extraction of rent than the payment for a commodity.  But unlike land,
intellectual property rights supposedly represent a reward for a
creative achievement.
  As I will discuss later, in almost every case, the creation of
intellectual property represents a social effort in which scientists or
artists draw upon the work of their predecessors.  As a result, rival
claimants to intellectual property rights abound.  More often than not,
they will launch expensive litigation in hopes of obtaining exclusive
ownership for themselves, or at least a valuable monetary concession.
  Within the eyes of the law, intellectual property rights are akin to
the ownership of capital goods, except that this ownership expires after
a set period of time.  Intellectual property, however, differs from real
capital goods in an important respect.  In the case of a typical
commodity, payments flow to the various agents who control the elements
of the social labor process that originally contributed to the
production of the capital good, despite the fact that some of the
surplus value will provide rewards for non?producers in the form of
profits, interest, and rents.
  In the case of the conversion of scientific or technical knowledge
into intellectual property, modern capitalism reverts to a
winner?take?all arrangement in which the law assigns ownership to a
single agent, while offering absolutely nothing to the others who have
contributed to its creation.  Nonetheless, even more so than in the case
of the production of capital goods, scientific and technical knowledge
depends upon a social labor process.
  No one person makes a scientific discovery.  Instead, science and
technology depend upon a complex network of information flows,
reinforced by a publicly supported educational system.  Yet the first to
make a claim with the patent system is supposed to deserve the exclusive
right to the discovery.
 Intellectual Property as a Public Good
Writing in the Theories of Surplus Value, before he had worked out his
fully worked out his distinction between price and value, Marx observed:

  The product of mental labour ?? science ?? always stands far below its
value, because the labour?time needed to reproduce it has no relation at
all to the labour?time required for its original production.  For
example, a schoolboy can learn the binomial theorem in an hour.  [Marx
1963?1971, i, p. 353]
So, unlike land or most commodities that command rents, intellectual
property is non?rivalrous.  As Marx observed, "Once discovered, the law
of the deflection of a magnetic needle in the field of an electric
current, or the law of the magnetization of iron by electricity, cost
absolutely nothing" (Marx 1977, p. 508).  In fact, science and
information may be called meta?public goods, in the sense that they
become more valuable the more that people use them.
  Writing well before the hyperbole of the New Economy became
commonplace, Marx sensed that the growing importance of science
represented a serious contradiction to the law of value.  In a
remarkable section of the Grundrisse, he observed:
  To the degree that labour?time ?? the mere quantity of labour ?? is
posited by capital as the sole determinant element, to that degree does
direct labour and its quantity disappear as the determinant principle of
production ?? of the creation of use?values ?? and is reduced both
quantitatively, to a smaller proportion, and qualitatively, as an, of
course, indispensable but subordinate moment, compared to the general
scientific labour, technological application of natural sciences, on one
side, and to the general productive force arising from social
combination in total production on the other side ?? a combination which
appears as a natural fruit of social labour (although it is a historical
product).  Capitalism thus works towards its own dissolution as the
force dominating production.  [Marx 1973, pp. 700]
Here Marx was not looking at the overthrow of capitalism by dissatisfied
workers, but rather by its technological irrelevance.  He continued:
  The theft of alien labour time, on which the present wealth is based,
appears a miserable foundation in face of this new one, created by
large?scale industry itself.  As soon as labour in the direct form has
ceased to be the great well?spring of wealth, labour time ceases and
must cease to be its measure, and hence exchange value [must cease to be
the measure] of use value ....  The free development of individualities,
and hence not the reduction of necessary labour time so as to posit
surplus labour, but rather the general reduction of the necessary labour
of society to a minimum, which then corresponds to the artistic,
scientific etc. development of the individuals in the time set free, and
with the means created, for all of them.  Capital itself is the moving
contradiction, [in] that it presses to reduce labour time to a minimum,
while it posits labour time, on the other side, as sole measure and
source of wealth.  [Marx 1973, pp. 705?6]
Within this environment, capitalists can no longer pretend that they are
serving a social function fostering accumulation by driving workers
longer or harder or even by organizing them efficiently.  Instead, Marx
realized that this new stage:
  calls to life all the powers of science and of nature, as of social
combination and of social intercourse, in order to make the creation of
wealth independent (relatively) of the labour time employed on it.
[Marx 1973, pp. 706]
In other words, value theory, which is merely an analysis of how
capitalism works, may have some relevance in a primitive stage where the
"worker [is reduced to] nothing more than personified labour?time [and
where all] individual distinctions are obliterated" (Marx 1977, p.
353).  In contrast, at the stage where universal labor becomes dominant,
the "material conditions [of production] blow this foundation [based on
the minimization of labor time] sky?high" (Marx 1973, p. 706).
 Another Dimension of Universality
Universal labor has another important characteristic.  In addition to
spreading costlessly throughout society, it often works in strange
ways.  A scientific idea can cascade for decades and decades inspiring
one technology after another.  Econometric estimates suggest that the
typical technological discovery requires about 20 years before it
reaches fruition.  More basic scientific research, which lies behind the
technology, takes even longer before it begins to affect our daily
lives.  In this spirit, Lewis Mumford once proposed:  "It was Henry who
in essentials invented the telegraph, not Morse; it was Faraday who
invented the dynamo, not Siemens; it was Oersted who invented the radio
telegraph, not Marconi and De Forest.  The translation of the scientific
knowledge into practical instruments was a mere incident in the process
of invention" (Mumford 1963, pp. 217?8).
  Typically, the new technologies do not develop from a single
scientific idea; instead they depend upon the confluence of the number
of scientific discoveries, each of which had been further developed by
number of other people.  By the time the technology is mature enough to
pay propose to the patent office absolutely nobody could determine the
relative contributions of the various people involved.
 Intellectual Property and the Falling Rate of Profit
Of course, Marx never suggested that the rise of universal labor would
be an exclusive cause for transcending the capitalist mode of
production, but it certainly does call for a sharp break with the
traditional vision of a market?based system of competitive commodity
  Rather than directly threatening the capitalist of production,
universal labor has become a major prop for the system in the form of
intellectual property rights.  In fact, the protection of intellectual
property has become a substantial counterweight to the tendency for the
rate of profit to fall.
  The relationship between intellectual property rights and the rate of
profit is not new.  During the late nineteenth century laissez?faire
economists strongly opposed the strengthening of intellectual property
rights as a monopolistic intrusion into sacred grounds of free markets.
Only after the economy slipped into crisis mode in the last decades of
the century did most economists relent, seeing intellectual property
rights as a way to avoid the economic catastrophe they saw unfolding.
Some principled laissez?faire economists, such as Hayek and Mises,
continued their resistance even into the twentieth century, but they
were a distinct minority.
  Not surprisingly, the next surge in strengthening intellectual
property rights in the United States began in the latter part of the
1960s, as stagflation began to engulf the economy and earlier trade
surplus turned negative.  Although many old line industries could not
compete effectively in world markets, exports of intellectual property
in the form of royalties and copyright fees soared.
  I have not seen hard data regarding the effect of intellectual
property rights on the rate of profit, but I am convinced that it is
substantial. Just think about Microsoft and pharmaceutical and industry
with their low marginal costs relative to their market prices.
 The Contradictions of Intellectual Property
The general thrust of Marx's scattered comments on universal labor is
clear:  the "natural" course of market development would be the
promotion of universal labor and the obsolescence of markets.  Markets,
however, are anything but natural.  They came into being by the good
graces of primitive accumulation.  Once begun, they still require the
constant nurturing of state power.
  In the case of managing universal labor, the state performs two vital
functions to prop up the market.  In the first place, the state directly
subsidizes a good deal of universal labor.  This arrangement is, in
itself, perfectly understandable.  As neoclassical economists have long
known, individual enterprises have little incentive to employ universal
labor because they have difficulty in appropriating its fruits in a
commodity form.  The capitalist state, however, typically refuses to
make the results of universal labor available to all.  Instead, it
converts the universal labor into private property, even if the work was
originally done in the public sector.
  Over and above subsidizing universal labor and making it private
property, the state uses its coercive powers to enforce these
intellectual property rights.  Since the misappropriation of
intellectual property is less obvious than the theft of physical goods,
the protection of intellectual property rights is necessarily far more
intrusive than comparable efforts to protect physical goods.  Within
this environment, owners of intellectual property rights often even
demand that providers of commodities modify their products in ways that
actually diminish their usefulness.
  The privatization of universal labor, like all other attempts to
correct crises, creates further contradictions ?? in this case, it
erects a serious barrier to further scientific and technological
progress.  Let me just enumerate a few of the detrimental effects.
First of all, every agent, whether an individual researcher or a major
corporation, has a strong incentive to maintain the utmost secrecy ??
thereby stifling the communication, which is the very lifeblood of
science.  In addition, incredible efforts are wasted in attempting to
get around existing intellectual property by techniques such as reverse
  Because intellectual property law awards a single individual credit
for the complex social process it encourages patent races, which
dissipate considerable scientific effort.  In addition, the emphasis on
intellectual property means that many scientists end up devoting
considerable time and energy learning about the legal ramifications of
their work ?? efforts that would be better spent in doing science.
  Excessive litigation represents a more obvious dissipation of
potentially productive energies.  Corporations attempt to extend the
boundaries of their intellectual property rights in much the way
imperialist nations wage war in order to increase their territory.
Corporations work frantically to amass patents.  Many of these patents
have no utility whatsoever except to counterattack those who might
challenge their right to use some technique.
  The main battlefield is the legal system.  Patent suits typically cost
millions of dollars.  Corporations also expend considerable energy to
win favorable legislation.  Public relations become a useful adjunct in
this effort.  These supplemental efforts are also costly.
  The monopoly rights associated with intellectual property raise
prices, transferring immense quantities of income and wealth to the few
corporations that hold the mass of intellectual property rights.  By
holding millions of people in unnecessary poverty, this system thwarts
their potential contributions to the pool of universal labor.  In
addition, the quest for intellectual property rights has had monstrous
effects on higher education.
  Finally, intellectual property rights undermine the very nature of
free scientific inquiry.  The truly great scientific discoveries result
from scientists following their own interests rather than the narrow,
quick?profit?oriented priorities of giant corporations.
  In my book, Steal This Idea: Intellectual Property Rights and the
Corporate Confiscation of Creativity, I have tried to document in more
detail the enormous costs that intellectual property rights have imposed
on society.
  Instead, the economic progress depends upon people having the
opportunity to develop their skills freely and to cooperate with one
another.  Harsh corporate discipline creates a barrier to progress.
In short, universal labor defies the sort of commodification envisioned
in economic textbooks.  At the same time, the commodification is a
necessary measure to counteract the falling rate of profit.  This
strategy of defending the capitalist form seriously undermines the
social and economic potential of scientific labor creating a deeper
Marx, Karl. 1963?1971. Theories of Surplus Value, 3 Parts (Moscow:
Progress Publishers).

___. 1973. Grundrisse (NY: Vintage, 1973).

___. 1977. Capital, Vol. 1 (New York: Vintage).

Mumford, Lewis. 1963. Technics and Civilization (NY: Harcourt, Brace and

Perelman, Michael. 2002. Steal this Idea: Intellectual Property Rights
and the Corporate Confiscation of Creativity (NY: Palgrave).


Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@ecst.csuchico.edu

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