Wednesday, October 1, 2014

Jeremy Rifkin, The Zero Marginal Cost Society, Palgrave MacMillan, 2014

French version

I ended up getting The Zero Marginal Cost Society, despite the disappointment felt after reading the previous book of Rifkin, The Third Industrial Revolution.

This book is built on a gross fallacy. Here's where it is expressed:

"Economists have long understood that the most efficient economy is one in which consumers pay only for the marginal cost of the goods they purchase. But if consumers pay only for the marginal cost and those costs continue to race toward zero, businesses would not be able to ensure a return on their investment and sufficient profit. That being the case, market leaders would attempt to gain market dominance to ensure a monopoly hold so they could impose prices higher than the marginal cost, thus preventing the invisible hand from hurrying the market along to the most efficient economy. This is the inherent contradiction that underlies capitalist theory and practice".

Rifkin believes, therefore, that marginal cost pricing is efficient even when this cost is zero!

But this pricing is only efficient if the market obeys the regime of perfect competition, which implies that the marginal cost is not zero (see Eléments de théorie « iconomique »): hence Rifkin's reasoning combines two assumptions that are mutually exclusive.

When the marginal cost is zero, the firm must of course cover the fixed cost of production and thus, contrary to what Rifkin says, offer an average price that is at least equal to the average cost (for example sell at first a new product at a high price, and then gradually lower the price). This is what happens when the market obeys the regime of monopolistic competition, that apparently Rifkin ignores.

The logical fallacy of his reasoning ruin his conclusion at the "end of capitalism". That capitalism disappears would be strange in an economy where the cost of production condenses into a fixed cost that is pure capital.

Rifkin had announced the "end of work" in 1997. In 2011 he located in new energy (wind turbines, solar panels, etc.) the "third industrial revolution". He continues to publish fallacies with this new book and many readers enjoy it greatly.

The media success of Rifkin is a painful sight for those who have, despite everything, some respect for the human nature.

1 comment:

  1. I think that you simplify his book. For example, he doesn't say that capitalism will disappear - he is very clear that it will remain in a number of niches. I also think you twist his comments on market efficiency, since marginal cost will not be zero, it will be near zero.

    Many of the things he has predicted, like the end of work, are starting to happen. The question for me is how far along these things will go, or if any of a number of things will block them. He has discussed a number of factors that could prevent the projections in his book from taking place.

    So while I think there are valid criticisms of his predictions, and I'm out here looking for them, I think your broad dismissal lacks credibility. I think your final conclusion - that he somehow ignores human nature, when the main effort of the book shows how human nature is going in his direction - is unsupported.