I taught managerial accounting for many years and complained for all those years that economists simply did not understand fixed costs. I also complained that we accountants liked talking about variable costs even though there were none. Now comes Jeremy Rifkin, talking in a NY Times article about what happens to capitalism, as we know it, when all costs become fixed and variable costs (marginal costs in economic lingo) tend to zero.
As he perceptively notes, when all costs are fixed and marginal costs are close to zero then prices tend to fall to zero. Why should I pay for a NY Times article, say, when the cost to send it to me is essentially zero? I can listen to someone else’s CD — the cost to the musician to allow me to listen is zero since the (fixed) cost of its production is already covered. So, why should I pay to listen? But if nobody pays, then how do we cover the fixed costs?
And so the story goes on. I just wish that I had had this article when I was still teaching. I shall be running off to buy — yes actually buy — his new book The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism when it is released next month.