Jeremy Rifkin has been writing lately about what he terms the “Zero Marginal Cost Revolution” presented by technology platforms like Uber and AirBnB.   Describing the sharing economy as the “Collaborative Commons,” Rifkin asserts that it poses a developing alternative to the “capitalist economy.”  “The conventional capitalist market is not going to disappear,” Rifkin admits, but as more consumers move toward a sharing of goods and services, they will severely undermine the firmament upon which capitalist industry is based.

He has also claimed that this new kind of economy that is emerging thanks to platforms like Uber and AirBnB is one “far more dependent on social capital than market capital. And it's an economy that lives more on social trust rather than on anonymous market forces.”

I am a big fan of the sharing economy, and, like Mr. Rifkin, I happen to believe that companies like Uber, AirBnB, TaskRabbit, Instacart and scores of others are transforming our world for the better. However, capitalism is hardly about to sell the sharing economy the rope with which it will be hanged. In fact, the sharing economy takes what is best about the free market–that is, freedom–and amplifies it with the power of technology.

Free markets are the best (if imperfect) effort of our species to organize our society along voluntary lines.  When working, markets provide a way for free persons to meet and exchange whatever they have for whatever they want, without force or fraud, and on mutually agreeable terms.

The sharing economy is about taking this natural human desire to peacefully trade with one another and unleashing it.  These powerful new platforms are finding ways to strip off the accidental legal and political detritus that has accrued to voluntary human interactions over the centuries thanks to imperfectly allocated information.

As should be obvious to anyone who has studied economics, capitalism and free markets are not really about making stuff - they are about coordination and information.  As Hayek observed, the price system associated with free markets must be understood as

a mechanism for communicating information if we want to understand its real function … In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

In short, markets are a way for me to efficiently find out if my neighbor has a need, and how I can efficiently answer that need. And this is precisely what sharing platforms enable us to do.

What Mr. Rifkin says is true to some extent; there really is a “zero marginal cost” revolution going on. But the really interesting zero marginal cost is not so much the cost of producing goods and services (although it is interesting), but the cost to individuals of deciding how and when to allocate their working time.

Firms developed as a means of reducing transaction costs - both for consumers as well as workers.  For workers, the transaction costs associated with finding work involved conducting enough research and bargaining to arrive at the true value of an hour spent working.  Sharing platforms will tell you, on demand, what your labor or your asset is worth, and thus enable you to decide whether or not to work or employ the asset.  Everyone can be an entrepreneur, given sufficient information - and that’s what these platforms enable.

However, Mr. Rifkin does get something very important wrong when he writes:

It's not unreasonable to expect a significant die-off of the vertically integrated global companies of the Second Industrial Revolution when the Collaborative Commons accounts for between 10 and 30 percent of the economic activity in any given sector. At the very least, we can say that conventional capitalist markets will increasingly lose their dominant hold over global commerce and trade as near zero marginal costs push an ever greater share of economic activity onto the Collaborative Commons in the years ahead.

If up to a third of the producer economy disappears, real problems will emerge for everyone, as there are likely feedback cycles that will further undermine the productive capacity of the economy if a third of its demand quickly disappears.  And what will we share if nothing is produced any longer? Though it is fashionable to decry consumerism, without the production of new goods, at some point the supply of second hand goods to pass around will dry up too. 

However, this view also ignores something fundamental about human nature. We like new stuff. We like different stuff.  And people will pay for the privilege of differentiating themselves in some fashion.  I believe this means that there will always be a demand for new goods to be produced, and, if anything, a virtuous cycle will obtain whereby the demand in the sharing market will increase demand in the production market - thus resulting in an overall increase in both produced goods as well as shared goods.  

Further, Mr. Rifkin’s position assumes that the same automated systems that enable sharing for near-zero cost won’t enable an explosion of new consumer goods for near-zero marginal cost as well.  Sure, there is a stated preference for “access” vs “ownership” in the literature that Mr. Rifkin cites; however I have trouble seeing how an easily disposable, easily produced new good, available nearly on demand, will somehow naturally lose to a network of shared goods providers (that come with their own set of transaction costs) such that the production of new goods will disappear. Maybe i’m just an optimist, but I don’t think that the revolutionary benefits that free markets have brought to humanity are going anywhere anytime soon thanks to the growth of the sharing economy.