Politech: Russ Roberts on Apple iTunes and "the economics of invention"

[Declan McCullagh <declan () well com>]

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Date: Tue, 13 Jan 2004 08:24:18 -0500
From: Russell Roberts <rrobert2 () gmu edu>
Subject: The Economics of Invention

Here is a recent piece of mine on why invention in the 21st Century is a 
little bit different than in the 19th.

MORE THAN AN INVENTION
by Russell Roberts (roberts () gmu edu)

from TechCentralStation.com, posted 12/29/03


Time Magazine has chosen the iTunes Music Store as the Invention of the 
Year. Invention of the Year? When you think of an invention, you think of 
the light bulb, the cotton gin, the airplane, the television, the 
transistor, the cell phone. But an online Music Store? That's not a "real" 
invention, is it?
For the pessimists, honoring a software program that does nothing more than 
transfer music from place to place is just another sign of America's 
decline, another step on the road to an all-service economy where America 
makes nothing. Another step toward an economy where all we do is sell 
cosmetics or french fries to each other or try to sustain our standard of 
living by doing each other's laundry.
I'm a little more optimistic about the future. OK, a lot more optimistic. 
Some very talented people designed that iTunes Music Store. It works 
beautifully. It lets me buy a single song for 99 cents or an entire album 
for just under $10. I can listen to a sample of the music in advance. I can 
discover new artists by looking at what else people bought who like what I 
like. When I buy music at the iTunes Music Store, it's easy to keep it 
organized on my desktop or loaded on my iPod. The confluence of the iTunes 
software with the iPod is one step closer not to an all-service economy, 
but one step closer to the world where all the music ever recorded is 
stored on a single simple portable device. Someday, that device will be 
embedded in my toenail and by doing some simple dance step, the song I want 
to hear will reverberate through my brain at the same time a holographic 
display of the artist performing it is suspended in midair.
Is that as important as the cotton gin? There's a temptation to conclude 
that the cotton gin is related to clothes and clothes are a necessity. 
ITunes is a mere luxury.
But the value of technology always depends on context. If you're naked and 
living in a cave, inventing clothes is a big breakthrough. Really 
important. A man who could skin a saber-toothed tiger and turn that skin 
into something that kept you warm had a very profitable product to hawk to 
his fellow cave dwellers. And like every profitable invention, his profits 
came from pleasing those he traded with. When every one is a nomadic 
hunter, the cotton gin is worthless. After farming was invented, it was 
much better to make clothes from something that grew from the ground rather 
than having to chase it. So cotton was a big deal. But you have to find a 
way to get rid of those nasty seeds. So in the nineteenth century, the 
cotton gin is the road to prosperity. It's also pretty obvious that in the 
nineteenth century, working out a concept for downloading music over the 
Internet still isn't terribly useful.
But in 2003, iTunes can be more profitable and enjoyable for humanity than 
a new way to work with cotton. We already are pretty good at cotton and 
shirt-making. Most of our shirts come from overseas and they're cheap 
because of technology that's already been developed that raises human 
productivity and lowers costs. There isn't much profit in making it a 
little bit better through some innovation. So in 2003, iTunes can be more 
profitable than a better cotton gin. If anything, it's a sign of our 
prosperity rather than a cause for alarm.
And while I like the convenience of iTunes and marvel at the aesthetics and 
ergonomics of the iPod, the iTunes Music Store is more than just a way of 
selling music. It's more important than just another music store opening at 
the nearby mall. By creating a profitable interface for downloading music 
via the internet, iTunes gives the musicians of the future an increased 
incentive to create new music and get it into listeners' ears with the 
click or two of a mouse. That's pretty important if you have a soul and 
music speaks to it. That's most of us.
We will never be reduced to only doing each other's laundry. That can only 
happen if laundry is all we know how to do. The road to prosperity in 
America will always rely on finding ways to leverage what we do best. And 
in 2003, what a lot of us do best relies on transferring information or 
using it in creative ways. Music lovers, rejoice.


Russell Roberts
Professor of Economics
J. Fish and Lillian F. Smith Distinguished Scholar at the Mercatus Center
Department of Economics
4400 University Dr.
MSN 3G4
George Mason University
Fairfax, VA.  22030

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