Marxism in the Metaverse
Capital has conquered the entire earth and turned towards the metaverse to sustain the logic of endless accumulation. But is there any real value in an economy of virtual commodities like NFTs?
In October 2021, Facebook founder and CEO Mark Zuckerberg released a video announcing that his company was rebranding under the name Meta and shifting its focus toward developing “the metaverse.” The word metaverse has been floating around Silicon Valley since 1992, when it first appeared in the science fiction novel “Snow Crash” by Neal Stephenson. Today, it refers to a hypothetical version of the internet that allows users to interact with digital assets in a more naturalistic, three-dimensional way than they can on phones or laptops. To get a sense of what some say this could look like, check out the first ten minutes of the video:
According to Zuckerberg, users will be able to experience the metaverse in two ways. First, they can ‘go in’ to the metaverse using a virtual reality headset that generates scenes as immersive and vivid as the physical world. Second, some aspects of the metaverse can ‘come out’ into the physical world via the use of augmented reality technology, such as holograms. While much of the tech needed to realize this vision has yet to be invented, Meta’s new mission is to do just that. Zuckerberg predicts that within a decade the company will roll out gadgets that today seem like science fiction.
But this prediction seems more like fantasy - and not just for Meta’s customers. Capitalism has conquered the entire earth and exhausted all strategies for reinvigorating the rate of profit. Any manufacturing that can be done by slaves in the Global South has been offshored, just-in-time logistics has cut supply chains to the bone, and every arcane financial instrument that investors play with at the Wall Street casinos has been cashed in. Desperate to defy the terrestrial limits of capital accumulation, the more romantic elements of the ruling class have turned their gaze towards outer space. The more robotic have locked their sights on the metaverse.
Take a look at the items on display in Zuckerberg’s video: the clothing his avatar wears, the furniture in his “home space,” the flying koi fish. Metaverse platforms will encourage users to purchase virtual goods like these through the use of non-fungible tokens, or NFTs. In January, the Financial Times reported that the value of the NFT market eclipsed $40 billion in 2021. Analysts at Morgan Stanley think that it could reach $300 billion by 2030. In the coming years, Goldman Sachs estimates that the potential value of the metaverse could be in the trillions.
When Alexander saw the breadth of his domain he wept, for there were no more worlds to conquer. Then again, he didn’t have a Quest 2 headset. But is the metaverse really a brave new world filled with opportunities for conquest, or a speculative bubble that will burst as soon as capital tries to grab it? To answer this question, let us turn to a more reliable method than Wall Street’s gimmick accounting: the immortal science of dialectical materialism.
An NFT is a unit of data associated with a digital file, such as an image, a video clip, or a song. When NFTs are bought and sold, the parties to the transaction agree that what’s really changing hands is the file that it represents; the NFT itself is more like a certificate of ownership. The transaction details are publicly recorded on a blockchain, a type of digital ledger. Because information stored on a blockchain can never be hidden, altered, or deleted, buyers can be confident that their ownership claim to an NFT is indisputable.
However, the idea that ownership of an NFT represents ownership of the associated file is hotly disputed. An NFT doesn’t grant its owner any trademarks or copyrights on the file, which may proliferate in unlimited quantities across the internet. Can the concept of ownership have meaning if it doesn’t include the right of exclusive use?
Professors Christian Catalini, Scott Duke Kominers, and Ravi Jagadeesan - of the MIT Sloan School of Management, Harvard Business School, and Stanford University, respectively - believe it can. They argue that concepts like “ownership” and “value” are social constructs, and can pretty much mean anything so long as enough people agree on it. From their essay in Project Syndicate in April 2021:
“Critical to [the ownership model of NFTs] is the connection between the easy-to-copy object and its digital token. Whether this link confers any value to the token depends on a tribe reaching agreement about how the link is established, maintained, and/or destroyed. If those with confidence in it lose faith or move on to something else, NFT holders would be left with nothing but a worthless bundle of bits.
Like cryptocurrencies and fiat money, NFTs therefore derive their value from group beliefs and consensus.”
Narrowly speaking, this analogy to fiat money doesn’t hold up. The US dollar, for example, derives its value not from tribal agreement, but from its backing by the federal government. The idea that voluntary consensus alone could allow NFTs to hold value as reliably as legal tender strains credulity. Plus, even the dollar couldn’t hold value if anyone on the internet could mint them at will. More broadly, the authors fail to grapple with how fundamental the right of exclusive use is to notions of ownership.
The “right click, save as” critique is a universal source of suspicion about the value of NFTs among the unconverted. Intellectual property lawyers have variously concluded that: it’s unclear if this model of ownership can have legal meaning; this uncertainty has forced some to sellers to offer IP rights over an NFT’s associated file to potential buyers, rendering the token itself superfluous; NFTs can pretty much only function as a speculative asset. Catalini et al express confidence that this intense skepticism can be overcome, but they give no account of how.
Perhaps recognizing this shortcoming, Kominers made a more conventional case for the value of NFTs in a piece for Harvard Business Review in November 2021. This time, he argued that the tokens can serve as a tool of “market design,” which some firms use to provide owners with customized goods and services:
“NFTs can function like membership cards or tickets, providing access to events, exclusive merchandise, and special discounts — as well as serving as digital keys to online spaces where holders can engage with each other. Moreover, because the blockchain is public, it’s even possible to send additional products directly to anyone who owns a given token. All of this gives NFT holders value over and above simple ownership.”
Because these items and experiences are often branded using images from a particular line of NFTs, Kominers insists that the tokens draw at least some value from their associated files. But his last line in the excerpt above is a tacit admission that at best, any such value is negligible. For this type of firm, NFTs are little more than a marketing strategy to support the sale of traditional goods and services.
From a Marxist perspective, without a solution to the problem of exclusive use, that’s all they can be. For Marx, value is a quality of commodities - that is, goods produced by human labor and offered for sale on the market. Embedded in the logic of market exchange is a buyer’s right to the exclusive use of his purchase. (A right socialists have never opposed, by the way.) Something that cannot function as a commodity outside of a speculative bubble cannot hold value. This is why any hope for the long-term viability of the NFT market depends on the metaverse.
Virtual and augmented reality technology could enable online platforms to modify the user experience in ways that guarantee owners exclusive use of their NFTs. Today, if a Facebook user posts a photo of his flying koi fish on his profile page, any other user can download a copy for free. In all likelihood, a virtual guest to Zuckerberg’s “home space” won’t be able to use their VR headset to do the same. Ditto if the fish appear as holograms in Zuckerberg’s actual home. Such technology could also allow NFTs to have greater aesthetic merit and some clearly discernible purpose, potentially strengthening their ability to generate demand.
How successful today’s social media giants will be in transforming their platforms to accommodate NFTs without alienating their users is an open question. Platforms that can integrate VR/AR and blockchain technology without major disruptions to the user experience have an advantage. Multiplayer online games, for example, already allow for the exclusive use of virtual goods, and in-game purchases have been a profitable line of business for years. Issuing these items as NFTs is the natural evolution of this business model. This is why most analysts agree that gaming platforms will be the crucible of the metaverse’s early development, and could challenge the social media giants for leadership of the tech industry.
When and if such technology will achieve widespread adoption is unclear. But if it does, it will merely create the potential for NFTs to hold value by enabling them to function as commodities. It can’t tell us what the value of any particular NFT would be, which types of NFTs would be in greatest demand, or whether that demand would be sustainable over time. These are the questions to which we now turn our attention.
The best way to think about NFTs is not simply as virtual goods, but as virtual luxury goods. In November 2021, Morgan Stanley estimated that luxury-branded NFTs could represent as much as one-sixth of the total value of the NFT market by 2030. In the near term, it expects demand from online gaming platforms to be the principal driver of growth. For example, top luxury brands partnered with several popular games last year to roll out virtual fashions that users can apply to their in-game avatars. From Harvard Business Review:
“Balenciaga, for example, has developed a virtual fashion collection in Fortnite…Burberry is experimenting with in-game NFTs to offer skins to virtual avatars such as their limited edition, limited quantity character named Sharky B in the multiplayer game Blankos Block Party.
In fact, some consumers are willing to pay even more for digital products than their physical counterparts. Recently, the limited-edition digital version of a Gucci Dionysus handbag, sold for just $4.75 in Roblox, fetched $4,000 in the secondary market — more than the price for the physical version of the bag.”
Some might say it’s ludicrous to pay $4,000 for a virtual handbag. Others might say it’s ludicrous to pay $4,000 for an actual handbag. But are both of these prices equally ludicrous? How closely do they correspond to the handbags’ real value?
From a Marxist perspective, the value of a commodity is equivalent to the total amount of labor time invested in its production. Most obviously, this includes the time it takes for a worker to fashion the commodity into the form in which it will be sold. But it also includes other factors, such as the time it takes for the commodity to be designed, for suppliers to gather the raw materials that compose it, and for workers to acquire the skills to manufacture it. Though the labor theory of value is most associated with Marxism today, classical economists prior to Marx - including Adam Smith and David Ricardo - had the same idea.
But what about virtual commodities like NFTs - does the fact that they have no physical substance diminish their value, or change how they acquire it? To answer this question, let us consider the stages of the production process to see how each one generates value in physical commodities. For ease of comparison with NFTs, let’s use luxury goods as examples.
Sourcing the raw materials. Precious metals and stones, for example, require backbreaking labor to excavate, whether it’s mining for diamonds, panning for gold, or diving for pearls. Since the labor required to unearth these gems is considerable, so is their value. Many also occur only scarcely in nature. If all the gold ever refined in human history were melted down into a single cube, it would measure just 20 meters in length, width and height. Marx said that the amount of labor it takes to discover rare minerals in the first place also contributes to their value.
Designing the product. Many luxury goods - from smartphones to Swiss watches - can be designed only by craftsmen, engineers, and scientists who spend years acquiring the education needed just to start working in their field. The development of new products based on that education may take them many years more, further augmenting the value of their creations. But goods need not be mechanical to accrue value at this stage of production. Consider the knowledge, experience, and sensibilities required to design luxury fashions, or concoct recipes for luxury cuisine.
Manufacturing the product. Goods also derive value from the labor involved in their physical production. For example, every Birkin bag - the iconic handbags from the French fashion house Hermès - is handmade by a single artisan from start to finish using painstaking techniques. Only artisans with years of experience are allowed to make Birkins, and each bag takes at least 18 hours to make. Just like at the design stage, large quantities of skilled labor at the manufacturing stage can also imbue goods with great value.
The distinguishing feature of virtual commodities is clear. Like physical goods, they derive their value from the amount of labor invested in their production. But because they exist only as data and require no raw materials or manufacturing labor to create, their value corresponds only to the labor invested in their design.
This doesn’t mean that virtual commodities are necessarily of lesser value than physical ones. High-quality computer software, for example, can boast enormous value thanks to the many hours of labor time that programmers spend developing it. But NFTs are not complex software. At present, they’re small data packs made to represent discrete objects and appear on the screens of phones and laptops. The maximum expenditure of labor required to produce them could simply never justify prices above those commanded by the cheapest physical commodities.
But don’t take my word for it. In its annual report on the fashion industry published in January, McKinsey & Company observed that profits from virtual fashions depend not on delivering real value to consumers, but on artificial scarcity and asset speculation:
“With no shortage of marketing hype, there are indications that digital fashion assets can generate significant revenue streams…Still, monetisation opportunities are likely to be contingent on the psychology of scarcity and limited editions driving NFT mania…The most likely fashion segments to lead the way are luxury and streetwear.”
It’s notable that McKinsey reached the same conclusion as Morgan Stanley that luxury brands are best positioned to compete in the NFT market. Neither says so explicitly, but McKinsey walks right up to the line of admitting that only luxury labels have the social capital to fuel demand for products with so little value. Morgan Stanley also gestures towards this idea when it writes that the metaverse is a lucrative opportunity for luxury brands to “monetize their vast IP (intellectual property) built over decades.”
Trying to conceal the absence of value in the NFT market with the illusion of luxury is a risky proposition for two reasons. First, the concept of luxury is closely associated with stages of the production process from which virtual goods draw no value - raw materials and manufacturing - rendering the whole idea of “virtual luxury goods” rather dubious. Second, the social capital that luxury brands possess today has been built on narratives of production that simply cannot be told about NFTs, which could inhibit them from propping up the market with their labels alone.
In his 1899 book The Theory of the Leisure Class, the economist and social critic Thorstein Veblen argued that in advanced capitalist societies, elites like to perform their class position in two ways: the public consumption of luxury goods, and public displays of excessive leisure. This has the effect of motivating the lower classes to emulate elite behavior in an effort to signal that they too occupy a privileged position in the social hierarchy. Veblen coined the term “conspicuous consumption” to describe this phenomenon.
Elites have always conveyed their status through the acquisition and display of exquisite objects. But by the late 19th century, industrial production was making high-quality goods more accessible to the public than ever before. Veblen argued that in response to this development, elites sought ways to differentiate between true luxury and the quotidien comforts of the middle class. Among these were the minute physical details that reveal an object was handmade by a skilled artisan from fine materials:
“Goods containing, or more accurately displaying, an appreciable element of cost in excess of what makes them serviceable confer honor on the owner…‘Skill’ and ‘effective workmanship’ need be present even when these make no contribution to serviceability. Someone else's hard labor confers great honor on the owner of the commodity. The marks of hard labor…become important factors in determining value.”
In other words, a luxurious object is one that is heavily saturated with value, created by investing in it more labor than would be necessary to make it merely serviceable. Veblen’s insight is that consumers particularly covet luxury goods that bear the marks of hard labor because people intuitively understand that labor creates value, and so these goods are the most suitable for conspicuous consumption.
This is why luxury brands cultivate their reputations through narratives of production. For example, Hermès communicates the value (and justifies the price) of Birkin bags through a branding strategy centered around their production process:
“Hermès artisans train for a minimum of five years before they’re allowed to create a Birkin on their own. Why the lengthy training process, you ask? A heritage brand such as Hermès calls for traditional techniques, consistency and the utmost skill. A single artisan creates a Birkin — by hand — from beginning to end. Craftsmen practice leatherworking techniques that date back to the Middle Ages using tools like awls, needles and pinces-à-coudre, large wooden grips traditionally utilized for saddle-making. Artisans must also master the saddle stitch, a method in which an artisan pulls two needles through a hole in opposite directions.
Each Birkin is marked with a code that denotes the year it was created, the workshop it originated from and the artisan who made it. What if a customer needs to have their bag repaired? They can send their Birkin back to Hermès, where the bag’s respective artisan will mend it.”
Elite brands aren’t the only ones that rely on narratives of production to peddle their wares. “Affordable luxury” labels frequently make reference to the quality of their materials and their methods of manufacturing, and how these enhance their products’ longevity and effectiveness. Robert McIntyre, professor of economics at the University of Rhode Island, observes that narratives of production are especially important in markets for goods that are intended to signal the consumer’s cultural sophistication more so than their wealth:
“In the contemporary market for Native American jewelry, particularly that of the southwest, connoisseurs are taught how to distinguish carefully hand made items from machine made pieces by the nicks and imperfections that mark the former. The sign of the particular artist and evidence of imperfection in the cast or design contribute to the object's value. Of course these ‘mistakes’ must be small enough to demonstrate labor time, not enough to indicate incompetence.”
As virtual commodities, NFTs cannot incorporate references to their raw materials or manufacturing into their narratives of production. And not only is the amount of design labor required for NFTs minimal in most cases, the labor of graphic design doesn’t really evoke the same air of romance as say, leatherworking or glassblowing. The problem isn’t merely that all this constrains a particular NFT’s value, it’s that it limits NFTs’ cultural legibility as luxury goods in general. The logic of trying to paper over the absence of value in the NFT market with the illusion of luxury - and indeed, the very concept of “virtual luxury goods” - is incoherent.
In 1831, the English philosopher Richard Whatley wrote: “It is not that pearls fetch a high price because men have dived for them, but on the contrary, men dive for them because they fetch a high price.” What he failed to appreciate is why people covet pearls in the first place: we crave the extraordinary pleasures that are possible only through extraordinary labor, but without having to perform that labor ourselves. Luxury is the name we give to the things that deliver this indulgence. Men don’t dive for pearls because people want them, people want them because men dive for them - and they want others to know that they possess treasures men must dive to discover.