In yesterday’s Wall Street Journal, Harvard Economist Robert Barro provides a commentary* that compares Bill Gates’ contribution to society through Microsoft to his philanthropic efforts. A key excerpt:

"Suppose that a copy of a new version of Windows sells for $50 (and is typically charged as part of the price of a personal computer). Microsoft’s revenue from Windows would then equal $50 multiplied by the number of copies consumers snap up. Microsoft’s earnings are the revenue less production and development expenses. But that’s not the social value. That comes from the increase in productivity created when businesses and households use the software. The social benefit equals the value of the extra product, less the total paid for the software. Almost by definition, the benefit has to be positive. Otherwise, why would consumers willingly pay for Windows?

A conservative estimate, in a model where software serves as a new variety of productive input, is that the social benefit of Microsoft’s software is at least the $44 billion Microsoft pulls in each year."

This is a good example of how economists measure value. Though I think the cost for Windows may only be $50 in China, Barro points out that the value must be worth more than you pay for it (whatever the amount).

*Subscription. Full article reprinted at http://www.economics.harvard.edu/faculty/barro/papers/Gates%20column%20WSJ.pdf.