This month saw the publication of the Wired US editor-in-chief Chris Anderson's latest business book, Free: The Future of a Radical Price, a followup (of sorts) to the 2006 bestseller The Long Tail. I quite enjoyed The Long Tail, a book about the market opportunities created by the plummeting cost of inventory epitomized by the Amazons of the world.

While a traditional bookstore may stock a few thousand titles, Amazon can afford to "stock" (that is, list) millions of titles, and when they do so, they discover a remarkable thing: the titles that some bookstores ignored for absence of demand are, in fact, in demand. Not much demand – a book may sell a copy a year, or twice a decade – but where the cost of supplying that demand is nearly zero (Amazon's warehouse space is cheaper than a bookseller's retail shelf, and many of the books that Amazon sells are directly supplied by their publisher, or, increasingly, printed to order), it becomes possible to fulfil that demand.

The Long Tail resonated with me as a reader, a writer and a former bookseller. As a reader, I knew that the books I loved were often nowhere to be found on the shelves of my local bookshop – not even in the so-called megastores that replaced the miserable mall stores that, in turn, had replaced the charming mom-and-pop stores. As a writer, I knew that once sales of my books had fallen off from their initial launch, the number of stores that carried them dropped off precipitously. And as a bookseller I knew that every day saw one or more customers looking for a book that we didn't carry – but always a different book.

But The Long Tail wasn't perfect. One area where I took great exception with its argument was when it came to digitally delivered goods, such as digital music, games and books. Anderson's equation looks like this: [Goods]/[Cost of Inventory] = [Breadth of Market]. As [Cost of Inventory] fell, the market got bigger and more vibrant. It therefore followed that when [Cost of Inventory] fell to zero – as with the iTunes store, where the cost of running a store with 1,000,000 songs or 1,000,001 songs is practically speaking the same – the breadth of the market would be explosive.

But as every good programmer knows, dividing a number by zero yields an indeterminate outcome, and therein lay the problem with the hypothesis. As good as The Long Tail was at describing many kinds of markets, it didn't capture the extraordinary stuff that happened when the marginal cost of goods fell to zero.

For one thing, the cost of excluding people from those goods goes to infinity. Exclusion costs are a necessary part of any merchant's pricing model: a small newsagent's stall can set out piles of newspapers with saucers for coins on top, and use a hawk-eye and the social contract to stop people from walking away without paying. This lowers the newsagent's costs and increases his margins.

The cost of excluding people from commercially available digital goods is now infinite; this is another way of saying: "Any popular song, book, movie, TV show or game will eventually be pirated." The only way to prevent this is to go to the impossible step of forcing everyone to trade in their PCs for specialised anti-copying devices, dismantling the internet as you do so. Failing that, exclusion is a lost cost.

Now, there's still a big market for non-excludable goods – whether it's the banana that sells at the cafe for eight times what it sells for at the grocer's next door, or the bottled water that you buy for several thousand times what it would cost you at your kitchen sink. But these aren't really goods in the way that, say, CDs or books or shirts are goods – they're services, the service being the convenience of getting them at this particular time with a minimum of hassle and fuss, at a price low enough not to bother about.

Likewise, iTunes sells a lot of music that you can get for free on the internet, so they're not really selling the music, they're selling the service of getting the music without having to muck about with P2P software and unsure quality.

Goods markets and service markets have very different characteristics, and The Long Tail's lessons for digital service providers are necessarily different from the lessons it offers to those who use digital technology to improve the market for physical goods.

When I read The Long Tail, I thought Anderson had either run out of courage or vision when it came to digital information – the courage to consider that the market didn't explain, produce or allocate the signature "product" of the 21st century; the vision to imagine what businesses centred on the service of "getting information more easily than you can get it elsewhere" might look like.

Enter Free, a book about the latter, but not the former. Free does a genuinely excellent job of describing the proven and speculative market opportunities that can be built around digital information services, from the musicians who use free downloads to fund paid gigs to the giant search companies that use free search to improve the market for paid advertising.

Some, such as Malcolm Gladwell, have faulted Anderson for failing to be sceptical enough of the businesses enabled by free, pointing out that services such as YouTube lack any sustainable revenue model (something that Anderson states in Free, contrasting it with its rival Hulu and making some shrewd observations about the potential future for both). Gladwell's criticisms ring hollow to me, blending a hand-wringing grievance about "theft" of information with special pleading for Gladwell and his fellow journalists.

Which is not to say that Free is perfect. Indeed, I think it has exactly the same problem as The Long Tail, namely, an unwillingness to consider the wider implications of a world centred on a commodity that can be infinitely reproduced at no marginal cost.

Nowhere is this more evident than in Anderson's dismissal of the Free Software Foundation founder, Richard Stallman, the original free software hacker who launched the GNU/Linux project that is the forebear of today's free/open source movement. Anderson mentions Stallman, dismissing him as "anti-capitalist".

But this is to miss one of the most important points. There's a pretty strong case to be made that "free" has some inherent antipathy to capitalism. That is, information that can be freely reproduced at no marginal cost may not want, need or benefit from markets as a way of organising them.

And why not? There's plenty in our world that lives outside of the marketplace: it's a rare family that uses spot-auctions to determine the dinner menu or where to go for holidays. Who gets which chair and desk at your office is more likely to be determined on the lines of "from each according to his ability, to each according to his need" than on the basis of the infallible wisdom of the marketplace. The internally socialistic, externally capitalistic character of most of our institutions tells us that there's something to the idea that markets may not be the solution to all our problems.

And here's where Free starts to trip up. Though Anderson celebrates the best of non-commercial and anti-commercial net-culture, from amateur creativity to Freecycle, he also goes through a series of tortured (and ultimately less than convincing) exercises to put a dollar value on this activity, to explain the monetary worth of Wikipedia, for example.

And there is certainly some portion of this "free" activity that was created in a bid to join the non-free economy: would-be Hollywood auteurs who hope to be discovered on YouTube, for example. There's also plenty of blended free and non-free activity

But for the sizeable fraction of this material – and it is sizeable – that was created with no expectation of joining the monetary economy, with no expectation of winning some future benefit for its author, that was created for joy, or love, or compulsion, or conversation, it is just wrong to say that the "price" of the material is "free".

The material, is, instead, literally priceless. It represents a large and increasing segment of our public life that is conducted entirely for reasons outside the marketplace. Some of the supporting planks may be market-driven (YouTube's free hosting), other parts are philanthropic (archive.org's free hosting), or simply so cheap that creators don't even notice the cost (any one of the many super-cheap hosting sites).

Through most of the history of the industrial era, markets were seen as a fit tool for organising a small piece of human endeavour, while the rest of life – the military, volunteerism, families, public service – were outside the marketplace. Markets may be good at organising scarce goods, and they may even be good at organising abundant ones, but do abundant goods really need organising?

Also missing in Free is the frank admission that for many of the practitioners threatened by digital technology, the future is bleak.

For while it is true that Madonna and many other established artists have found a future that embraces copying, there will also be many writers, musicians, actors, directors, game designers and others for whom the internet will probably spell doom. And for every creator who loses her livelihood because she is unsuited to the digital future, there will be many more intermediaries – editors, executives, salespeople, clerks, engineers, teamsters and printers – who will also be rendered jobless by technology.

It is possible to be compassionate about those peoples' fortunes – just as it is possible to mourn the passing of mom-and-pop bookstores, the collapse of poetry as a viable commercial concern, the worldwide decline of radio serials, the waning of the knife-sharpening trade, and a million other bygone human activities – while still not apologising for the future.

Anderson paints a rosy picture of free, even noting the gains we all experienced as a result of the creative destruction of travel agents and stockbrokers thanks to Expedia and Etrade, but he fails to clearly and explicitly state something to the effect of: "The information revolution is not painless or bloodless. Its wrenching changes have and will put those of the industrial revolution to shame. Much of value will be lost."

On those lines, Free suffers from the same fate as many other recent business books: it describes a business-climate that no longer exists. The anecdotes and evidence come largely from the era of the cheap money bubble Though there is a coda in which Anderson tries to sum up the lessons of Free for the econopocalypse, he fails to note with brutal honesty the fact that both of the free bubbles – dotcom and cheap money – had the side-effect of funding much of free's underpinnings, first by training millions of slacker undergrads in the basics of HTML and Perl at the expense of insurance-company-funded venture capitalists, and then by subsidising millions of experimental small "free" ventures as an indirect effect of over-capitalised advertisers pursuing a beggar-your-neighbour marketing strategy.

Indeed, there's something eerily Marxist in this phenomenon, in that it mirrors Marx's prediction of capitalism's ability to create a surplus of capacity that can subsequently be freely shared without market forces' brutality.

I'm not saying that "free" is communist, or even inherently anti-capitalist. But to discuss "free" without taking note of the ways in which it both challenges and reinforces non-market ways of living just as much as it does for market-driven ones is to only tell half the story.