The point is not that value isn't created - it's that the people creating it may not be thinking about who benefits from it and who loses.
In the end, when value is created in the free software ecosystem, everybody benefits more or less equally.
If I make an open-source heart rate monitor, doesn't that benefit people who want heart rate monitors, hurt people who make for-pay heart rate monitors, and divert my resources away from solving anyone elses problems?
That's got to be good for society, right? I'm sure I'll just go do all that research anyway, because I'm a nice guy. And I certainly won't go off and patent the holy living shit out of each and every aspect of the monitor or anything nasty like that, because that would be bad, and we've already established that cloning products has to be an unalloyed benefit for innovation. Because it's, like, free or open or something.
http://mises.org/books/against.pdf
http://levine.sscnet.ucla.edu/general/intellectual/against.h...
There's always the prospect of reverse engineering, but it's a lot harder to do and there are situations where it seems rather unlikely. In enterprise software, particularly, it seems considerably less likely that a big company will perpetrate hard-core reverse engineering naughtiness when bound by a thicket of NDAs and contracts - why risk it? A quick browse through the opened source code is a rather different beast.
Competing against a $0 product (which is essentially subsidized by corporate salaries) is likely to increase the barrier to entry. That will make bootstrapping harder, favoring existing enterprises. This is clearly not an unalloyed benefit to society.
The existence of a reasonable 'free' product may also deter the entrance of multiple competitors who would have advanced the state of the art. Clearly this is bad for society.
I'm not arguing that this always happens, or that free software is inherently bad. I'm arguing against the dogma that free software is always automatically good.
It's a choice with consequences and the dogma is an excuse not to think about them.
That's not clear at all. If you can't beat a "good enough" free alternative in the market, that's a signal that society would benefit more if you spent your efforts elsewhere.
I'm arguing against the dogma that free software is always automatically good.
As a first approximation, it pretty much is. Would you care to name specific free software that we'd be better off without?
That's not a really useful way to argue. See http://www.paulgraham.com/disagree.html
Your open-source heart rate monitor will arguably directly help more people than the proprietary ones (don't confuse open-source with gratis) because it can serve as a base for other solutions to different problems. What you actually did by developing your open-source equivalent was to employ your resources in a much more efficient way, distributing its returns across a much wider field.
It's true you hurt the very limited group of people who made proprietary monitors, but you benefited a much, much larger group much more than they could ever do.
It's not so simple, everything has a cost.