Economics Of Abundance Getting Some Well Deserved Attention

from the about-time dept

It's great to see Chris Anderson getting lots of attention for his recent talk on "the economics of abundance," because it's exactly the type of thing that a lot of people have been discussing for a while -- but still hasn't permeated the mainstream. In fact, it's quite similar to the talk I gave at the Cato Institute back in April in discussing why certain people seemed to have so much trouble grasping the economics of the digital age. Basically, it's the problem that occurs when people focus too hard on the idea that economics is the study of resource allocation in the presence of scarcity. That only makes sense when there's scarcity -- and in digital goods, scarcity doesn't exist.

Dave Hornik has a wonderful post about Anderson's talk while Ross Mayfield is also discussing how he's come to realize that the economics of scarcity doesn't apply digitally. Now, if we stuck with the focus on "scarcity," then I should be upset that these two are basically repeating the "idea" I discussed back in April. Those who keep harping on the importance of "property" and love to say that you can "steal" content might even say that this idea was "stolen." That, obviously, is ridiculous. These are basic ideas that we have all realized is fundamental and a truth of economics. And, it's hardly a new idea (which is why my one quibble with Anderson's own post is his decision to call the idea of the economics of abundance a "radical attack"). Mayfield talks about those who helped him realize it, from Jerry Michalski to Howard Rheingold. In the comments to that post, Julian Bond brings up the ideas of Buckminster Fuller and and Alan Cooper. In my case, the inspiration came from many different people, including the teachings of Alan McAdams (my old mentor and professor) and the writings of Brian Arthur (who focused on "increasing marginal returns" rather than diminishing ones) and even back to Thomas Jefferson, who famously said:
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.

So, no, it's not a new idea at all -- and yet, many people still don't seem to want to understand it. They don't believe that the free market can function with a lack of scarcity. It's understandable why that could make some uncomfortable -- but, it's a fundamental misunderstanding based on this desire to force scarcity where there is none, just so economics can continue to be the study of scarcity. It's this inability to get rid of that scarcity thinking that's holding back a number of developments these days, and the more people who realize this and the more people talking about this, the better. And it is fitting with the theory of abundance. The more abundant this discussion is, the more likely people will grasp it. And, it's especially exciting that someone like Chris Anderson is pitching it, because of his ability to take complex economic ideas and make them easy to understand, while getting people to listen. Hopefully, this is just the beginning of a widespread discussion about this topic.

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  1. identicon
    StratDad, 27 Oct 2006 @ 7:14am

    Perhaps a middle ground?

    I have followed the development of Chris Anderson's book, as well as followed the open source software model. I'm no expert, but I think I get it.

    One of the confusing aspects of this discussion is the casual use of the word 'infinite'. Can I suggest a better term might be 'unlimited', where it means that the marginal cost of delivering a product has no significant bearing on the revenue model? Also, this draws on the mathematical concept of a limit, as something 'approaches' zero. Infinite leaves the sour taste of division by zero, or traveling at the speed of light.

    The benefit of seeing this as an 'approaches zero' problem is that we can see the progress of efficientcy in the market. The music industry changed as we progressed towards zero: first in phonographs, next in radio broadcast, and now in the Internet. I don't want to take the ownership rights away from the creators of content, but their strategy for monetizing the value of their creative output changes as the efficientcies of distribution change.

    Things in the music industry are especially hard to figure out because the cost of production is also dropping towards zero, thus removing barriers to entry. Supply is affected by both trends, but these trends are distinct.

    I listen to Pandora.com radio channels, and that influences the CDs I buy (then rip to my IPOD). I buy CDs because this extra cost is equivilent to a built-in 'backup service', and because I like styles of bands more than any particular track. But I digress...

    The software industry has been dealing with unlimited supply from the start. Open source doesn't change the marginal cost of production, but rather, challenges the price/revenue strategy used by software vendors. The real marginal costs are in support after installation, and that is the opportunity open source strategies use to generate revenue.

    Why would a software vendor invest in a development project to create intellectual property that competes with open source? I think this eventually will come down to an advantage in providing lower costs of support: economies of scale apply to support structures. Features built into sofware can, and do, facilitate lower support costs. The key is that in either case the supply of content is unlimited, but supply of support is not. The cost of production of support structures are not zero, so there are still barriers to entry.

    To sum up, the presence/absence of an economy of abundance is not something I see as a binary choice, or something inconsistent with macro economic theory. I think of it as a sub-field of macro economics that studies the effects of products that approach zero marginal costs.

    Is this the middle ground that we can all agree on?

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