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. icon
    Mike (profile), 27 Oct 2006 @ 11:43am

    Re: Music

    Since you want to pick on music, let's go there. Apparently, in your world view, if I want a band's music I should be entitled to it for free, as the "supply" is "infinite". (Never mind the costs it took to produce it, or the time and energy and talent it required, or that if no one pays for it they'll probably have to get a real job at Wal Mart.)

    This is wrong on many accounts, and I apologize if the statements I made implied this. But, to correct your assertions:

    1. No, you are not "entitled" to anything. The point is that the producer of the content needs to recognize that the competitive market is going to push the price towards free. No one is entitled to anything. I have NEVER supported infringing on content. I have always supported that the content producer recognize the natural market trends, however.

    2. I do not say "never mind" that the content cost money to produce. I am simply pointing to the factual reality that fixed costs do not factor into pricing. That's basic economics. Don't blame me for what economics says to be true.

    3. If they are good, and can create a business model to support them, they won't need to get a job at Wal-Mart. In the entertainment business, you need to build attention. The point of all of this is that giving away your music is the best way to get attention and to build up alternative business models.

    But to continue, if I feel bad about being a freeloader, I can go one of their concerts when they come around every five years or so, or buy a CD, even though I have an iPod and don't want a CD, or I can buy a t-shirt or poster I won't wear or that I don't really want on my wall. And if I don't feel bad, well, guess I get to spend my money on beer. Or....

    Again, you misinterpret. It's not about being a freeloader. It's about the musicians deciding it gives them more opportunities to make money giving away their content for free -- especially as the competitive market goes there. So, it has nothing to do with freeloading. And, I've given plenty of other examples that have nothing to do with concerts or posters. There's a ton of possibilities, including things like sponsorships and fan club access. Just because *YOU* can't think of business models doesn't mean they don't exist.

    Nope, they produced something of value, I bought it.

    Good for you. I have never said there's anything wrong with that. All I'm saying is that over time the economics are clear that they'll be better off giving that away for free. Then, you'll be even better off.

    And no, you misinterpreted what I said, I don't want a CD, I want Aimee Mann's new song; I don't want a pile of paper, I want David Weber's latest novel, I don't want a DVD, I want to see Serenity.

    I know you want the content, but the content is infinite. Infinite supply is FUNDAMENTALLY something that will eventually have a price at zero. But that doesn't mean there can't be a business model around it. I'm not saying you don't want the content. In fact, I am very specifically saying you WANT the content. That's why the content is the *promotional* material. Aimee Mann's new song is the promotional material for the CD. David Weber's writing is the *promotional* material for the physical book.

    Neither you nor I pay for containers, because, in and of themselves they have no value. The only thing of value in those transactions is the content: the words, the music, the movie.

    This is just bad economics. The containers are what have marginal cost over greater than zero. They're what you're paying for. The smart content creators, however, have figured out how to bundle the two.

    Fundamentally, I fail to see what's wrong with the current system. Hundreds of thousands of people produce content on spec. We judge those finished products on their merits, and if they have value to us, pay a miniscule fraction of their costs.

    There's nothing "wrong" with the current system. It just won't last. That's the nature of economics. Abundance increases supply. Supply pushes price down. Infinite supply means price will go to zero. It's not saying the system is bad now. It's just saying it won't last. It's fundamentally how the economy has always worked.

    All of your other links are, to my mind, mostly pie-in-the-sky models attempting to complicate the system by introducing contracts or dozens of other indirect transactions and mechanisms... all with the ultimate aim of getting us back to where we started.

    You again miss the point. I am not saying that any of those models is right. But that there will be many such models that come into existence, because they have to.

    A plentiful supply of content at (mostly) reasonable prices.

    Great. Except that the supply is infinite and your basic economics tells you that's not sustainable without artificial barriers.

    Look, you have to understand, I'm not making a moral judgment here. I'm just saying that the economics are obvious and the trends are clear, and what we have now is fundamentally unsustainable. What will happen is that, increasingly, new upstarts will recognize that they can make more money giving away their content for free... and that will make it harder and harder for those who want to keep charging. You may like it, but they'll be in a competitive situation where it won't be possible.

    I'm not saying it's good or bad. It's what it is.

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