Ramblings

by Mike Masnick


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Infinity Is Your Friend In Economics

from the use-it-wisely dept

Continuing our ongoing series looking at economics when scarcity is removed from markets, I wanted to go back to the early discussion on the importance of understanding zero in making sense of markets where scarcity is removed. That post discussed how many who believe economics requires scarcity do so because they believe economic equations break down when a zero is put into them. That is, they see a zero in the "marginal cost = price" statement and they say that the system must be broken, because you can't have a market when the price is zero. However, that's wrong. Zero works just fine, but you have to understand why.

The key actually isn't in zero, but zero's flip side: infinity. Just like many early societies had tremendous difficulty in coming to understand the concept of zero, the concept of infinity was incredibly difficult to grasp. Just as with zero, certain aspects of mathematics and physics stalled out without an understanding of infinity -- and it would be a shame if the same happens for economics. However, just as with zero, many who look at the economics get scared off by infinity and assume it must break otherwise proven concepts. Throw an infinity into the supply of a good and the supply/demand curve is going to toss out a price of zero (sounds familiar, right?). Again, the first assumption is to assume the system is broken and to look for ways to artificially limit supply.

However, the mistake here is to look at the market in a manner that is way too simplified. Markets aren't just dynamic things that constantly change, but they also impact other markets. Any good that is a component of another good may be a finished good for the seller, but for the buyer it's a resource that has a cost. The more costly that resource is, the more expensive it is to make that other good. The impact flows throughout the economy. If the inputs get cheaper, that makes the finished goods cheaper, which open up more opportunities for greater economic development. That means that even if you have an infinite good in one market, not all the markets it touches on are also infinite. However, the infinite good suddenly becomes a really useful and cheap resource in all those other markets.

So the trick to embracing infinite goods isn't in limiting the infinite nature of them, but in rethinking how you view them. Instead of looking at them as goods to sell, look at them as inputs into something else. In other words, rather than thinking of them as a product the market is pressuring you to price at $0, recognize they're an infinite resource that is available for you to use freely in other products and markets. When looked at that way, the infinite nature of the goods is no longer a problem, but a tremendous resource to be exploited. It almost becomes difficult to believe that people would actively try to limit an infinitely exploitable resource, but they do so because they don't understand infinity and don't look at the good as a resource.


If you're looking to catch up on the posts in the series, I've listed them out below:

Economics Of Abundance Getting Some Well Deserved Attention
The Importance Of Zero In Destroying The Scarcity Myth Of Economics
The Economics Of Abundance Is Not A Moral Issue
A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
Why The Lack Of Scarcity In Economics Is Getting More Important Now
History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers

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  1. identicon
    DL, 15 Mar 2007 @ 6:41pm

    Sure...

    I suppose this whole thread is an elaborate treatise on why it's OK to pirate various forms of media.

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