Friday, May 16, 2008

Austrians want to be FREE yo

wow - I must be pretty stirred to actually write a blog post again, but here it goes.

I'd call myself an Austrian-leaning student of economics. I got a minor in ECON, but that's pretty much just enough to know that I really don't know very much at all. I hit up RSS feeds from the likes of The Mises Institute to keep myself in Austrian shape.

I've also been a big fan of The Long Tail, both the book and the blog. and Chris Anderson is on the advisory board of my employer, so I respect and subscribe to pretty much all of his ideas.

so when a friend shared a Mises article discussing Anderson's upcoming book - FREE with me, my interest was most assuredly sparked. but as I read, I was disappointed to find Fernando dismissing, whole-sale, Chris's entire analysis.

I actually agree with Fernando's closing thought - "With time rightly identified as a scarce resource, economic theory is needed to understand the interchange process." and I'd be willing to bet Chris agrees as well, since Chris's article plainly states: "There is, presumably, a limited supply of reputation and attention [i.e. - time] in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later."

so really, I don't think Chris's latest thesis is contradictory to the "laws" of economics, as Fernando apparently perceives. my conclusion would rather be that new and innovative business models will live and die by how well they apply of the laws of economics to actually-scarce goods in a new "freeconomic" culture.

I think we just have two different-but-overlapping spheres of study - economics and business. Fernando cites Buchanan's explanation of why marginal costs don't determine prices - with which I agree. having not read the cited book, I poked thru it with Google Books for "marginal cost" and came onto a few interesting blurbs:

Instead he [welfare economists] would introduce, as Knight did, the possibility that hunters, generally, may have some non-pecuniary or noneconomic arguments in their utility functions.

emphasis mine. so Buchanan points out that price-marginal cost scenarios tend to rely on non-pecuniary circumstances. does he further go on to refute that those kinds of circumstances occur? nope, not really - it seems he merely elaborates on what kind of analysis is produced by their inclusion.

In resorting to noneconomic arguments in the utility function ... the economist has shifted the whole analysis from a predictive to a nonpredictive and purely logical theory.

I don't think Chris would have any qualms about admitting his idea is a "purely logical theory" rather than a "predictive economic theory", and that's how I look at it as well.

and from the perspective of an entrepreneur hoping to enter the market, do I really care which it is? isn't it enough to observe that prices are converging to marginal cost, that indeed I am able to buy marginal units of storage and process capacity, and that technological advance and competition are driving each other in a cycle?

all this stuff is pretty new - we're not re-hashing scenarios that have been recorded in dusty economics tomes for decades. sure there have always been such things as cross-subsidies and non-pecuniary psychic revenue driving free economies; Chris's theory should at least be respected because it indicates these underlying economic forces emerging in a noticeable change of our culture.

this theory is like an elephant, and we're all a bunch of blind folks getting a feel for different parts of it. some of us might be observing only this or that piece of it and get the wrong impression of what it really is, but it's certainly something - we shouldn't touch a single piece of it and dismiss it altogether.

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