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Internet Economics

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Arnold Kling – who by the way, looks exactly like an “Arnold Kling” – says many of us misunderstand the economics of the Internet:

    all interpersonal transactions can be sorted into four relational models.

    Communal Sharing

    Authority Ranking

    Equality Matching

    Market Pricing

    In a Communal Sharing transaction, such as a family dinner, every member of the relationship is entitled to share in what is available.

    In an Authority Ranking transaction, such as a decision made in a traditional corporation, there is a linear hierarchy, with people lower in the hierarchy deferring to those who are higher up.

    In an Equality Matching transaction, such as taking turns going through a four-way stop, people operate according to an intuitive sense of balance and fairness.

    In a Market Pricing transaction, such as buying a used car, people make decisions on the basis of calculating costs and benefits.

    ….The archetypical idiotarian demagogue was Karl Marx. Marx did not portray capitalism as an impersonal system of Market Pricing. Instead, he viewed it as a mechanism for Authoritarian Ranking, in which the capitalist class exploits the working class. The alternative, naturally, was Communal Sharing: from each according to his abilities, to each according to his needs.

    The Internet has encouraged a great deal of idiotarian demagoguery. Net-heads complain about “Big Media” which supposedly controls “content,” keeping it away from the “commons.” Once again, transactions that are based on Market Pricing are re-interpreted as Authority Ranking that detracts from Communal Sharing.

    In contrast, I believe that the Internet is going to create new Market Pricing institutions and intermediaries in the realms of journalism, music, and other cultural work. Moreover, my guess is that these institutions will not resemble today’s publishers, and their revenue models may be nothing that today’s industry incumbents would recognize. I believe in the digital revolution, but I distance myself from those who see this revolution as a conflict between Authoritarian Ranking and Communal Sharing. [Tech Central Station]

I’m glad to hear this because I am certainly tired of working for free.

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About Eric Olsen