Towards an Economy of Abundance

In A World of Goodies, I tried to explore the implications of creating a currency based not upon scarcity but on abundance.  The concepts in that piece were only half-baked and I’d like to bake them a bit more here.  I’m hoping you will help.

The first task is to make the sharp distinction between the economics of scarcity and the economics of abundance.  Books could be written on the topic, but I’ll sketch what I mean and hope you get the basic idea.  All economic theories you are likely to have heard of are based on the assumption that we live in a world of scarce resources.  Commodities markets allocate those resources based on price equilibrium, but in the end the market does not actually create any new value.  The supply of oil in the world, for instance, is already set, and it’s limited.  As we approach that limit it becomes scarce, and the price (i.e. marginal value) goes up.  More fundamentally, with a limited resource, my acquisition of it precludes you (or anyone else) from simultaneously having it.  From a value perspective, it’s a zero-sum game: if I win, then you must lose.

If we assume there are resources that are not limited, but rather are abundant, then an amazing shift occurs.  Such resources cannot become scarce (by definition) and thus the price/value of those resources does not rise the more they are “consumed”.  In fact, it’s just the opposite.  The value of an abundant resource increases the more it is consumed.  This is the so-called network effect.  The very first telephone was worthless and it only became worth something when it was connected to the second telephone.  The more telephones were added to the network, the more valuable each pre-existing telephone became!

You will probably be objecting right now that there’s a limit to how many telephones can be created since the raw materials are finite.  And you will probably also note that the added value in going from two phones to three phones is smaller than going from zero to one; in other words there are diminishing returns.  Both are true statements, but miss the crucial point that if the universe is more abundant than it is scarce, then the fundamental rational economic motivator goes from competition and acquisition to cooperation and giving.  Let me explain by example.

I was scheduled to meet with Stephen recently and as the meeting time approached I realized that Kim and Jose (whom I’d been meeting with just prior) would benefit from meeting Stephen and joining the conversation Stephen and I were about to have.  I also felt that Stephen and I would benefit from the inclusion of Kim and Jose in our conversation, so I invited them along.  At the close of our four-way conversation Stephen took a book from his shelf and gave it to me as a gift.  He said that, based on our conversation, I would probably get a lot of value from it.  As I prepared to stuff the book into my backpack, I noticed Kim and Jose straining to get a glimpse of the title, and I lamented to myself that there was only one copy available when it was clear that all three of us would benefit from it if we could.  So I took a picture of the cover with my iPhone and emailed it to Kim and Jose so that they could locate a copy and enjoy the book at the same time as I did.  In doing so, I also happened to connect Kim, Jose and Stephen via email.  Prior to that they only way they could get in touch with each other was to go through me.

One great thing about information is that the cost to replicate it asymptotically approaches zero, whereas the cost to replicate physical materials approaches some value greater than zero.  Just look at what it would have cost to get a physical copy of the book for Kim and Jose vs the 30 seconds of my time that it cost to snap the photo and email it.

But more importantly, information has this other crazy aspect to it: giving away information (unlike physical objects) does not diminish its value; more often than not, giving away information increases the value of that information.  There are exceptions to this rule, of course, but on average this is true.  (At the least, this is an empirical assertion that can be falsified, and you are invited to explore whether it holds true in your experience or not).

The question that I’m trying to answer here is what would it look like for a currency to be based, not on a scarce resource, like physical materials, but on an abundant resource like information?

It’s hard for us to even conceptualize an economy of abundance because our brains evolved in a time of relative scarcity.  Furthermore our thought patterns, beliefs and models of the universe have been colored by scarcity through the lens of culture.  Science is not immune to this bias either, as I’ve suggested before on this blog.

So to help with the mind-shift necessary to explore the world of abundance, I’ll ask you to observe that the constant injection of energy from the Sun into the Earth’s biosphere eventually gets converted, at least partially, into value that drives our real-world, present-day economy.  That oil came from fossils of living organisms, grown and nurtured by the Sun.  I will leave it for another time to argue for why value-creation is pervasive in the universe, and not just a function of where you draw the system boundary (as sunshine hypothesis implies).  But suffice it to say, if you grant me that value is created by the Sun and converted into a form that drives our economy, then we can proceed.

By the sunlight hypothesis, it should follow that, on the time scales that matter to us humans, there is at least one truly abundant resource: energy from the Sun.  If you are worried about a billion years hence when sunlight runs out, then I doubt we will ever see eye to eye anyway….

It also follows from the sunlight hypothesis, and the arguments I’ve sketched above, that the information economy that is so widely talked about, truly is an economy of abundance.  And as more and more human activity is devoted to the creation, spreading and sharing of information, the more our “real” economy becomes based on abundance.

It may be true that we will never move entirely away from material needs and scarcity economics.  But regardless, as a percentage of the total real economy, we are on a trajectory that suggests that the vast majority of economic value will be backed by abundant resources rather than scarce resources.

In other words, if we were to imagine a currency of abundance, we’d also have to re-imagine what what happens when the “federal reserve” for that currency grows all by itself (or if you prefer, as the sunlight pours in).  In such a world, in order for the currency to represent the true value in the economy, we’d be forced to print new currency on an accelerating basis just to keep up.  A currency of abundance is a very different beast than the currencies of scarcity we know of today, which is to say all of them.  Instead of runaway inflation being a bad thing (as it is with currencies of scarcity), it’s actually a great thing, something to be desired, and something worth striving for.

I know that last sentence is going to lose a lot of people.  And I understand why, because it is hard for me to fathom the implications too.  It means redefining just about everything, including what it means to be human.  It begs the question of what is the true nature of “value”?

One thing I’ve gleaned about an economy of abundance is that it begins with the gift.  In particular, it replaces the basic transaction of a scarce world — I give you something if and only if you give me something in return of equal or greater value to me — with the unilateral action in which I give you something, and expect absolutely nothing in return.

There’s so much more to say here, but I will leave it at this for now.  I had choices about what information I would reveal to you when I told you the story of the book.  One of those choices was whether or not to reveal the exact identity of the individuals in the story.  Another was to reveal the name of the book that Stephen gave me.  It would have cost me a lot less to share both pieces of information than the benefit you would receive by knowing them.  That is, the act of knowledge transfer could be viewed as a gift to you that I chose not to give.  As an important aside, that very same act would have benefited Stephen, Jose and Kim as well.  And it would have benefited me.  And yet, I  didn’t.  Why not?

There’s lots more about that meeting and the events leading up to it that would benefit you and many other people to know.  Time is valuable precisely because it’s scarce.  In the end, it may be the only scarce resource we humans depend on.  I could spend all of my time giving you gifts of information and thus have no time left for myself.

Just before the meeting, Jose and I were at a bookstore and he gave me a book (not the same one as Stephen gave me though).  It was at least the fourth time he’d suggested I read it, and since I hadn’t yet (despite my stated and real desire to do so), he bought it for me right then and there.  And because I trust Jose, I bought a copy right then for each of Stephen and Kim.  Here’s the book.

  • Alex Golubev

    Rafe, there was an excellent (but long) article in Wired on the $0 being the future of business. Here are some quotes:

    “When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper)”

    “The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.

    There is, presumably, a limited supply of reputation and attention 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. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today” http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all

    So there are your two new currencies – attention and expertise. Now what are the implications for the fiat currency economy during the transition? I think it greatly depends on what the consumers actually realize and hold of value. How many generations of iPhone and iPads can one go through not realizing what artificial scarcity is? We’re not all “on the same page” and if anything the game’s about convincing people how they ought to spend/waste their mindshare/time (most important scarcity). So now lets 1984 this thing – he who controls the present controls the past. He who controls the past controls the future.

  • John L

    Nice. I read “Gift” many years ago and loved the stories of Polynesian cultures that define individual worth by how much one can give away rather than how much one can accumulate.

  • kevindick

    This is a good argument for Scott Sumner’s NGDP targeting regime. It makes sure the money supply responds fluidly to innovation. It also argues for setting the target growth rater higher.

    Also, I assume you were simplifying for the general audience, but economists well understand the distinction between scarcity and abundance. There’s been all sorts of work on increasing returns to scale and network effects.

    More interestingly, economists have ways of examining situations where some inputs are scarce and others are either non-rivalrous or have increasing returns to scale. What’s funny is that sometimes the scarce inputs become even more valuable because the “non scarce” ones allow you to do more with less.

    • Rafe Furst

      The real head-scratched for me is that I now hypothesize that all currency is formally based in scarcity and cannot capture increasing returns properly. Something to do with symbols representing things (nouns) while increasing returns is about process (verbs).

      If you know of any theory of increasing returns that handles currency differently/better than the standard economic assumption, I’d love to see it.

      • kevinsdick

        I think you're confused about a formal definition of abundant. If you're saying an abundant good has zero cost, then I'd like to see such a good. Everything I can think of requires some energy and some attention. Both are scarce. So you need to achieve efficient allocations. Ergo, currency of some type.

        If you think an abundant good is non-rivalrous or has increasing returns to scale, well it still has some cost and you need money to allocate it.

        • rafefurst

          For the purposes of the discussion, I'm defining abundance as zero cost. The observation being that for all practical purposes, the energy from the sun is “unlimited”. To harness it for our purposes requires scarce resources (like attention). But the dominating factor in “goods of abundance” is the abundant part. Thus I want to explore the fictitious (but illuminating) model in which abundant resources have zero cost and increasing returns to scale. In such a world, I suggest that abundance cannot adequately be represented by currency/symbols; abundance is a process.

          • kevinsdick

            Well, increasing returns to scale and zero cost are very different things. You are right that economics doesn't deal with zero cost goods. But in the real world, you can't reach zero cost and this is pretty much the most important characteristic of society. There's a cost to everything.

            So I think you are fundamentally wrong. The abundance part is not the dominating factor. The scarce part is. It's like saying that we should evaluate a universe where entropy doesn't increase to evaluate some aspect of our universe.

            • Rafe Furst

              I know you think I'm wrong, but let's suppose I'm right — that there are “regimes” in state space where abundance is the dominating factor. What does the math say about a currency of abundance.rafe?

              • kevinsdick

                OK, but the answer isn't very satisfying. Any individual with a monotonically increasing utility of the zero cost good will consume an infinite amount of it. Moreover, consumption of the costless good will crowd out the consumption of any good with positive cost.

                This is the problem with your conjecture. It creates a singularity.

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  • Searching Google for “economics of abundance,” I found this entry. In fact, I have just written a book on the economics of abundance and it is coming out now (see http://www.gowerpublishing.com/isbn/9780566089404).
    I'd like to point out that “abundant” does NOT mean zero cost – it simply means that there's more of something than is actually needed. This can very much apply to material goods and not just to information. The problem with our economy is that it runs profitably only on scarce resources, and therefore there is a strong incentive to make resources scarce, either by manipulating supply or demand. I argue in my book that “scarcity-generating institutions” do just this, and in the process undermine freedom, equity, and sustainability. To achieve those goals, an economic system based on valuing abundance is needed. In this comment, I can hardly lay out the entire argument, but you can get the book for that!

    • Rafe Furst

      I get your point, however in practice material things are bound by the number of atoms that exist on planet Earth (or which can be created safely in the future). This sets up an inductive loop that enables scarcity-generating institutions to play their trade. By contrast, those same sorts of institutions are getting pummeled when it comes to information (c.f. RIAA).

      Thus, in reality, I still contend that the critical difference is between something that I give you and it subtracts form what I have (i.e. material items) and something that I give you and it does not subtract from what I have (i.e. information) and often times it multiplies the value for all (i.e. network effect).

      • Alex Golubev

        I tend to side with Wolfgang. Theoretically information, particularly the electronic kind cannot be held back for long. Legal boundaries cannot compete with the speed of light. However there are physical folks on the innovative side of things living and competing in a largely scarce good world. Apple bought and shut down Lala after all. As the prezi Max linked to seems to suggest- until we create “designer” currencies to more accurately reflect the properties of the wealth we are trying to create, we'll be swimming against a very strong current:
        http://prezi.com/xmzld_-wayho/new-economy-new-w
        and video at the bottom of: http://newcurrencyfrontiers.com/

        • Rafe Furst

          Not sure there is a “side” here you are taking, but regardless…

          My current view is that creating currency of any form, designer or otherwise, creates artificial scarcity. The very act of symbolizing value takes something dynamic and makes it static. It's akin to the difference between kinetic energy and potential energy. Value in its potential form (currency) it is always scarce. In it's kinetic form (information flow), it can can grow, practically speaking, unbounded. Economists understand this to some extent but not fully. They talk about liquidity and velocity, but really only measure or focus on static and average measures of currency/capital.

          • Alex Golubev

            Rafe, I think we already symbolize everything in one currency or another, while unfortunately ultimately HAVING to transact in a single currency. We give up a lot of power and sustainability of our own lives,when we give all the currency rule making power to the banks and gov't. Intellectual property laws can and do severely hamper key information flows. So I guess i'm arguing that currency reform is a necessary to break out from capitalism to information economy. (I don't really want to get off on a tangent that the current fiat currency crisis is quickly getting us there ONE WAY OR ANOTHER, but I'm beginning to think that it's not only necessary but also inevitable.)

            The prezi (link below) suggests that college grades, college degrees, drivers licenses all “map out the flow” of goods, services, trust, participation etc… So currency is a “form of writing of flows”. Every currency is governed by rules:
            1. Who can issue the currency
            2. Under what circumstances
            3. How it is transacted
            4. How balances are calculated
            5. How it is retired
            Metacurrency aims at mapping out the network of all currencies and allowing for hyperlink type currency relationships. My interpretation is that it is basically an aim to create an open system of accounts and quantification of anything one could want to quantify and incentivize. It's practically begging to be mashed up with facebook. Visualize iFed app. :) You've floated a handful of new funding ideas yourself and i think metacurrency is a bold attempt at democratizing currency creation.

            http://prezi.com/ijiokjbrolwo/metacurrency-intr

            • Rafe Furst

              It's interesting, but still does not obviate the point, which is all
              symbols/currencies are static representations. Abundance is dynamic though
              (kinetic energy not potential energy). Representing abundance via currency
              automatically makes it artificially scarce.

              • alexgolubev

                all symbols are static? Aren't hyperlinks full of potential energy? I'd argue that there's nothing static about language. Not static in the sense that all symbols are black/white to any and all observers. I think the opposite is more true, where meaning is in the eye of the beholder. in fact we'll actually create abundance by forcing people to interact with their trust circles instead of “IN GOD WE TRUST”. For now it's REPRESENTED in twitter followers, facebook updates, sending each other links, etc… but it's all very similar to ebay trust points. We are symbolic creatures (it seems like you should be telling me this :)), so i think the aim is to empower the individual to find their own meaning. Zeitgeist made it abundantly clear that the message of “i shall not” got flipped to “thou shall not” and that is symbolic of the potential energy of (miss)interpretation of any message.

              • Rafe Furst

                Yes, I claim that all symbols are static. They can represent value in
                its potential form only. The dynamic form is a process and is
                therefore non-representable by definition. You gotta run the program
                to find out what it does.

                “In the beginning” potential and dynamic value were closer to one
                another and thus it was not such a big mistake to conflate the two.
                But as time goes on, dynamic forms of value become more complex and
                variegated.

                Which is why currency/capital becomes less representative of the true
                economy, and less useful/valuable. The gap between static/
                representative/potential value (i.e. currency) into dynamic forms
                (e.g. trust) widens by the day.

              • alexgolubev

                Excellent! I see what you mean! We cannot create a universal perfect eternal symbolic system. It will be misinterpreted and/or gamed eventually. The printing press was magic at first, but trash “at last”. McLuhan's concept of technology “flipping” to a complete opposite of what it intends to provide.

                It seems like new levels of complexity arise and then it is always up to the individual to discover them… or try to save falling Trinity :)

                It also seems undeniable that we ARE quantifying more and more behavior. What does this lead to? Increasing complexity, which eventually leads to complete disconnect? I think it would make for a killer blog post, Rafe!

              • alexgolubev

                This may capture it all.

                “Sorry, no time to think about the edge question”:
                http://www.edge.org/q2010/q10_2.html#church

      • Hi Rafe,
        You are of course correct in pointing out that there is a difference between such resources as information where nobody loses knowledge or information when passing it along, and material goods where somebody does give up something in giving it to somebody else (I call the former contributory resources in my book, while the latter are conventionally called rivalrous; there are also some cases where a resource use doesn't make a difference, which I call neutral – such as breathing air). The way we can most equitably, sustainably and democratically deal with all these different kinds of resource use consequently differ substantially. In order to generate abundance in areas such as transport, housing, food provision, health care, water and power provision and so on, we thus have to generate innovative ideas.
        For a somewhat longer explanation you can now find on the web (free, rather than in my book for which you need to pay), check out: http://shareable.net/blog/how-to-create-abundan…. The shareable site as a whole provides a lot of ideas about how to make lots of things more abundant by sharing them.

  • Harry te Riele

    Hi Rave,
    I feel alignment with our own project: http://www.dandelionproject.eu.
    It contains an essay on the same topic and a sketch for a semantic webtool connecting promising niche-developments worldwide.
    Thanks
    Harry te Riele
    Netherlands

  • Michael Labhard

    I believe you slightly misunderstand abundance.  Telephones did not become valuable as they became abundant, they became valuable as their utility became scarce because they were all connected to a single network.  We see this effect moderated as there become more networks through the development of cellular phones.

    Abundance is a state in which the resource is available at no cost to the consumer.  The air we breath is a good example.  Economics does not apply.  It is there for the taking in whatever amounts we wish.  There can be no currency of abundance because currency is meaningless with respect to an abundant resource.

    The mistake that many make is in thinking that our current economies of scarcity and abundance are mutually exclusive.  In fact, abundance is a state which includes economies of scarcity, just as we have abundant air while also having scarce water.  If we choose we may make whatever we like abundant to ourselves, and selectively leave the rest to the economies of scarcity.  I would choose to see basic food, water, shelter, personal security and healthcare to be made abundant, while leaving all entertainment, travel, employment, education, recreation and all other personal, specialized activities to the economies of scarcity.  But anything may be moved from the economies of scarcity to a state of abundance through the application of our creative talents.

    • Rafe Furst

      Michael, thanks for your comment.  I’m intrigued by your statement “Telephones… became valuable as their utility became scarce because they were all connected to a single network.”  This flies in the face the standard explanation which is that being connected in a single network creates a network effect and increasing returns to scale.

      I agree with you though about economies of abundance and economies of scarcity not being mutually exclusive.  I believe that we live in a world of both, but it is become more abundant because of the dynamics of exponentially increasing possibility.

      I’ll post something soon on abundance/scarcity that is more detailed, thanks for nudging me to do so.