| Cooking-pot
markets: an economic model for "free" resources on the Internet
What is value, or: Is the Internet really an economy? deutsche
Übersetzung
When 100 million people spend significant portions of their lives creating for, consuming from and collaborating in activities with people they don't know, they must be: 1. A new (even "digital") breed of human beings, altruistically untouched by the profit motive, who will lead the world into a new society where economics is, if not dead, totally new. 2. A slightly demented bunch of hobbyists with lots of spare time; infected with enthusiasm stemming from the novelty of the online environment, who will soon enough get bored and get back to (paid) work 3. Rather ordinary people who don't think they're gifting time and effort to a friendly new global community, but believe they get a return on their investment, as it were, and will keep working "for free" as long as their return keeps coming. For the 100 million or so population of the Internet, my pick is clearly the last. The Internet is not a new world where normal people are magically transformed by the keyboard in front of them into altruistic or otherwise unreasonable forms of behaviour. The Internet is certainly new, but it is a new medium of expression, not a new way of life. A large part of that expression is economic - i.e. the rational, self-interested behaviour of real-world "economic actors" translated into the forms of activity encouraged by, or unique to, the Internet. This is what I would call Internet economics - the model of economic activity as expressed by ordinary people in this new medium. To begin with, much of the
economic activity on the Net involves value but no money. Until a few years
ago, there was almost no commercial activity on the Internet. The free
resources of the Net greatly outweigh all commercial resources, especially
if one counts only purely on-line transactions (e.g. a bookseller like
Amazon makes money selling books, which requires the physical transportation
of goods). It is quite hard to put a price on the value of the Internet's
free resources, at least in part because they exist because they don't
have prices attached. They exist in a market of implicit transactions1.
Something for nothing? Linus Torvalds did not release Linux source code free of charge to the world as a lark, or because he was naive, but because it was a "natural decision within the community that [he] felt [he] wanted to be a part of"2. Any economic logic of this community - the Internet - has to be found somewhere in that "natural decision". It is found in whatever it was that motivated Torvalds, like so many others on the Net, to act as he did and produce without direct monetary payment. Of course, it is the motivation behind people's patterns of consumption and, what is more relevant in the case of Linux, production that forms the marrow of economics. Such motivation is usually expressed in terms of curves of supply and demand, measured by costs and prices in dollars and cents. However, the best portions of our lives usually do come without price tags on them - and of course value exists there. And the best part of life on the Internet is the abundance of goods and services - the range of online production and expression from web pages to real-time support forums, newsgroups and mailing lists - all available without price tags, "for free". But "free" is the wrong word: information, however free in terms of hard cash, is extremely valuable. So it makes sense to assume that the several million people on the Internet who publish matters of their interest on their home pages on the Web, and the several million who contribute to communities in the form of newsgroups and mailing-lists, and of course anyone who every writes free software, believe they're getting something out of it for themselves. They are clearly not getting cash; their "payment" might be the contributions from others that balance their own work, or something as intangible as the satisfaction of having their words read by millions around the world. Even those who have never studied economics have an idea of its basic principles: that prices rise with scarcity and fall in a glut, that they are settled when what consumers will pay matches what producers can charge. These principles obviously work, as can be seen in day-to-day life. But that's the "real world" of things you can drop on your toe. Do they work in a knowledge economy, where you frequently don't really know what the "thing" is that you're buying or selling, or precisely when you're doing it, or even whether you're buying - or selling? The short answer is Yes, they do, given Paul Samuelson's textbook definition of economics as the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people"3 which remains as valid now as ever. But notions of scarcity - identifying what is scarce - and value must reflect the realities of the knowledge economy, the perceptions of the economic actors themselves. Sticking to the well-known example of Linux : Linux could be (and was) copied indefinitely and widely at negligible costs; clearly the program itself was not scarce, and hence was of low relative value. The value may have been in the very fact that Linux was widely available and could be freely modified: indeed, Torvalds now says:
Unlike the markets of the "real world", where trade is denominated in some form of money, on the Net every trade of ideas and reputations is a direct, equal exchange, in forms derivative of barter. This means that not only are there two sides to every trade as far as the transaction of exchanging one thing for another goes - which also applies to trades involving money - there are also two points of view in any exchange, two conceptions of where the value lies. (In a monetary transaction, by definition, both parties see the value as fixed by the price.) In a barter exchange the value of nothing is absolute. Both parties to a barter have to provide something of value to the other; this something is not a universally or even widely accepted intermediary such as money. There can be no formal price-tags, as an evaluation must take place on the spot at the time of exchange. When you barter you are, in general, not likely to exchange your produce for another's in order to make a further exchange with that. Unlike the money you receive when you sell something - which you value only in its ability to be exchanged for yet another thing - in a barter transaction you normally yourself use, and obviously value, what you receive. When the contribution of each side to a barter is used directly by the other, it further blurs the distinction between buyer and seller. In the "real world" barter did not, of course, take place between buyer and seller but between two producer-consumers in one transaction. When I trade my grain for your chicken, there's no buyer or seller, although one of us may be hungrier than or have different tastes from the other. On the Internet, say in the Linux world, where it may seem at first that there's a clear buyer (such as the Times of India, the world's 6th largest English-language newspaper which runs its nationwide network on Linux) and an equally clear, if aggregate seller (the Linux developer community) there is, in fact, little such distinction. There is a flow of value from the newspaper (as users and evaluators of software) and another flow to the newspaper (the software itself). There is also a flow of value from the Linux community and to that community. As long as the corresponding value-flows balance each other, the system works fairly, even though there are no identifiable transactions. There is, here, the first glimpse of a process of give and take, by which people do lots of work on their creations which are distributed not for nothing, but in exchange for things of value. People "put it" to the Internet because they realise that they "take out" from it. Although the connection between giving and taking seems tenuous at best, it is in fact crucial. Because whatever resources there are on the Net for you to take out, without payment, were all put in by others without payment; the Net's resources that you consume were produced by others for similar reasons - in exchange for what they consumed, and so on. So the economy of the Net begins to look like a vast tribal cooking-pot, surging with production to match consumption, simply because everyone understands - instinctively, perhaps, or through experience - that trade need not occur in single transactions of barter, and that one product can be exchanged for millions at a time. The cooking-pot keeps boiling because people keep putting in things as they themselves, and others, take things out. Torvalds points out, "I get
the other informational products for free regardless of whether I do Linux
or not." True. But although nobody knows all the time whether your contribution
is exceeded by your consumption, everyone knows that if all the contributions
stopped together there'd be nothing for anyone: the fire would go out.
And that wouldn't be fun at all.
Cooking-pot markets If it occurred in brickspace, the cooking-pot model would probably not exist. People in our hypothetical tribe would have to add what they have into the pot with no guarantee that they're getting a fair exchange, which smacks of altruism. But on the Net, a cooking-pot market is far from altruistic, or it wouldn't work. This is thanks to the major cause for the erosion of value on the Internet - the problem of infinity4 . Because it takes as much effort to distribute one copy of an original creation as a million - and because the costs are distributed across millions of people - you never lose from letting your product free in the cooking-pot, as long as you are compensated for its creation. You are not giving away something for nothing. You are giving away a million copies of something, for at least one copy each of a million other things. Since those millions cost you nothing you lose nothing. Nor need there be a notional loss of potential earnings, because those million copies are not inherently valuable - the very fact of them being a million, and theoretically a billion or more - makes them worthless. Your effort is limited to creating one - the original - copy of your product. You are happy to receive something of value in exchange for that one creation. What a miracle, then, that you receive not one thing of value in exchange - of course there is no explicit act of exchange at all - but millions of unique goods made by others! True, you only receive "worthless" copies; but since you only need have one copy of each original product, every one of them can have value for you. It is this asymmetry unique to the infinitely reproducing Internet that makes the cooking-pot a viable economic model, which it would not be in the long run in any brickspace tribal commune. With a cooking-pot made of iron, what comes out is little more than what went in - albeit processed by fire - so a limited quantity must be shared by the entire community. This usually leads either to systems of private property and explicit barter exchanges, or to the much analysed "Tragedy of the Commons."5. The key here is the value placed on diversity6 [23], so that multiple copies of a single product add little value - marginal utility is near zero - but single copies of multiple products are, to a single user, of immense value. If a sufficient number of people put in free goods, the cooking pot clones them for everyone, so that everyone gets far more value than was put in. An explicit monetary transaction - a sale of a software product - is based on what is increasingly an economic fallacy: that each single copy of a product has marginal value. In contrast, the cooking-pot market rightly allocates resources on the basis of where consumers see value to be, in each distinct product, rather than in each individual copy. The cooking-pot model provides a rational explanation for people's motivations to produce and trade in goods and services, where a monetary incentive is lacking. It suggests that people do not only - or even largely - produce in order to improve their reputation, but as a more-than-fair payment for other goods - "ideas" - that they receive from the cooking-pot. The cooking-pot market is not barter, as it does not require individual transactions. It is based on the assumption that on the Net, you don't lose when you duplicate, so every contributor gets much more than a fair return in the form of combined contributions of others. Reputations, unlike ideas, have no inherent value; like money, they represent things of value, as proxies. Reputations are crucial to seed the cooking-pot and keep the fire lit, just as money is required to reduce the inefficiencies of pure barter markets. However, reputations require a calculus and technology for efficient working, just as money has its price-setting mechanisms today. The cooking-pot model shows
the possibility of immense value being generated through the continuous
interaction of people at a numbing speed, with an unprecedented flexibility
and aptitude towards intangible, ambiguously defined goods and services.
The cooking-pot market already exists, it is an image of what the Internet
has already evolved into, calmly and almost surreptitiously, over the past
couple of decades.
This paper was
written in December 1996 and is updated from a version published in First
Monday, Vol 3, Issue 3, March 1998.
Literaturangaben 1) Rishab Aiyer Ghosh, 1994. "The rise of an information barter economy", Electric Dreams, #37 (21 November) 2) This, and other quotes from Torvalds, are from e-mail dialogues held with the author since October 1996. A consolidated version is published as an interview in First Monday, Vol. 3 Issue 3, March 1998 3) Paul A. Samuelson and William D. Nordhaus, 1995. Economics. 15th ed. New York: McGraw-Hill. 4) Rishab Aiyer Ghosh, 1995. "The problem with infinity", Electric Dreams, #63 (19 June) 5) Garrett Hardin, 1968. "The Tragedy of the Commons," Science, Volume 162, pp. 1243-1248 6) Rishab
Aiyer Ghosh, 1995. "Trade
reborn through diversity", Electric Dreams, #65 (10 July)
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