That's why I included the example of the wheat and the pig - there is no time component there. It shows that there can be various levels of wealth even at the same point in time, and that wealth is not zero sum, i.e. it's not necessarily true that for person A to get more wealthy, person B has to become less wealthy. They can both become more (or less) wealthy).
How do you conclude that a good with unlimited supply (which is I suppose what you mean by 'no limit to scarcity') would lead to bubbles or economic breakdown? It just means that in theory in a system with perfect substitutes for these goods, the cost would gravitate towards production cost.
The whole point is that prosperity isn't measured relatively. (well you could, but it doesn't make much sense in most cases). Prosperity is quality of life. Would my life be better if my neighbor doesn't have money to take his daughter to a doctor but I do? Only if I was a sociopath, which the majority of us aren't. When the tide rises, all boats go up. And yes there is evidence that in the margin, our feeling of well-being increases when we are higher on the social ladder, but that's a separate issue; "prosperity" and "feeling of well-being" are related but not the same.
> How do you conclude that a good with unlimited supply (which is I suppose what you mean by 'no limit to scarcity') would lead to bubbles or economic breakdown?
If I can take an item of IP (a music download) and sell it indefinitely at fixed rate, and distribution costs are very low; what is the basis for pricing that item when it isn't linked to anything concrete in the physical world?
Could the attribution of money to virtual goods without any link to a physical resource lead to bubbles / economic breakdown, because there's no ceiling on the amount of wealth that can be generated from it?
> The whole point is that prosperity isn't measured relatively.
I'm (incorrectly) using 'prosperous nation' as a synonym of 'wealthy nation'.
"what is the basis for pricing that item when it isn't linked to anything concrete in the physical world?"
The same basis that is used to price physical goods: demand, or rather, the maximum a consumer is willing to pay. Supply and demand are not a pricing strategy, they are macro concepts that gravitate towards equilibrium.
If I am Apple and I sell iPods, how do I set its price? Not by looking at how many I can produce, but by looking at what people will pay.
You are confusing two things:
- limited supply: there are only a few items of something, and therefore they are valuable.
- substitution options: people want to pay for this song because it's the one they want to hear, not some recording of my neighbor playing his ukelele.
"Could the attribution of money to virtual goods without any link to a physical resource lead to bubbles / economic breakdown, because there's no ceiling on the amount of wealth that can be generated from it?"
No, although I'm not quite sure how to argue because I don't understand the assumptions leading to this question. An economic 'bubble' is, generalized, a sociological phenomenon where people ascribe an unrealistic value (as in, real value) to a good (the 'irrational exuberance'), leading to a bidding war fueled by the prospect that this value will continue to rise. Then at some point, it becomes clear that the good is overvalued, and the people who at that point own the goods are left hanging, much like musical chairs. If they borrowed to pay for the goods, they're double screwed because now they can't pay on their debts, the effects of which can then ripple through the economy. Bubbles don't come from too much wealth being concentrated in one hand.
> No, although I'm not quite sure how to argue because I don't understand the assumptions leading to this question. An economic 'bubble' is, generalized, a sociological phenomenon where people ascribe an unrealistic value (as in, real value) to a good (the 'irrational exuberance'), leading to a bidding war fueled by the prospect that this value will continue to rise. Then at some point, it becomes clear that the good is overvalued, and the people who at that point own the goods are left hanging, much like musical chairs. If they borrowed to pay for the goods, they're double screwed because now they can't pay on their debts, the effects of which can then ripple through the economy. Bubbles don't come from too much wealth being concentrated in one hand.
So if the maximum price a consumer is willing to pay for a virtual good increased through un-realistic lending over a period, that could create a bubble.
I suppose the part of the equation that's open to 'interpretation' is the amount of money people are prepared to pay when there is no physical counterpart or cost associated with a sale. It does seem (at least to me) that DRM tries to introduce artificial scarcity specifically to maximise that amount.
You're right - I was assuming that limited supply was the basis for pricing and, that not having a limited supply could upset the balance of economics.
DRM doesn't create artificial scarcity; DRM is an attempt at enforcing ownership rights, or contracts, depending on how you look at it. Producers want to maximize profit (just like producers of, say, bricks, or cars). To maximize that, they need to balance the highest price people with pay with lower prices that will entice more people to buy. For physical goods, a sale is a sale - somebody can't copy a car. But when somebody buys a song, and then copies it for his friends, that's a (potential) lost sale for the creator.
Artificial scarcity is when monopolies control the supply of a good to maximize prices (this is an example where pricing is influenced by supply). For example, the De Beers company for years controlled the supply of diamonds to keep prices high. Similarly, OPEC controls oil prices by throttling oil production. As you see, artificial scarcity is not connected to whether a good is physical or not. Even stronger, artificial scarcity is meaningless for digital goods, precisely because the marginal cost of production (how much does it cost to produce one extra item) approaches zero.
DRM controls the amount of IP that is available in the market, because without it - information can be copied freely. I would call this artificial scarcity - simply because it artificially makes a resource more scarce .. but perhaps here we have monopolies controlling the supply of a product simply to be able to price an item.
I would argue that that some consumers are at loggerheads with the prospect of paying for IP simply because the cost of production is so marginal (due to the fact that a copy can be made for no cost).
> due to the fact that a copy can be made for no cost
The second or later copies can be made for virtually nothing. The first copy is often very expensive to make. Think about Toy Story or the SMiLE album or Stephenson's books.
How do you conclude that a good with unlimited supply (which is I suppose what you mean by 'no limit to scarcity') would lead to bubbles or economic breakdown? It just means that in theory in a system with perfect substitutes for these goods, the cost would gravitate towards production cost.
The whole point is that prosperity isn't measured relatively. (well you could, but it doesn't make much sense in most cases). Prosperity is quality of life. Would my life be better if my neighbor doesn't have money to take his daughter to a doctor but I do? Only if I was a sociopath, which the majority of us aren't. When the tide rises, all boats go up. And yes there is evidence that in the margin, our feeling of well-being increases when we are higher on the social ladder, but that's a separate issue; "prosperity" and "feeling of well-being" are related but not the same.