Bitcoin Box

A magazine dedicated to all things Bitcoin


Bitcoin in a Post-Scarcity World

author: James Stephenson
published: 2011-05-03 02:32:31 UTC

The price of a particular good or service is governed by supply and demand. The concept is a very simple one. If many people want to buy a limited good or service, then the people that are willing to pay more for it will drive the price up. Consequently, if there is a huge supply of a good or service compared to the number of people that want to buy it, then whoever offers that good or service at the cheapest price will drive the price down.

An interesting effect of the principle of supply and demand is that even if the demand is a very large number, if the supply far outstrips the demand the price goes down. If the supply is practically infinite, then the price drops to effectively zero (unless the demand is also infinite). One of my favorite examples of that concept comes from the novel "The Moon is a Harsh Mistress" by Robert A Heinlein. In the book, a lunar resident visiting Earth is struck by the phase "free as air". Of course, to Earthlings such as ourselves, air is effectively free. I have never paid a penny for the air I am breathing and hopefully I never will (although if we keep mucking it up, the supply of good breathing air might be significantly reduced). The amount of air in the Earth's atmosphere so far exceeds the demand that no corporation or individual has figured out how to meter and charge you for the air you breath, even though it is a commodity that every single person has to use. But to the fictional character of Heinlein's novel, air is a precious and valuable commodity that is fiercely traded and conserved. To him the concept of free air is as foreign as the concept of free cars or free electricity would be to us. In fact, one of the main themes of the the novel is the maxim of "There ain't no such thing as a free lunch." Interestingly enough, that saying is a double negative.

As we have already demonstrated, if there is a infinitly large supply of a good or service, then the cost becomes effectively zero, or at least close to zero. In recent years we have seen the effects of this phenomenon in some areas of society, particularly the areas related to information technology. One can look at old magazines from the 1980's and find advertisements for ten megabyte hard disks for the price of 10,000 US Dollars. Or in other words, digital storage was so scarce that it cost around $1000 per megabyte. With advances in technology, the supply of digital storage has gone up rapidly over time to the point that at the time of writing I could buy a three terabyte hard disk for $140. That is a cost of around one half of one percent of a penny per megabyte of storage. That isn't even adjusting for inflation. The cost of digital storage is not free, but it is very very cheap. So cheap that you can easily get a few gigabytes of online storage for free. This concept is known as post scarcity economics, and we are seeing it creep into more elements of are daily lives. Sometimes the presence of post scarcity creates disruptions, as with filesharing. If a system is built around the assumption that a particular thing will be scarce, then it suddenly becoming non-scarce is going to cause problems for that system. It is hard to predict how common and widespread the phenomenon of post-scarcity will become or what aspects of our lives and our society it will effect, so I propose we do a thought experiment.

For the purposes of this thought experiment, let us assume that a hypothetical future society has reached a point where the effects of post-scarcity economics reach nearly every aspect of life. Some technological advance has provided mankind with the ability to provide for the needs of all individuals without cost, and nearly every want as well. It does not matter, for the purposes of the experiment, what the technological advances are that make this possible. Perhaps 3d printing and advances in robotics have eliminated scarcity. Maybe everybody inhabits virtual reality worlds where their every whim can be simulated. The important thing is that the peoples of this thought experiment no longer need money to guarantee their continued and comfortable existence. It is probably better to leave the specifics to the authors of science fiction. The means are not important to the thought experiment, only the end.

If something has no scarcity, if it is infinitely reproducible and infinitely available, then it is impossible to assign it a monetary value other than zero. That doesn't mean it is worthless, it just can't be assigned a value. That means that currency can't be used for those things. The question then becomes, are there any goods or services that might retain scarcity? If we assume that Bitcoin still exists in our thought experiment, then bitcoins would be an example of something that retains scarcity no matter how good technology gets at eliminating scarcity. But if Bitcoin is the only thing that retains scarcity, it does little good. You still wouldn't have anything to buy with your Bitcoin. The other things that would retain scarcity are originality, people's time. Even if you were able to get a copy of any object or piece of artwork for free, you still would not be able to get a product that had not been invented yet, or buy a piece of art that had not been created.

If anyone could have any product for nothing or next to nothing, one obvious market would be for novel or customized goods. Today, having something like a Rolex is a mark of status. But if everyone had the ability to get a Rolex for free, it would no longer be so. What could conceivably be a mark of status would be to have a famous artist design a customized watch just for you. Of course, anybody else would have the ability to copy it. But if the buyer were to make it public knowledge that they were the one to commission the piece, then conceivably they could still use that watch as a mark of status. Creative abilities and expertise would most likely still be scarce in a post-scarcity future, and therefore they would still be tradable for a currency such as Bitcoin. But there is a distinction that needs to be made. The valuable thing that a creative person would have would be their ability, not the products of their ability. Once something is produced in a post-scarcity world, it can be copied and used by anyone. We can already see this with things like BitTorrent and the filesharing phenomenon.

Let us say that Alice has written a novel. She could just use any of almost countless images as her cover art. But Alice has invested a lot of time and effort into this novel. She has become emotionally invested in it, and she wants it to have cover art that was specifically created to represent the characters and the plot that she wove into existence. The only problem is that she isn't exactly a great artist. So she commissions Bob to read her story and create a cover specifically tailored to the novel. But if Alice's novel can be infinitely copied at no cost, how does she make money from the story she just spent money and time to produce? First of all, keep in mind that many artists (probably the majority of them) don't make art primarily to make money, but to do something that they love. But that does not mean that just about every artist would love to see some money come their way for the project that they have spent weeks if not months or years on.

There are a few ways that Alice could make some Bitcoin in our thought experiment. One way would to be to accept donations from people that enjoyed her work. This already works from some people in today's world. But in our thought experiment it would probably work for a larger percentage of creators than it does today. In the world that we live in currently, there are very many demands on an individual's usually very limited supply of money. We have to buy shelter, food, and water just to survive. Those basic needs will obviously take higher priority than donating to an artist who has produced something that you like. In addition to those very basic needs we also need to buy things like transportation, health care, education, electricity, Internet and phone service, insurance, as well as paying off any previous debts that we have incurred in the past. All of these things will likely take precedence and get paid first before donating to an artist. The money left over after paying off these expenses if often referred to by economists as expendable income. Often times people have very little if any expendable income left to donate at all. However in our thought experiment, very few if any of the previously mentioned expenses would exist. In other words, a much greater portion of an individual's supply of money, perhaps even all of it, would be expendable income. That means that a higher percentage of people would be free to donate a higher percentage of their money to artists and projects that they liked.

Another way that Alice could make some money with her novel would be to sell signed copies. Theoretically, some future technology could make the forging of signed copies trivial. Perhaps in our hypothetical future, books will be signed digitally. Alice could also collect fees for speaking at events if her novel became popular enough. One avenue of income for novelists today is licensing their story to be made into different mediums like film or a video game. In our thought experiment there may or may not be an effective way to prevent people from making a film of Alice's novel without her permission. But one could imagine that fans of Alice's novel might pay more attention to a movie adaptation (and therefore donate more money to its producers) if the author was involved in the making of the film. Perhaps Alice could agree to consult during the making of a movie adaptation in return for a cut of the donations. Of course, the scarcity of creativity is not limited to people like artists, writers, musicians, and film makers. Engineers, scientists, and programmers all posses skills to produce new things that people might want. Just because someone in our thought experiment can download every computer program ever made for free, does not mean that a programmer couldn't charge to make a piece of software to somebody's specifications, or to add a particular feature that a person wants to an already existing piece of software.

Just about any profession that deals with creating new things could be expected to have the ability to make money in our thought experiment. Professions that have to do with selling things that already exist, however, might find that they cannot make any money. Why should people buy what they can have for free? Alice obviously would not need a publisher to physically produce copies of her novel for her. The means of production in a post-scarcity future would be entirely democratized and free. But just because she does not need a publisher to actually publish her novel does not mean that there are other services that a publisher currently provides that she does not need. For instance, she might require an editor to help her polish her novel. And after it is polished and ready for the presses, she still needs to convince people to read it. Advertising would probably flourish in an economy based largely around creating new things. It is actually a way that Alice could make some Bitcoin off of her work. For instance she could charge another author for the rights to advertise their book on the last page of Alice's novel. Alice might personally know of a few places where she could advertise to people that might be interested in her work, but those few places would only reach a small percentage of her potential target audience. Datamining people's media consumption habits and then selling that information to facilitate more effective advertising is already hugely profitable today, and is likely to be even more so in our thought experiment. And while this datamining does have potential privacy concerns, the benefit to the people who are being mined is that they get to discover more media and services that match their personal tastes.

It is impossible to know how much of our lives and our economy the effects of technological post-scarcity will come to effect. However, it is likely that the effects of post-scarcity on society will continue to grow, not shrink. Will our civilization ever reach a point close to that of our thought experiment? We cannot know for sure. But if the future is one of post scarcity, it is clear that it will be very foreign economically (and probably socially) from the way we are used to things in the present.

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