Tuesday, January 27, 2009

Prices and the funciton of Money

A major function of money is to keep track of what things are needed; prices are determined by the supply/demand interaction. Consumers of things will bid their price up, this is vital information for those who would be producers, as they need to know whether or not they should invest the time and effort in supplying a thing to be consumed. This is super-basic economics, but part of the reason why communism was so unsuccessful; producers had now way to know what to produce because consumers couldn't send signals via their responses prices.

Now, enter the "new economy" paradigm, where things can be reproduced for almost zero cost. Anything digitizable falls into this category; all the cost is in the development. So how do producers of things like software or music survive when their product can be infinitely reproduced at no cost? The old solution is licensing, and that's still dominant. A newer solution is "Pay what you want."

The amount that people choose to pay for something seems like a very pure measure of its value to that person; They'll pay nothing if they don't value it, but they'll pay something if they do (and implicitly want to see more things of a similar nature).

This voluntary pricing system could provide very good information to producers, as long as it is openly available to all. So I propose a sort of reverse auction mechanism where the voluntary payments people make for things they consume are made publicly available. Some function of payment vs usage could determine a thing's expected value. Thus, producers could determine in advance how much they could expect to earn in return for producing something and offering it for voluntary payment.

This sort of economics is vital for creative endeavors; since artists must spend some major portion of their time working for a living if they aren't payed what their work is worth (which seems to be what happens most of the time). If a rich market for creative work was established along these lines, artists could spend more of their time doing creative work and less drudgery.

This thought was kicked off by a cincinnati musician's website, where he does the voulentary payment thing (Peter Adams, check him out).

I understand that Radiohead pioneered the idea, and I recently read on BoingBoing that a comic used the idea to great success (the sales of the comic were enormous even though it could be had for free).

1 comment:

Paul Murphy said...

The concept of removing price tags makes sense. And I would not restrict this to simply digital items. Keep in mind there is really a new price tag ingrediaent, albeit hidden. If an artist ( or producer of anything)finds he cannot feed himself on the revenues received he will be forced to let that free thing loose in search for a way to feed himself. So lets keep in mind this is not yet the adaptation of the new Free Paradigm.

When a free paradigm tackles the bottom two rungs in Masloew's heriachy of needs, we will be facing Austrial Economics.