Diana McCarty on Mon, 7 Oct 96 05:40 MET

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nettime:Markets, Anti-Markets 1/2


"Markets, Antimarkets and Network Economics"
by Manuel DeLanda

     One hundred years ago, Western societies underwent a second
     Industrial Revolution, based on the the interaction of several
     technologies: electricity, the internal combustion engine, oil,
     steel and plastics. Although knowledge and information as inputs
     to production processes had already played a role in the first
     Industrial Revolution, it was the coming of electricity, and the
     creation of the first industrial research laboratories (such as
     the General Electric laboratory) that propelled knowledge to its
     position as the most important input to production. Information,
     of course, also plays key roles in other economic areas such as
     marketing and investment, and indeed, to the extent that a
     particular economy is truly driven by supply and demand, the
     information transmitted by prices has always played a central
     role. But regardless of the fact that knowledge has always been a
     key factor in the working of economies, electricity and the other
     innovations of the early twenty century greatly intensified its
     importance. And, of course, the explosive growth of computer
     networks in the last three decades is bound to intensify the flow
     of knowledge even more and this intensification will undoubtedly
     transform the nature of the economy in the next century.

     It follows that a very important task for today s intellectuals is
     to create realistic scenarios of the world of twenty-first century
     economics. The problem is that, when we try to picture what the
     effects of the intensification of knowledge will be like, several
     obstacles stand in the way. The most important of these roadblocks
     is that intellectuals on the right, center and left sides of the
     political spectrum are all trying to predict what a twenty first
     century economy will be like on the basis of theories devised to
     explain the working of nineteenth century England. In other words,
     whether one is using the conceptual machinery of Adam Smith or of
     Karl Marx (or of any combination of the two), whether one sees in
     the recent commercialization of the Internet a new invisible hand
     that will magically benefit society, or whether one sees in this
     commercialization the commodification of the Net which will
     magically ruin society, one is still trying to understand what is
     a radically new phenomenon in terms of obsolete categories
     belonging to bankrupt systems of thought. It is time to go beyond
     both the invisible handers and the commodifiers and to attempt to
     construct a new economic theory that not only give us a clearer
     picture of the future, but almost as important, of the past, since
     it is impossible to know where we are going unless we know how we
     got where we are.

     Therefore, before exploring some of the characteristics of
     Internet economics I will need to give at least a brief sketch of
     what these new economic theories would be like. First of all, it
     is not as if we would need to manufacture a new theory out of thin
     air. Alternatives to the invisible handers and the commodifiers
     have existed in the past (such as the institutionalist school of
     the followers of Thorstein Veblen) and new theories are
     flourishing today, such as the neo-institutionalist school and the
     growing field of nonlinear economics. {1} Also, economic
     historians like Fernand Braudel and his followers have given us a
     fantastically detailed account of the development of Western
     economies in the last eight hundred years, and this research has
     generated a wealth of empirical data which simply was not
     available to either Adam Smith or Karl Marx when they created
     their theories. Furthermore, as I will soon try to show, the new
     data contradicts many of the foundations of those two systems of
     thought. Finally, not just economists and economic historians will
     be involved in developing the new ideas we need, philosophers will
     also participate: in the last twenty years the discipline of the
     philosophy of economics (that is the philosophy of science applied
     to economics) has grown at a tremendous pace and is today and very
     active field of research.{2}

     Here I only have space to discuss a few of the ideas that have
     been developed by economists, historians and philosophers, so I
     will select only those concepts that have a direct relevance to
     our discussion of the Internet. Perhaps the most dramatic new
     insight emerges from Fernand Braudel s history of capitalism.
     Unlike theorists from the left and the right who believe
     capitalism developed through several stages, first being
     competitive and subservient to market forces and only later, in
     the twentieth century, becoming monopolistic, Braudel has shown
     with a wealth of historical evidence that as far back as the
     thirteenth century, and in all the centuries in between,
     capitalism has always engaged in anti-competitive practices,
     manipulating demand and supply in a variety of ways. Whenever
     large fortunes were made in foreign trade, wholesale, finance or
     large scale industry and agriculture, market forces were not
     acting on their own, and in some cases not acting at all. In short
     what Braudel shows is that we must sharply differentiate between
     the dynamics generated by many interacting small producers and
     traders (where automatic coordination via prices does occur), from
     the dynamics of a few big bussinesses (or oligopolies, to use the
     technical term), in which prices are increasingly replaced by
     commands as coordinating mechanisms, and spontaneous allocation by
     the market replaced with rigid planning by a managerial hierarchy.
     What these new historical findings suggest is that all that has
     existed in the West since the fourteenth century, and even after
     the Industrial Revolution, is a heterogeneous collection of
     institutions, some governed by market dynamics and some others
     manipulating those dynamics, and not a homogeneous, society-wide
     capitalist system . In the words of Fernand Braudel:

     "We should not be too quick to assume that capitalism embraces the
     whole of western society, that it accounts for every stitch in the
     social fabric...that our societies are organized from top to
     bottom in a 'capitalist system'. On the contrary, ...there is a
     dialectic still very much alive between capitalism on one hand,
     and its antithesis, the 'non-capitalism' of the lower level on the
     other." {3} And he adds that, indeed, capitalism was carried
     upward and onward on the shoulders of small shops and "the
     enormous creative powers of the market, of the lower storey of
     exchange...[This] lowest level, not being paralyzed by the size of
     its plant or organization, is the one readiest to adapt; it is the
     seed bed of inspiration, improvisation and even innovation,
     although its most brilliant discoveries sooner or later fall into
     the hands of the holders of capital. It was not the capitalists
     who brought about the first cotton revolution; all the new ideas
     came from enterprising small businesses." {4}

     Several things follow from Braudel s distinction between market
     and capitalist institutions (or as he calls them antimarkets ). If
     markets and antimarkets have never been the same thing then both
     the invisible handers as well as the commodifiers are wrong, the
     former because spontaneous coordination by an invisible hand does
     not apply to big bussiness, and the latter because commodity
     fetishism does not apply to the products created by small
     bussiness but only to large hierarchical organizations capable of
     manipulating demand to create artificial needs. In other words,
     for people on the right and center of the political spectrum all
     monetary transactions, even if they involve large oligopolies or
     even monopolies, are considered market transactions. For the
     Marxist left, on the other hand, the very presence of money,
     regardless of whether it involves economic power or not, means
     that a social transaction has now been commodified and hence made
     part of capitalism. It is my belief that Braudel s empirical data
     forces on us to make a distinction which is not made by the left
     or the right: that between market and antimarket institutions. In
     fact, we can already see the kind of dogmatic responses that the
     lack of this distinction promotes on discussions in the Internet.
     As it became clear that digital cash and secure crypto-technology
     for credit card transactions were going to transform the Net into
     a place to do bussiness, some intellectuals became euphoric about
     the utopic potential of digital free enterprise , while others
     began to denounce the Internet as the latest expression of
     international capitalism or claim that the Net was becoming
     commodified and hence reabsorbed into the system. It is clear,
     however, that if we reject these two dogmatic positions, our
     evaluation of the economic impact of the Net (its potential for
     both decentralization and empowerment of the individual producer
     and for centralization of content production by a few large firms)
     will have to become more nuanced and based on more complex models
     of economic reality.

     Beside the distinction between markets and antimarkets our models
     of network economics must take advantage of recent discoveries in
     nonlinear science and theories of self-organization. Basically,
     these theories may be used to explain the emergence of wholes that
     are more than the sum of their parts. Real markets are, in a
     sense, such synergistic wholes since they emerge as a result of
     the unintended consequences of many independent decision makers.
     In this sense, markets are quite similar to ecosystems in many
     respects. The Internet itself is also one such self-organized
     entity, despite its origins in the hands of military planners. One
     thing markets, ecosystems and decentralized networks have in
     common is that their synergistic properties emerge spontaneously
     out of the interactions among a variety of elements, plants and
     animals, sellers and buyers, or computer servers and clients.

     To understand the processes that lead to such emergent,
     synergistic wholes, we need to create new ways of modeling
     reality. In particular, instead of beginning at the top, at the
     level of the whole, and moving down by dissecting it into its
     constituent parts, we need to create models that proceed from the
     bottom up. For example, instead of creating a computer model of a
     market, ecosystem or computer network, by using a small set of
     mathematical functions (that capture the behavior of an idealized
     whole), we need to create virtual environments in which we can
     unleash a population of virtual animals and plants, buyers and
     sellers, or clients and servers, and then to let these creatures
     interact and allow the self-organized whole to emerge
     spontaneously. In this way the botom-up modeling strategy
     compensates for a weakness of the top-down strategy. Emergent
     properties are properties of the complex interactions between
     heterogeneous elements, but top-down analysis dissects and
     separates elements, that is, eliminates their original
     interactions, and then adds them back together. But this operation
     necessarily misses any property that is more than the sum of the
     parts. Hence analysis needs to be complemented with synthesis, as
     is done today, for example, in the discipline of Artificial Life
     and in the branches of Artificial Intelligence known as
     connectionism and animats. {5}

     This switch in modelling strategy would have a significant impact
     on the shape of the new paradigm of economics that I mentioned
     before, the one that goes beyond the invisible hand and
     commodification. Instead of postulating a whole, a capitalist
     system, for instance, and then attempting to capture in some
     mathematical formulas its basic dynamics, we would unleash within
     a virtual enviroment a population of institutions, including
     virtual markets, antimarkets and bureocratic agencies. Only if we
     can generate from the interactions of these virtual institutions,
     something like a capitalist system, would we feel justified in
     postulating an entity like that. My guess is, like Braudel s in
     the quote above, that there is no such overall, homogeneous
     system, and that society is a much more heterogeneous collection
     of processes.

     Recognizing this heterogeneity may be crucial not only when
     thinking about network economics but, more generally, when
     analysing the oppressive aspects of today s economic system, that
     is, those aspects that we would want to change to make economic
     institutions more fair and less exploitatitive. We need to think
     of economic institutions as part of a larger institutional
     ecology, an ecology that must include, for example, military
     institutions. Only this way will we be able to locate the specific
     sources of certain forms of economic power, sources which would
     remain invisible if we simply thought of every aspect of our
     current situation as coming from free enterprise or from
     exploitative capitalism. In particular, many of the most
     oppressive aspects of industrial discipline and of the use of
     machines to control human workers in assembly line factories, were
     not originated by capitalists but by military engineers in
     eighteenth century French and nineteenth century American arsenals
     and armories. Without exageration, these and other military
     institutions created many of the techniques used to withdraw
     control of the production process from workers and then exported
     these techniques to civilian enterprises, typically antimarket
     organizations. {6} Hence, not to include in our economic models
     processes occuring within this wider institutional ecology can
     make invisible the source of the very structures we must change to
     create a better society, and hence diminish our chances of ever
     dismantling those oppresive structures.

     After these introductory remarks let s now consider a few specific
     questions regarding the new knowledge-based economies that are
     taking form today. To begin with let s explore the question of the
     technological infrastructure of the Internet, first the computers
     that serve as its servers and clients and then the telephone,
     cable and radio technologies used to interconnect those servers
     and clients together. The question of the manufactury of computer
     hardware and software has many different interesting angles, not
     to mention a very close association with military institutions
     which have been involved in the development of computers from
     their inception. I have written about this military involvement in
     the past but today I would like to discuss a different issue, one
     related to our botton-up modelling of heterogeneous institutional
     ecologies. In particular, I would like to discuss two such
     ecologies with different mixtures of market and antimarket
     components: Silicon Valley and Route 128 in Boston. Both are

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