Turning away from software to markets with a more traditional positive marginal cost of production, the advantage of markets is that it provides a guide as to what goods to be produced. Lets for example consider producing food. Food is different to software in that if I eat an apple you can't also eat the same apple, so it's a rivalous good. Now agriculture is a complex activity with a myraid of different production possibilites. There are numerous crops that can be grown, mostly with differing requirements for inputs (eg fertilisers, varying amounts of labour using different sorts of skills, for example building a drip-feed watering system is quite different to harvesting apples). What sort of crops a piece of land can support is massively varied, for example the same piece of land could grow one crop superbly and another adequately with extra labour assistance, land varies in details as small as a paddock, it can be changed by various investments, for example building a warm wall to shelter tender plants from bad weather. Land also varies in its distance from consumers and thus in the transport costs, and in the form of transport costs, for example land near to the sea opens up the possibility of water transport. People vary in their preferences for foods, from the extreme of some people risking death if they eat something like peanuts, to minor cases of feeling that, “well, rice is nice, but I wouldn't want to eat it every night of the week.” There are some specific subgroups, for example people who can't consume gluten, so even if wheat is the best crop to grow absolutely everywhere in terms of calories per unit of input it makes sense to grow some crops other than wheat (I know of no reason to believe that wheat is the best crop to grow absolutely everywhere, this is perfectly hypothetical).

The advantage of allocating agricultural decisions by markets is that it allows all this to be taken into account without requiring ridiculously large amounts of knowledge for individual decision-makers. Farmers have a reasonable idea of the production possibilites they face and can consider these against the price they would likely receive for growing a particular crop. Consumers don't need to consider all the ins and outs of various cropping possibilities, instead they merely consider if a particular food is worth more to them than the money it would cost, and concentrate their attention on things like their dayjobs, raising kids, writing open source software, arguing on Internet forums, etc. And as the world changes, prices change along with them. If a sudden storm wipes out half the apple supply prices rise until consumers eat half as many apples as before (or more apples are produced from somewhere, eg somewhere further away with higher transport costs).

This is why many economists have specific views about how we should intervene in the market, if we want to. For example, if our concern is that some people can't afford food then it makes sense to give them money to buy food (or food vouchers) rather than redirecting farming, as the poor can then take into account all their varied tastes in their purchases and this will be communicated to farmers. A problem with some transport methods is that they impose externalities from air pollution, but a tax (or a cap-and-trade system) on the source of the method signals to farmers and consumers how to best adjust their production or consumption to reduce those costs, for example if it's very cheap for farmers to switch to a different transport method they can do so and keep supplying the same crops, but if it's very expensive it might make sense to let land a long distance away revert to nature and adopt more labour-intensive farming methods that use less transport. Or it might make sense for consumers to switch to crops that have less transport costs. Or plausibly a combination of them all.

It seems unlikely that anyone will invent another method of disemminating the information about customer preferences and production possibilites that prices can allow.

Turning away from software to markets with a more traditional positive marginal cost of production, the advantage of markets is that it provides a guide as to what goods to be produced. Lets for example consider producing food. Food is different to software in that if I eat an apple you can't also eat the same apple, so it's a rivalous good. Now agriculture is a complex activity with a myraid of different production possibilites. There are numerous crops that can be grown, mostly with differing requirements for inputs (eg fertilisers, varying amounts of labour using different sorts of skills, for example building a drip-feed watering system is quite different to harvesting apples). What sort of crops a piece of land can support is massively varied, for example the same piece of land could grow one crop superbly and another adequately with extra labour assistance, land varies in details as small as a paddock, it can be changed by various investments, for example building a warm wall to shelter tender plants from bad weather. Land also varies in its distance from consumers and thus in the transport costs, and in the form of transport costs, for example land near to the sea opens up the possibility of water transport. People vary in their preferences for foods, from the extreme of some people risking death if they eat something like peanuts, to minor cases of feeling that, “well, rice is nice, but I wouldn't want to eat it every night of the week.” There are some specific subgroups, for example people who can't consume gluten, so even if wheat is the best crop to grow absolutely everywhere in terms of calories per unit of input it makes sense to grow some crops other than wheat (I know of no reason to believe that wheat is the best crop to grow absolutely everywhere, this is perfectly hypothetical).

The advantage of allocating agricultural decisions by markets is that it allows all this to be taken into account without requiring ridiculously large amounts of knowledge for individual decision-makers. Farmers have a reasonable idea of the production possibilites they face and can consider these against the price they would likely receive for growing a particular crop. Consumers don't need to consider all the ins and outs of various cropping possibilities, instead they merely consider if a particular food is worth more to them than the money it would cost, and concentrate their attention on things like their dayjobs, raising kids, writing open source software, arguing on Internet forums, etc. And as the world changes, prices change along with them. If a sudden storm wipes out half the apple supply prices rise until consumers eat half as many apples as before (or more apples are produced from somewhere, eg somewhere further away with higher transport costs).

This is why many economists have specific views about how we should intervene in the market, if we want to. For example, if our concern is that some people can't afford food then it makes sense to give them money to buy food (or food vouchers) rather than redirecting farming, as the poor can then take into account all their varied tastes in their purchases and this will be communicated to farmers. A problem with some transport methods is that they impose externalities from air pollution, but a tax (or a cap-and-trade system) on the source of the method signals to farmers and consumers how to best adjust their production or consumption to reduce those costs, for example if it's very cheap for farmers to switch to a different transport method they can do so and keep supplying the same crops, but if it's very expensive it might make sense to let land a long distance away revert to nature and adopt more labour-intensive farming methods that use less transport. Or it might make sense for consumers to switch to crops that have less transport costs. Or plausibly a combination of them all.

It seems unlikely that anyone will invent another method of disemminating the information about customer preferences and production possibilites that prices can allow.

“In my view, the principal problem that faces the socialist ideal is that we do not know how to design the machinery that would make it run.” Not so. The machine was built. It ran. German Gentiles stole from German Jews (then Europe's Jews, then everyone) and made gifts to each other, like friends, in Hitler's People's State.

And that's not even what really bothers me here. Frey has drawn some pretty pictures suitable basically for a barroom napkin (nothing wrong with that!), but Will, in a bid to commit the largest fallacy of misplaced concreteness ever (on a dare, maybe?), extrapolates from this that allowing guns at political events is a good idea. He then has the balls to accuse those who disagree with him of not thinking clearly.

His opinions on the finer points of rhetoric and his pious defenses of intellectual honesty can take a long walk on a short pier as far as I'm concerned.

And another point on substitution: I was pretty sure, after the past 8 years, that no one agrees with Nader anymore that it just really doesn't matter who's in charge, but apparently he's still got some followers on this one. I'm also pretty sure that I don't want the government run by people who are either deathly afraid or don't really care that they're likely to get whacked any day now. YMMV, of course.

There's a weird observer bias issue here which is that as long as the populace is deluded into thinking it matters who is in the White House there will be a huge cost to assassination in the form of lost productivity from people wailing and gnashing their teeth and worrying about What It All Means and how we will recover from Our National Tragedy whenever it happens. Whereas if assassinations were something that happened routinely this cost would completely disappear. “President Jones killed, replaced by President Smith” could be a small human interest story, like a ballplayer retiring or getting traded to a different team. Or like some event triggering CEO or CFO succession in a company whose products you occasionally buy.

I don't know how one should analyze that – a situation where something clearly doesn't matter much except to the degree that people *believe* that it matters, which they do, so it does. Hoever one does, I'm pretty sure that factor far outweighs any other cost. Certainly the difference in expected policy results between one guy and the next guyfrom the same party with the same support staff and the same advisors can't be all that large.

Why would we do that? They didn't challenge a claim, they made absolute statements without sufficient support to justify them.

We don't need to develop (have developed) supersonic flight to say that they're morons. The moment we detect that their assertions outstrip their arguments is when we're free to do that.

I'm open to actual evidence/analysis that shows that politicians are overprotected, but my attitude towards packing the conclusion of an argument into the premise is less, shall we say, situational than Will's appears to be. Seriously, he stops just shy of accusing Akerlof and Shiller of intellectual dishonesty because they omit data the he thinks is important from their analysis and hops straight from there into praising Frey's completely data free assertions.

It's not really a big deal in the larger scheme of things, but it does make Will's praise of Cohen here essentially content free.

But I do think this story of complements explains why firms like IBM and Sun were two of the biggest boosters for free software: they made their money from complements to software (services and hardware, respectively). Once it became clear that the theoretical story worked empirically, they could make the business case to themselves very easily.

As an aside, since we're talking about Gintis, the success of the GPL probably does have something to do with tickling the reciprocity norms he's always going on about.

So, the first thing to realize is that software is not homogeneous. There isn't a software market; there's lots of markets for different kinds of software, such as operating systems, word processors, text editors, spreadsheets, databases, music players, web browsers, compilers, and so on. The second thing is that the marginal cost of software is very close to zero — the cost of making a copy of a piece of software is the cost of transmitting it over a network.

The third thing is that when you have a heterogeneous market, the phenomena of complement and substitute come into play. So, Firefox and Internet Explorer are substitutes — if you have one, your demand for the other one is reduced. But a web server and a web browser are complementary goods. If the total number of web servers demanded goes up, then demand for web browsers will also go up, because the number of interesting sites has gone up (we hope!).

Now, connect this phenomenon of complementarity with the low cost of reproduction. If you are a supplier of software, you know demand for your product will increase, if the price of its complements goes down — because when price falls, demand goes up. Now, since the cost of reproduction is basically zero, you can invest a lump sum in software to produce a complement good, and give it away for free, in order to maximize the demand increase from cheap complements.

Now, since this is a locally rational decision, and you've got lots of suppliers of software, you can get a runaway effect in which lots of kinds of software become free. In reality, things are a bit more complicated — open source projects usually start because of the professional ethos and generosity of some engineer. But when they start to get larger, the dynamic I outlined tends to play an important role in securing the funding for continued development.

I don't know anything about Cohen, but I think Gintis is on the right track with his strong reciprocity approach.

Having been a graduate student at Oxford, I can tell you he was not a gentleman to those outside his inner circle. He would joke with his students by wearing a Stalin mask. And, worse for All Souls College, Oxford, and political philosophy in general, he created a patronage system to create disciples who never strayed too far from the, I mean, his party line.

The feminist academic stuff I read are tremendously loopy.

The interesting question is which way the causality runs – do market institutions engender trust, or does trust have to be widespread for market institutions to get started?