Monday, October 26, 2009

Scarcity: foundational economic assumption

Infinite wants versus finite resources” is the definition of scarcity that underpins economic theory. Because of this fundamental law a medium of exchange – money – will always be necessary. To suggest otherwise is to fail to face reality as it is. Sure it’s fun to dream and speculate a rainy Sunday away with such imaginings as the end of scarcity, but well-trained, hard-nosed economists know better: scarcity is a fact of life.

They know and accept the exceptions though; air for example. There is a finite amount of it, we humans need it to live, indeed we can’t do without out it for more than a few seconds, and yet we don’t have to pay for it. We need no medium of exchange to distribute this most essential resource.

So is it just air’s relative abundance that makes it free? Only partly. It also has qualities that make, say, “owning” it difficult; it’s everywhere and ignores all national borders. It is also so desperately vital to life, withholding it from customers to raise price above zero results in their death. Not good for business. (I have the feeling though, that if someone could work out how, it would be turned into a tradable commodity. Let’s not go there.) But whatever the reasons, we don’t have to part with money to breath air, even though it meets the scarcity definition above.

Friendship cannot be distributed via a medium of exchange, not because it is scarce or abundant, but because to do so would destroy it. Money and friendship don’t mix in terms of trade. Ditto love and trust. The best business can do is associate such things with their products via cunning advertising, and sell it to us that way – sell us what we already have. Of course that’s fake, but it does happen, and does shift product. Nevertheless, friendship itself cannot be sold, despite its relative scarcity and desirability.

So there are exceptions to the rule which fully meet the definition of “scarce.” And yet hardly anyone in their right mind believes high culture can run without a medium of exchange. My question to unbelievers is this: What proportion of resources needs to stay scarce to keep a medium of exchange unavoidably necessary? For example, suppose a redesign of cities, transport and energy use made shelter, transportation and energy abundantly available. Would we still need a medium of exchange? What if the system for transporting goods and services were fully automated and redesigned to use only clean, renewable energy? What if hydroponics, permaculture and desalination plants, plus other water-purification processes, made food and water abundantly available for everyone, everywhere? Would we still need money? Are all these “ifs” pipe-dreams, beyond the technical wit of man? The Venus Project suggests not.

What if the only things that need remain scarce – if we really went at scarcity as if it were a design challenge, if we challenged our best minds to produce things in abundance – were things like the top flat of an apartment building, or the love of a good woman? Would we need money then? Just how unavoidable is scarcity, scientifically speaking? Shouldn’t we try to find out, scientifically, and not rely forever and ever on a weird definition (what the hell are infinite wants!?) written a few centuries ago by a Brit working for the East India Company?

I think we should. I think we should test all assumptions. Scarcity is one of them.

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