day 101

alice in wired world 5: out of the box

Yesterday we began looking for a business model for the Wired World. When confronted with insurmountable problems humans do unusual things. One of them is called "changing the rules." This is one of those times when we have to think out of the box. The first step is to discard everything you ever learned in school about economics. Specifically, you have to throw away Keynesian economics. Remember when Englishman John Maynard Keynes established the modern theory of Industrial Age economics? If Adam Smith can be credited with inventing the law of the jungle, Keynes can be credited with inventing the law of supply and demand -- with lots of help from the Government. The government-assisted supply/demand law has been like gravity -- nobody questions it any longer -- it has achieved the status of immutable law. And herein lies our difficulty. Actually, Adam Smith invented the law of "supply equals demand," and proclaimed that it would produce wealth for an entire nation. Smith was an optimist. Karl Marx observed the same invisible hand of economics, and concluded the opposite. Supply and demand would generate wealth alright, but only for an elite few. He was a pessimist. Keynes came along and observed that both were right -- modern economics had two stable states -- the one predicted by Smith and another one predicted by Marx. Unfortunately, the Great Depression was stuck in the stable point with high unemployment, few rich people, surrounded by lots of poor people. This just wouldn't do in a Democracy, so the government bailed-out the Western World. But then, that is another story. To "think out of the box", we have to throw the Keynes theory overboard. We have to invent the non-Keynesian theory of the software economy.

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