This is a rant/essay I wrote back in July of 2021. There are a lot
of errors and things I frankly disagree with in it. But as my first blog post on this site I
wanted to archive it here.
Image is from a dope
tee from Crying In The Club
Recently there has been a huge influx of interest in Non-Fungible Tokens (NFTs), and many have pointed out various critiques of their existence. Most commonly, the critique lies in the huge environmental impact of NFTs and blockchain technology in general. I am more interested in discussing the philosophical and political-economic implications of NFTs. Specifically, how they are a prime example of how when something does not conform to an existing understanding of economics the primary reaction is one of denial, dismissal, or creation of structural fictions to “correct” for the aberration, instead of an analysis and adjustment of popular understanding of economics. I want to make it clear that this is not aimed at economics as an academic study, but rather at the pervasive and ubiquitous theories that are typically regurgitated by pundits, politicians, and anyone who took Econ 101 and believes they “basically know” how economics works.
Theories of Value and Scarcity
For my purposes I want to look at two widely-utilized (sometimes subconsciously) theories of value: The Labor Theory of value (LTV), refined by Marx and Marxian economists, and the Subjective (sometimes called the Marginal) Theory of value (STV), popularized by marginalist economists Jevons, Walras, and Menger. The LTV maintains that “the economic value of a good or service is determined by the total amount of socially necessary labor required to produce it”. The STV maintains that “a good’s value depends on the consumers’ wants and needs”, prioritizing marginal utility of any additional unit of a good and determined at the point of exchange.
It’s important to understand these two, at a basic level, to be able to analyze how modern mainstream economics contends with the digital age.
We live in an age of information, and something that’s important to acknowledge about this age is that there are goods (e.g. digital art, music, e-books, etc.) whose supply is essentially infinite. How so? The cost of creating a copy of anything of a reasonable bit size for every single human on earth is tiny. The energy required to transmit one bit of information is 10pJ. Taking even the domestic consumer price of electricity in the US (a high estimate), this means that making a distinct copy of 1 Terabyte of data for every single human being on earth is around $172,000. That’s 0.0000008% of the United States’ GDP, for context. The point is that reproducing digital media costs us very little, and because digital media is infinitely reproducible, the supply of this media is infinite. This has incredibly heavy implications for mainstream economic theories, especially the STV.
Scarcity plays a role in almost all economic theory, but especially Marginal Economic theory and the STV. The basic logic contends that the value of something is contingent on a consumer valuing the marginal utility of an additional unit of that good (including if “an additional unit” just means your very first unit). This, I hope we can see, relies on the fact that goods are scarce, i.e. finite, and therefore someone could lack access to a good they seek the utility of, leading them to seek a market to exchange something they have for the good that they lack. However, if we are to take the case of a good that is essentially infinite (e.g. digital art), then by following the STV we arrive at the conclusion that the good should have no value. There is no reason that someone would exchange anything for it, because it’s infinitely available, so therefore it has no value. Yet in the material world, we can see that digital art is still valued. People still exchange money for it, they still pay digital artists, buy wallpapers, etc. at costs exceeding that of simply the electricity required to transmit the data.
Now I understand this analysis of digital art specifically is not entirely correct, as often the reason that people pay digital artists is for the right to legally use digital art in products, services, advertisements, etc. However, I contend that the former counter argument is only valid due to legal creation and the legal structure of intellectual property laws and copyright. If copyright and IP laws are the only things holding up the STV, then marginal economists have a lot heavier things to contend with than just some blindspots in their theory.
I also understand that my estimation of making 7 Billion digital copies is reductive, because digital media require a physical medium to be stored and consumed. These physical mediums rely on finite resources. I would have to dive deeper into the theory of post-scarcity to contend with this critique, which I frankly don’t want to do in this essay specifically. I encourage you to read the wiki page at least. Suffice to say that post-scarcity reality does not mean there are no scarce goods, but that we generally have the resources to meet all the world's needs and most of its wants.
The LTV, to its merit, does not struggle to contend with this post-scarcity world, as it places the origins of value separate from exchange (It actually differentiates between value and exchange value). Digital art requires socially necessary human labor to create, and therefore has value. An infinite good can still have value if it requires human labor to create.
Wasn't This About NFTs?
Now what do NFTs have to do with this discussion? Well, I believe them to be a prime example of how when faced with the complications of a post-scarcity world, the majority of those who subscribe to the idea that scarcity plays a central role in value (i.e. most people) find themselves forced to adjust the world to fit their model, rather than reevaluate the model. Artists, record labels, and crypto-nerds created NFTs to create artificial scarcity by declaring “this is the only copy that really counts”. You may have a digital copy of this good, but unless it’s got an NFT attached to it, it’s not the original and therefore is not worth the insane amount of money that the NFT is. It is the fact that this is a “1 of X” (x being finite) that makes the NFT valuable.
I’ve seen other reactions including not buying into the idea that NFTs (or crypto in general) are actually worth anything. “It’s all just fiat money anyways. Just because someone paid for it doesn’t mean it’s actually worth that amount and they’re basically throwing money away”. There are two problems with this as a rebuttal. First, if your aim is simply to declare that value of exchange is not the same as real value, you’re already immediately detaching yourself from the STV, and making a distinction between exchange value and perceived value. Welcome to marxism, comrade. Second, if you say this to claim that just because certain humans value something, that something does not have capital-V Value, then you live in the realm of pure ideology (in the literal sense of an idealized reality detached from the material world). There is no conception of value wholly detached from human perception and behavior.
All of these lines of reasoning and justification are examples of how material reality and social behavior are dismissed because they do not fit within common theories or models of economics. If something breaks the model, it’s not because the model has faults, it’s because individual humans failed to act as expected. If something breaks the model, invent something so that it fits, don’t question the model or the conclusions we derive from it.
My goal in writing this is to show that maybe we should reevaluate how we view economics, and really analyze the base assumptions of how we organize resources. Specifically, we should realize that deriving value from the scarcity of something gives outsized control over our economic lives to an owner class, rather than those that labor to make the things we consume.
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kagumail.uselessly535@passinbox.com
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