Sunday, June 19, 2016

Two Kinds of Scarcity and the Value of Ideas

Scarcity seems to have a double meaning. On the one hand, good ideas are scarce in the sense that they are not superabundant - developing a really good idea is not an everyday occurrence. On the other hand, they are not scarce in the sense that they are non-rivalrous - as soon as any good idea is developed, it becomes in principle infinitely replicable.

So far good ideas seem to have been economically valuable primarily due to the former of the above two kinds of scarcity - it takes time before others learn how to replicate any sufficiently complex idea, and until that time its originator can enjoy the position of its sole distributor. However, as specialization and division of labor progress, intellectual capital becomes increasingly more important, and ever more workers become highly advanced specialists in their fields, ideas may begin to derive economic value primarily from the latter kind of scarcity. In other words, they may become more abundant, but less communicable and thus less replicable. Which, it seems to me, will ultimately make them increasingly more valuable.

This appears fully compatible with Julian Simon's suggestion that human capital is the ultimate resource. However, its potentially surprising implication seems to be that as civilization develops and all other resources become ever less scarce, human capital seems to become ever more so - not in terms of its quantitative availability, but in terms of its qualitative complexity (and the attendant non-replicability). Which, in turn, appears to me to bring sharply into focus the underappreciated fact that - just as all other central economic categories - scarcity is not an objective and quantitative, but a subjective and qualitative phenomenon. Or, in short, the more we have and the more we are, the more we want to have and the more we want to become: social and economic development is endless creative destruction and an endless discovery procedure.

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