A well-written response, great to see an expansion on your original thought.
Dan Sharp
11

“I suggest that there is only an artificial opportunity cost because although there is a finite resource, no money has really been spent.”

This is a rather fascinating point! I guess it depends on how you look at it.

You can imagine that if you pay $5/month to Medium…and you’re given the option to use your fees to signal the value of stories… then perhaps Medium essentially exchanged your $5 dollars for 5 tokens. You bought 5 tokens for $5 dollars. You can only spend the tokens here in Medium.

So you spent $5 dollars in order to be able to spend 5 tokens. In this sense, spending a token would be no different than spending a dollar.

Perhaps it helps to imagine the same system without a subscription. I suppose it would be like iTunes? You can simply spend your dollars on the stories that match your preferences. Except, paywalls suck! Therefore, you pay a monthly fee and can read all the stories and then you might as well spend your fees on the most valuable ones.

“Still, I struggle to see how voting with your subscription fee is important. ”

When you go to the grocery store you get to decide which items you put into your shopping cart. Your money is limited so you have no choice but to prioritize how you spend it. You endeavor to spend your limited money on the most valuable products. Other shoppers endeavor to spend their limited money on the most valuable products. The grocery store then knows the value of its products. It uses this information to replace less valuable products with more valuable products. As a result, the products become more valuable in less time.

Shoppers provide specific and substantial feedback on the store’s products. Because…. the store isn’t a mind-reader. Producers aren’t mind-readers. Nobody is a mind-reader. Hence the importance of specific and accurate communication. Hence the importance of markets.

“Right now, the NY only serves up content in order of publication, but you’re proposing a format in which, like the products on a shelf, only those that get ‘bought’ the most will constantly be stocked. (The ones that aren’t bought at all will be ‘put in the stock room’, to follow the analogy.)”

If the New Yorker (NY) gave subscribers the option to use their fees to signal the value of specific articles, then everyone would know the value of its articles. The NY would then use this information to replace less valuable articles with more valuable articles. Well… not quite. Unlike a physical store… “shelf” space isn’t much of an issue for a website. So there would be no need for the NY to replace any articles. But clearly it would still have the incentive to supply more valuable articles. And it would be able to do this more effectively since it would actually know the value of its articles!

It would be pretty easy for the NY to tell whether it had indeed managed to increase the value of its supply of articles. The NY would simply see how many fees were unspent at the end of the month. The less unspent fees… the greater the value of its supply… and the stronger the case for raising the fee.

Conversely, let’s imagine the NY’s current system applied to grocery stores. You could subscribe to a store and receive a weekly bundle of groceries. If you didn’t like the bundle… then you could simply subscribe to a different grocery store.

A grocery store would be in a market… but it would not be a market. But then, if we don’t need the grocery store to be a market, then why do we need the grocery store to be in a market? What’s the point of people deciding how much money they spend on food and clothes?

So I suppose the key considerations here are…

  1. The type of feedback (voting vs spending)
  2. The specificity of the feedback

You want food? So do I! But if it was this simple then socialism might work. People want to eat… give them food! Voila!

In reality though… even though we both want and need to eat… we really don’t want/need to eat the same exact varieties and quantities of food at exactly the same times.

People demand food…. but the demand for food is just as diverse as people are. When markets cater to the diverse demand for food, then the supply of food will be equally diverse.

And for sure the supply of articles seems super diverse. But in the absence of knowing people’s specific preferences for articles, it’s gotta be the case that the supply of articles really doesn’t come close to accurately reflecting the true demand for articles.

Medium has a gazillion stories, but I really don’t feel as happy as a kid in a candy store. No duh. Medium isn’t a market. We don’t use our money to signal the value of stories… and writers really aren’t mind-readers. We endeavor to communicate our preferences using votes… but votes really don’t reveal the intensity of our preferences. In other words, a vote really can’t communicate how much we love a story.

But the fact is, it really matters how much we love things. This is the premise that the Invisible Hand is based on.

“Going back to your original point with ‘the invisible hand’ (I would love more examples of this by the way if you have links, it sounds interesting)”

Examples? The grocery store is a market. Shoppers use their money to signal the value of products. This means that the order (relative importance) of the products is determined by the Invisible Hand (IH).

The non-profit sector is also a market. Shoppers can decide how much money they give to the Roosevelt Institute (RI) and to the Cato Institute (CI). This means that the order (relative importance) of non-profits is determined by the IH.

The RI is in a market… but it is not a market. Donors can’t use their money to signal the value of the RI’s products. This means that the order (relative importance) of RI’s products is not determined by the IH. Instead, the order is determined by the Visible Hand (VH)… the people in charge of the RI.

The Libertarian Party (LP) recently gave its donors the option to use their fees to signal the value of potential convention themes. Here are the top results…

$6,222 — I’m That Libertarian!
$5,200 — Building Bridges, Not Walls
$1,620 — Pro-Choice on Everything
$1,377 — Empowering the Individual
$395 — The Power of Principle

This order (relative importance) of the themes was determined by the IH. In this regard the LP was a market.

My friend teaches 4th grade. Her students can civically crowdfund their classroom. If a student donates money to their Book Dept, then they have the option to use their money to signal the value of their favorite books. That list of books is ordered by the IH. Admittedly, the IH is pretty small! But in this regard their Book Dept is a market.

The public sector is not a market. People can’t use their taxes to signal the value of environmental protection or national defense or space colonization. The order (relative importance) of public goods is not determined by the IH. Instead, it’s determined by the VH.

The for-profit sector is a market. People can use their money to signal the value of clothes and computers and cars. The order (relative importance) of these goods and many others is determined by the IH.

So the biggest problem in the world is figuring out the best way to order things.

Personally, I’m pretty sure that the IH is by far the best way to order things. People aren’t going to randomly spend their money. They are going to spend their money according to the information that’s available to them. As a result, the order that’s determined by the IH is based on far more information than any order that’s determined by the VH.

Of course I might be wrong! If you’re interested in a liberal perspective on the IH… then check out my discussion with Eric Harris Bernstein. He works for the RI.