“Orwell feared that what we fear will ruin us. Huxley feared that what we desire will ruin us.”
— Neil Postman, Amusing Ourselves to Death: Public Discourse in the Age of Show Business
In Brave New World, Aldous Huxley argued that it was desire — not the hand of some Big Brother-like figure — that would ruin us. Of course, traditional economic theory says that the goal of economics is the allocation of scarce resources to their highest-valued use, or connecting as many people as possible with what they desire. A perfectly economical world, then, would be one in which everyone is connected with their desires. And were it to be realized, so would Huxley’s prophecy — that, or we transcend it (assuming we haven’t done either already).
So what’s stopping us? Well, for most of history, there has been one fundamental check against the realization of that world: scarcity of physical resources. Market power, then, comes as a result of controlling the supply of scarce resources. At least it did, until the internet flipped this on its head by enabling the production and distribution of virtual goods at zero marginal cost.
Consider Facebook, a company that incurred massive fixed costs in their infancy as they invested in the infrastructure that gave way to infinite scalability. New users do two things for Facebook: first, they minimize Facebook’s average fixed cost (cost of servers, cloud storage, etc. divided by number of users). Second, they improve Facebook’s advertising program, which generates the revenue that covers Facebook’s fixed costs. Economic theory states that in the long run, firms operate as close as they can to where their marginal cost, or cost of producing an additional unit of a good (in Facebook’s case, digital information) equals their average fixed cost. Facebook can never quite get there because their average fixed costs will never equal their marginal costs (see graph below). But advertising revenue covers Facebook’s fixed costs, leaving only their variable costs, or costs that “vary” based on the number of users, behind. On the internet, variable cost is equal to marginal cost. Thus, the information on Facebook is available for nothing because its marginal cost on Facebook is zero.
The only factor that determines what we see on the internet is desire.
Like Facebook, the internet is a platform for the distribution of virtual goods at zero marginal cost. Put another way, the internet is an “information market.” (From here on, I use both terms — “internet” and “information market” — interchangeably.) And since the price for a virtual good is its marginal cost, the “price” of information in this market is zero. This means that demand determines the equilibrium in the market for information. In more practical terms, the only factor that determines what we see on the internet is desire.