The US is in uncharted territory. Never before have stocks been so high relative to wages. Here’s what it means.

Blair Fix

If you listen carefully, you can hear Jeff Bezos getting richer. There’s the sound again. Another billion in Bezos’ coffers. Let’s put some numbers to this sound of money. Since 2017, Bezos’ net worth has grown by about $4 million per hour — roughly 500,000 times the US minimum wage.

 1

This accumulation of wealth would be absurd during normal times.

Stocks Are Up. Wages Are Down. What Does it Mean?

In a new video, Jonathan Nitzan demolishes the neoclassical theory of prices. Here’s a summary and some consequences.

Prices are caused by supply and demand, right? So say neoclassical economists. If you’ve bought their fairy tale, I recommend you watch the video below. In it, Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory. An error occurred. Try watching this video on www.youtube.com, or enable JavaScript if it is disabled in your browser. Here’s the 100-word summary.

Supply and Demand Deconstructed

I've always been baffled why 'modern monetary theory' is called a
*theory*. I don't mean this in a disparaging way. As far as theories of
money go, I think modern monetary theory (MMT for short) is the correct
one. But having a correct theory of money is a bit like having a correct
theory of traffic lights.

Traffic lights (like money) are a social convention. We agree that red
means stop and green means go. Why we've chosen these particular colors
is an interesting question, as is why we choose to put traffic lights
where we do. But the fact that red means stop and green means go just
*is*. It's something we've defined to be true. The workings of money are
similar. True, money is more complex than a traffic light --- but only
in application. In conceptual terms, money is equally simple. It's a
social convention that we've defined into existence.

To frame our discussion of money, let's begin with what it *isn't*.
Money isn't a *thing*. True, money can have concrete forms like dollar
bills and metal coins. But it needn't. It can be as abstract as digits
in a bank account, or tallies on a stick. Money is an *idea*. It's an
agreement to tie our social relations to a unit of account. To
understand money creation, we need only look at the principles of
double-entry bookkeeping. Debt goes on one side, credit goes on the
other. The two sides carry opposite signs and so cancel out. This allows
us to create money while simultaneously balancing our accounts.

Here's a simple example. Suppose that a friend does a favor for me. I
want to return the favor, but don't have the time to do so immediately.
So I give my friend a note that says "Blair owes you one favor". This
note is *money*. It is created from nothing using the principles of
bookkeeping. On one side is a *debt*: I owe my friend a favor. On the
other side is a *credit*: my friend is due a favor. And that's all there
is to it. My friend can now exchange my IOU with other people. It
becomes money in circulation.

Understanding this act of money creation is trivial --- much like
understanding the creation of a traffic light. Just like we define the
rules of traffic, we define the rules of double-entry bookkeeping. We
then use these rules to regulate our behavior, creating money as we
please.

What's interesting, though, is that few people misunderstand traffic
lights. We all know that traffic lights can be put anywhere we want
them, and that they're based on an arbitrary social convention. Yet when
it comes to money, the same is not true. Many people fundamentally
misunderstand money. To them, it's not an arbitrary social convention
that can be created/destroyed at will. Instead, they perceive money as a
scarce commodity --- something that, like water in a desert, must be
guarded and conserved.

What we really need, then, is not so much a theory of money, but a
theory of why people *misunderstand* money.

### The quantified obligation

To think about why people misunderstand money, let's keep the definition
of money in our heads. The anthropologist David Graeber defines it best.
Money, he argues, is a *quantified obligation*. The holder of money is
entitled to receive things from other people. (See his book [*Debt: The
First 5000
Years*](https://www.goodreads.com/book/show/6617037-debt){target="_blank"
rel="noopener"} for a detailed exposition.)

We can see from this definition that money is a powerful tool. In fact,
it's a tool for power. If I have a lot of money, I can get other people
to do my bidding. This fact is hardly controversial. We all know the
adage that 'money is power'. But somehow we forget this adage when we
think about money creation. Money is nothing but a quantified
obligation, so in principle anyone can create it. But in practice, few
people have this power. The problem is that for money to circulate,
people must trust that they can use it to receive an obligation. I could
*try* to circulate a note that says 'Blair owes you one hug'. But other
than my wife and daughter, few people want that IOU. So it will never
circulate as money.

In practice, money creation is done almost exclusively by the powerful.
Textbooks on money will use the word 'trust'. They'll say that money can
circulate as long as we *trust* the issuer. This is true, but neglects
the flip side of trust. When you trust someone, you endow them with
*power*. When soldiers trust their commanding officer, they're likely to
obey orders. That gives the commander power. Trust, in many ways, is the
basis of power. You can't have stable power relations without it.

So while I could *try* to create money, few people would be interested.
I lack the trust of the public, which is another way of saying that I
have little power. But if *government* wants to create money, many
people are interested. Many people trust the government, which is why
governments have power.

### Legitimate violence

The sociologist [Max
Weber](https://en.wikipedia.org/wiki/Max_Weber){target="_blank"
rel="noopener"} famously defined the 'state' (i.e. government) as having
a 'monopoly on the legitimate use of violence'. I think we could equally
define the 'state' as having a monopoly on the legitimate creation of
money.[^1^](#fn1){#fnref1 .footnote-ref} There are interesting
parallels, in fact, between violence and money.

Just like anyone can create money, anyone can do violence. You could
walk onto the street right now and shoot someone. But most of us don't.
Why? First, because we think it's wrong. Second, because the state
punishes murderers. In other words, violence in modern societies is
highly regulated. The same is true of money. Technically, anyone can
create money. But few of us do. Your personal IOU will never circulate
widely. And if you try to create state-backed money, the government will
punish you. Like violence, the creation of money is tightly regulated.
To see this fact, we need only look at language. We have a name for
taboo violence (*murder*) and we have a name for taboo money creation
(*counterfeiting*).

Those of us raised in stable societies take for granted both the
regulation of violence and of money. This regulation begins to feel like
a 'natural order'. But if you were raised in a war-torn country, I
suspect you'd feel differently. You'd understand that anyone can do
violence --- with devastating results. And if you lived through a period
of hyper-inflation, you'd probably better understand that anyone can
create money. (People tend to make their own money when government
currency breaks down.)

### Limits to government power

One of the main thrusts of modern monetary theory is to point out that
government spending has no limits. If governments control their own
currency, they can spend as much money as they want by creating money
out of thin air. The interesting question is not whether this is true.
It's *trivially true* --- much like it's trivially true that a green
traffic light means go. Any currency issuer (government or otherwise)
can create as much money as they want. The interesting question is why
governments *don't* spend unlimited amounts of money.

Many economists will trumpet inflation as the boogeyman. Create too much
money, they say, and you'll have hyperinflation. Just look at what
happened in the [Weimar
Republic](https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic){target="_blank"
rel="noopener"}. It's true that money creation can lead to inflation.
But MMT proponents point out that this has an easy solution. Government
can *destroy* money just as easily as it can create it. Government
spending creates money. Government taxation destroys it. Again, this is
trivially true. And yet few (if any) governments accept this truism. In
fact, most governments behave as if money, like water, is a scarce
commodity. Why?

The answer, I believe, has to do with *power*. The creation of money is
inseparable from the accumulation of power. Here's an example. Suppose
that I'm a king who claims the sole authority to create money. And
suppose that everyone in my kingdom accepts this right. I create hordes
of money and use it to buy all the land in my kingdom. I put the landed
aristocracy out of business. And in so doing, I put all the citizens
under my command. Everyone, in effect, becomes a state employee. It's
the totalitarian dream --- an entire society unified under a single
hierarchy.

This tale is, of course, a fantasy. The problem for a real king is that
his subjects probably won't accept his right to create unlimited amounts
of money. There will be pushback, largely from other powerful people.
The landed aristocracy, for instance, won't want to give up their land.
So they'll oppose the king's right to create money (and to tax it out of
existence). History shows that rather than being sovereign money
creators, feudal kings were in perpetual need of finance. This is just
another way of saying that kings were relatively *weak*. They lacked the
power to finance themselves.

What is true for the feudal king is true for modern governments. Like
the king, governments can *in principle* create as much money as they
want. But *in practice* they don't, because there are limits to their
power. When governments create money, they accumulate power, which
implicitly means taking power away from other (powerful) people. The
landed aristocracy didn't want to cede control of their land to the
king. And modern corporations don't want to cede power to the
government. And so these corporations act continuously to oppose
government money creation.

### The arbitrariness of power

I'm hardly the first to connect money creation with power. It's been
done countless times before. And yet many (most?) people still
misunderstand money. Why? A good theory of money should explain this
misunderstanding. Why --- despite it being plainly true --- do we recoil
at the idea that anyone can create money, and as much of it as they
want?

My suspicion is that accepting this fact is difficult because it means
accepting that our existing social order is *arbitrary*. Those who
create money do so not out of any natural right, but because of power
that has been arbitrarily given to them. Nothing makes the human mind
recoil like learning that the things we hold dear --- the patterns and
behaviors that dominate our lives --- are arbitrary.

This points to a deep truth about human behavior. Our social conventions
are, by definition, arbitrary. And yet the existence of these
conventions is predicated on us believing that they are *not* arbitrary.
One of the worst things you can say about a law is that it is
'arbitrary'. Convince enough people of this fact and the law will soon
change. Similarly, one of the worst things you can say about money
creation is that it is 'arbitrary'. Our social order depends on us
forgetting (or refusing to see) this fact. The flip side is that
*changing* the social order means *remembering* this arbitrariness.

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\[Cover image:
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rel="noopener"}\]

### Notes

::: {.footnotes}
1.  [I can hear your objections. Private banks create money --- so how
    can government have a monopoly on the legitimate creation of money?
    I think of banks as the equivalent of military subcontractors. The
    latter are private-sector institutions that have been given the
    right to do violence. The same is true with banks, only with money.
    Banks are private-sector institutions that have been given the right
    to create money. Just as easily as it was given, government could
    take this right away.[↩](#fnref1){.footnote-back}]{#fn1}
:::

### Further reading

::::::: {#refs .references}
::: {#ref-galbraith_money_1975}
Galbraith, J. (1975). *Money: Whence it came, where it went*. London:
Deutsch.
:::

::: {#ref-graeber_debt:_2010}
Graeber, D. (2010). *Debt: The first 5,000 years*. New York: Melville
House Pub.
:::

::: {#ref-robbins_debt_2016}
Robbins, R. H., & Di Muzio, T. (2016). *Debt as power*. Manchester
University Press.
:::

::: {#ref-rowbotham_grip_1998}
Rowbotham, M. (1998). *The grip of death: A study of modern money, debt
slavery and destructive economics*. Jon Carpenter Publishing.
:::
:::::::


I’ve always been baffled why ‘modern monetary theory’ is called a

 theory

. I don’t mean this in a disparaging way. As far as theories of money go, I think modern monetary theory (MMT for short) is the correct one. But having a correct theory of money is a bit like having a correct theory of traffic lights. Traffic lights (like money) are a social convention.

Why Isn’t Modern Monetary Theory Common Knowledge?

I discuss biophysical constraints on our ability to cope with the current pandemic.

Back in January, physicist [Brian
Stewart](https://www.wesleyan.edu/academics/faculty/bstewart/profile.html#){target="_blank"
rel="noopener"} asked me to give a talk to his "[Radical
Sustainability](https://owaprod-pub.wesleyan.edu/reg/!wesmaps_page.html?stuid=&crse=009415&term=1201){target="blank"
rel="noopener"}" class at Wesleyan University. The talk was to be in
early April, and Brian offered to fly me to Connecticut for the
occasion. Luckily I decided at the time to give the lecture virtually.
So when the coronavirus forced us all to stay home, nothing much
changed.

On that note, here's a video of the talk. I decided to make it relevant
to our current situation, so I discussed how biophysical economics
relates to the coronavirus pandemic.

::::::: {.jetpack-video-wrapper}
:::::: {.iframe}
::: {#player}
:::

:::: {.player-unavailable}
# An error occurred. {#an-error-occurred. .message}

::: {.submessage}
[Try watching this video on
www.youtube.com](https://www.youtube.com/watch?v=jfbSq17INQs){target="_blank"},
or enable JavaScript if it is disabled in your browser.
:::
::::
::::::
:::::::

\[Embarrassing technical note: pop-up windows on my screen (which I've
edited out) cut off a few of the slides. You can download the original
slides
[here](https://economicsfromthetopdown.com/wp-content/uploads/2020/04/fix_biophysical_corona.pdf){target="_blank"
rel="noopener"}.\]

**Referenced links:** 
[Wikipedia article on modern monetary
theory](https://en.wikipedia.org/wiki/Modern_Monetary_Theory){target="_blank"
rel="noopener"} 
[Interview with L. Randall
Wray](https://www.youtube.com/watch?v=7sd-ElKMbPI){target="_blank"
rel="noopener"} 
[Vox article on modern monetary
theory](https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained){target="_blank"
rel="noopener"}

### Summary

As I see it, there are two constraints on our ability to deal with the
coronavirus pandemic. The first constraint is *money*. This gets all the
press right now --- and rightly so. To slow the spread of the
coronavirus, millions of people are staying home from work. Since we
don't want these people to starve, we need to somehow give them money.
But where should this money come from?

While this appears like a monetary constraint, it's actually a *social*
constraint. Money is a social fiction that we can create and destroy at
will. So at the societal level, 'not having enough money' isn't a real
constraint. No, the real constraint is about who has the *power* to
create and distribute money. We usually give most of this power to the
private sector. (Banks create the majority of money when they issue
credit.) We forget that the government can also create money.
Fortunately, many governments of the world are rediscovering this power,
and are paying their citizens to stay at home.

While this (apparent) monetary constraint is on the top of our minds,
there are also *biophysical* constraints on how we can deal with the
coronavirus pandemic. These biophysical constraints are little
discussed, but they're more fundamental than the lack of money.

These biophysical constraints have to do with industrialization, which
has greatly changed the structure of society. Some of this social change
makes coping with pandemics easier. Some makes it harder.

Let's start with the bad. Two hundred years ago, most people lived in
rural areas. This made it easy to keep your distance from other people
(if you had to). Now the vast majority of us live in cities, making it
hard to stay away from other people. So urbanization has made it more
difficult to fight pandemics.

Fortunately, another demographic change offsets the affects of
urbanization. To slow the spread of the virus, many of us are being paid
to sit at home and do nothing. Two hundred years ago this would have
been impossible. Why? Because at the time, most people were farmers. If
they didn't go to work, the population would starve. So a sweeping
'stay-at-home' order would have been impossible.

<figure class="wp-block-image">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2020/04/us_pyramid-e1586860194534.png?resize=723%2C333&amp;ssl=1"
class="wp-image-1441" loading="lazy" decoding="async"
data-attachment-id="1441"
data-permalink="https://economicsfromthetopdown.com/us_pyramid/"
data-orig-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2020/04/us_pyramid-e1586860194534.png?fit=3317%2C1528&amp;ssl=1"
data-orig-size="3317,1528" data-comments-opened="1"
data-image-meta="{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}"
data-image-title="us_pyramid" data-image-description=""
data-image-caption="&lt;p&gt;us sector pyramid&lt;/p&gt;
"
data-medium-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2020/04/us_pyramid-e1586860194534.png?fit=300%2C138&amp;ssl=1"
data-large-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2020/04/us_pyramid-e1586860194534.png?fit=723%2C333&amp;ssl=1"
data-recalc-dims="1" width="723" height="333" />
<figcaption>Figure 1: The demographic inversion in the
US. The sector composition of the US in 1800 (left) and in 2010
(right). [Source: <a
href="https://www.econstor.eu/bitstream/10419/157974/1/bna-426_20150000_fix_rethinking_economic_growth_theory_preprint.pdf"
target="_blank" rel="noopener">Rethinking Economic Growth Theory from a
Biophysical Perspective</a>]</figcaption>
</figure>

Now things are different. As Figure 1 shows, the US has undergone an
astonishing 
demographic inversion. The vast majority of people now work in the
service sector. This means that many of us can simply not work. Sure,
without a large service sector we can't get our lattes or our manicures.
But we won't starve.

So the coronavirus pandemic is forcing us to run a vast social
experiment. The research question is this: in the short run, how many
jobs can society do without? The answer, it would appear, is an awful
lot.

### Further Reading

Fix, B. (2015). *Rethinking economic growth theory from a biophysical
perspective*. Springer.

Graeber, D. (2018). *Bullshit jobs--a theory*. Penguin.

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Back in January, physicist Brian Stewart asked me to give a talk to his “Radical Sustainability” class at Wesleyan University. The talk was to be in early April, and Brian offered to fly me to Connecticut for the occasion. Luckily I decided at the time to give the lecture virtually. So when the coronavirus forced us all to stay home, nothing much changed. On that note, here’s a video of the talk.

Biophysical Economics and the Coronavirus Pandemic

Has the digital revolution made wealth non-material?

> A revolution is underway around us and it's called the digital. And
> it's changing everything. More than 80% of wealth is now non-material.
>
> ::: {style="text-align:right;"}
> --- Charles Foran in [Just don't say his name: the modern left on Karl
> Marx's place in
> politics](https://www.cbc.ca/radio/ideas/just-don-t-say-his-name-the-modern-left-on-karl-marx-s-place-in-politics-1.5276873){target="_blank"
> rel="noopener"} (41:30)
> :::

Has wealth gone digital?

Both critics and cheerleaders of capitalism claim it has. The critics
see non-material wealth as a problem. Digital wealth, they say, is
*fictitious*. It's lost touch with reality.

The cheerleaders of capitalism see the same thing as a boon.
Non-material wealth, they say, will decouple the economy from physical
constraints. So the economy can grow forever!

Which side is right?

Neither, in my opinion.

Instead, both sides misunderstand the nature of wealth. Wealth is not
*becoming* non-material. No. Wealth has *always* been non-material. So
the digital revolution isn't changing the nature of wealth. It's just
laying bare the facts that have always been there.

### What is wealth?

We use the word 'wealth' all the time. We say things like "Bill Gates is
wealthy", or "The United States is a wealthy nation". But what do we
mean by this? What exactly is 'wealth'?

When we stop to think about the word 'wealth', we find that it has two
meanings.

Sometimes we use the word 'wealth' to mean *stuff* --- a stock of goods.
So wealthy people are those who have lots of stuff. They own mansions,
sports cars, yachts and private jets. Think of the opulence showcased on
the 1980s show [Lifestyles of the Rich and
Famous](https://en.wikipedia.org/wiki/Lifestyles_of_the_Rich_and_Famous){target="_blank"
rel="noopener"}.

But wealth can also mean *money*. If I have a billion dollars in the
bank, I'm wealthy --- even if I have no stuff at all.

So is wealth stuff? Or is it money?

Mainstream economists say it's both. Wealth, they say, has two sides.
It's both a 'real' stock of goods and a symbolic stock of money. The
key, economists say, is that the two sides are related. The monetary
side of wealth quantifies the material side. Conversely, the material
side of wealth is what 'backs' the monetary side.

### Wealth distortions

Because (say economists) wealth has two sides, this opens the door for
'distortions'. A distortion occurs when the two sides of the wealth coin
don't add up. Somehow monetary wealth gets out of whack with material
wealth.

When monetary wealth *overstates* material wealth, economists say
there's a bubble. Conversely, when monetary wealth *understates*
material wealth, economists say that assets are 'undervalued'. In either
case, monetary value isn't doing its job correctly. It's distorting
(rather than representing) the 'true' stock of material wealth.

The idea of a wealth distortion is used by people of all political
stripes. Curiously, their claims are often mutually contradictory.

Mainstream economists use the idea of wealth distortions to advocate
free markets. Government intervention, they claim, 'distorts' prices. If
the government would just let the market be, wealth distortions would go
away and 'true' prices would be restored. At least, that's what
economists tell us.

Critics of capitalism turn this logic on its head. They see wealth
distortions as a sign that capitalism (not government) has run amok.
Companies like Facebook and Google, critics observe, are worth billions
of dollars. But these companies don't produce anything 'real'. And so
the critics claim that wealth is becoming
[fictitious](http://fuchs.uti.at/wp-content/time.pdf){target="_blank"
rel="noopener"}. And this, in turn, is a sign that capitalism is in
trouble. It's lost touch with material reality.

In contrast, techno-optimists think digital wealth is good for
capitalism. It's a sign that companies are learning to produce (real)
wealth without using resources. So we should celebrate, because wealth
is becoming decoupled from material constraints.

Nearly everybody, it seems, uses the idea of wealth distortions to
promote their (mutually contradictory) agendas. This is a sure sign that
there's a problem with our concept of wealth. Ideas that are infinitely
malleable usually turn out to be wrong. Or worse, they're *not even
wrong* (they can never be tested).

The duality of wealth probably falls into both categories.

It's not even wrong because there is no single way to objectively
measure the material side of wealth. Any material definition of wealth
is based on subjective decisions about the dimension of analysis. And
these decisions affect the resulting stock of 'real' wealth. (See [The
Aggregation
Problem](https://osf.io/preprints/socarxiv/tfwju/){target="_blank"
rel="noopener"} for an explanation of this dilemma). So the idea that
monetary value could misrepresent the stock of 'real' wealth is
untestable.

The duality of wealth is also just plain wrong. It's based on a
misunderstanding of the nature of wealth. Wealth is not about property
--- the stuff that is owned. Instead, wealth is about the *act* of
ownership. Wealth is about property *rights*.

### Property vs. property rights {#property-vs.-property-rights}

What's the difference between property and property rights? Think of the
difference between a fence and whatever it surrounds. The fence
represents property rights. The stuff inside the fence is property.

This distinction is important, because the value of wealth doesn't stem
from property. It stems from property rights. Without the fence of
property rights, anyone can use your property for free. And when it's
free, your property has no value. So monetary wealth depends on property
rights, not property itself.

Skeptical? Think about this real-life example. A hotshot programmer
creates a new operating system. The OS is heralded as revolutionary and
is adopted by millions of people.

Does the programmer become wealthy?

It depends on property rights.

Suppose our programmer is Bill Gates. When he released MS-DOS (and later
Windows), Gates fiercely enforced property rights. He patented his
software and made people pay to use it. Through a series of shrewd deals
with manufacturers, Microsoft eventually gained a near monopoly on PC
operating systems. And as we all know, Gates became a wealthy man.

Now suppose our programmer is Linus Torvalds. In the 1990s, Torvalds
created the Linux operating system. Although adoption was slow at first,
Linux now dominates the server market. And through its derivative,
Android, Linux also dominates the smartphone market.

So Torvalds got rich, right? Actually no. Torvalds released Linux as
open source software, meaning it's free for anyone to use. Because
Torvalds didn't enforce property rights, he didn't get rich like Bill
Gates.

The lesson here is that without property rights, goods and services
don't have a price. And without a price, they don't get counted as
'wealth'.

### Don't look inside the fence

Property rights are the fence that gives property value. Now here's the
important thing. When it comes to determining value, it doesn't matter
what's inside the fence. It could be a house. It could be machinery. It
could be knowledge. What matters is the fence itself. The fence --- the
ability to enforce property rights --- is the source of the owner's
monetary wealth.

To illustrate that it doesn't matter what's inside the fence of property
rights, Jonathan Nitzan and Shimshon Bichler compare Microsoft and
General Motors. The chart below shows different features of each
company.

<figure id="attachment_795" class="wp-caption alignnone"
aria-describedby="caption-attachment-795" style="width: 674px">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2019/09/gm_microsoft.png?resize=674%2C549&amp;ssl=1"
class="alignnone size-full wp-image-795" loading="lazy" decoding="async"
data-attachment-id="795"
data-permalink="https://economicsfromthetopdown.com/gm_microsoft/"
data-orig-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2019/09/gm_microsoft.png?fit=674%2C549&amp;ssl=1"
data-orig-size="674,549" data-comments-opened="1"
data-image-meta="{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}"
data-image-title="gm_microsoft" data-image-description=""
data-image-caption="&lt;p&gt;microsoft vs general motors&lt;/p&gt;
"
data-medium-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2019/09/gm_microsoft.png?fit=300%2C244&amp;ssl=1"
data-large-file="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2019/09/gm_microsoft.png?fit=674%2C549&amp;ssl=1"
data-recalc-dims="1" width="674" height="549" alt="gm_microsoft" />
<figcaption> 
Source: Nitzan and Bichler, <a
href="http://bnarchives.yorku.ca/259/2/20090522_nb_casp_full_indexed.pdf"
target="_blank" rel="noopener">Capital as Power</a> 
</figcaption>
</figure>

In 2005, Microsoft's market value was 2,583% greater than that of
General Motors. Mainstream economists would say that Microsoft therefore
had more property than GM. But more of what? Nitzan and Bichler point
out that when we look under the hood of market value, there's nothing
'real' to back it up. Microsoft, for instance, has only 18% as many
employees as GM. And it owns only 3% as much equipment (in dollar
terms).

So is this a distortion? Is it a sign that Microsoft's wealth is
fictitious? No, say Nitzan and Bichler. Wealth isn't about material
property. Instead, they argue that wealth is a commodification of
property rights. So Microsoft's greater market value stems from its
greater ability to convert property rights into income. That Microsoft
can do this without owning bricks and mortar is interesting, but not
surprising. As intellectual property teaches us, property rights need
not be attached to anything physical.

### The power of owners

If monetary wealth stems from property rights, how should we interpret
its value? Jonathan Nitzan and Shimshom Bichler have a provocative
answer. The value of property rights, they argue, indicates the relative
power of owners.

Nitzan and Bichler's reasoning is simple. Property rights are about
*exclusion*. And exclusion is about *power*:

> The most important feature of private ownership is not that it enables
> those who own, but that it disables those who do not. Technically,
> anyone can get into someone else's car and drive away, or give an
> order to sell all of Warren Buffet's shares in Berkshire Hathaway. The
> sole purpose of private ownership is to prevent us from doing so. In
> this sense, private ownership is wholly and only an institution of
> exclusion, and institutional exclusion is a matter of organized power.
>
> ::: {style="text-align:right;"}
> (Nitzan and Bichler in [Capital as
> Power](http://bnarchives.yorku.ca/259/2/20090522_nb_casp_full_indexed.pdf){target="_blank"
> rel="noopener"})
> :::

If we think like Nitzan and Bichler, we realize that wealth is not a
*thing*. It's an *act*. Wealth is the commodification of an act of
exclusion --- an act we call property rights.

### When only the fence is left

If Nitzan and Bichler are right (and I think they are), then the digital
revolution is not making wealth non-material. Instead, it's just laying
bare the fact that wealth has *always* been non-material. Wealth has
always been about power.

What has confused economists for centuries is that they've focused on
what's inside the fence of property rights, not the fence itself. And
who can blame them? Historically, the things that were owned were easy
to see. In contrast, the act of ownership --- the institutional fence of
private property --- was abstract. And so economists tied wealth to
property, not the property-rights fence.

The confusion dates back to the
[physiocrats](https://en.wikipedia.org/wiki/Physiocracy){target="_blank"
rel="noopener"}. They saw agricultural land and proposed that it was the
source of all value. The physiocrats couldn't see that it was the
landowner's (institutional) fence that made him wealthy, not the land
itself.

Then came the neoclassical economists. They saw capital (machines and
factories) and proposed that it was a source of value. The neoclassical
economists couldn't see that it was the capitalist's (institutional)
fence that made him wealthy, not capital itself.

Then came the digital revolution. New companies emerged (like Facebook
and Google) that owned nothing but algorithms. Wealth had suddenly
become non-material. Or so it seemed to economists.

In reality, wealth had always been non-material --- a social relation of
exclusion. The digital revolution just laid this fact bare because it
emptied out property, leaving only the fence of property rights. The
digital revolution got rid of land. It got rid of physical capital. It
got rid of all the physical things on which to pin wealth. All that was
left (in digital tech firms) was the fence of property rights. And this
fence was put up around the most non-material of things --- ideas
themselves.

### Changing power

If the digital revolution isn't making wealth non-material, what is it
doing?

Like previous revolutions, the digital revolution is changing who has
power in our society. Tech firms are wrestling power from industrial
firms. Two hundred years ago the industrial revolution did something
similar. In it, the captains of industry wrestled power from the landed
aristocracy.

Nitzan and Bichler's insight is to realize that we can study the power
of different types of owners using the value of their property rights.
This is an exciting research area that we're only beginning to
investigate.

So yes, the value of property rights is increasingly dominated by tech
firms. But no, this doesn't mean that wealth is *becoming* non-material.
Wealth is the commodification of a social relation --- the right of
owners to exclude everyone else. As such, wealth has *always* been
non-material.

### Notes

Cover image is by [Markus
Spiske](https://www.pexels.com/@markusspiske){target="_blank"
rel="noopener"}.

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Has wealth gone digital? Both critics and cheerleaders of capitalism claim it has. The critics see non-material wealth as a problem. Digital wealth, they say, is

 fictitious

. It’s lost touch with reality. The cheerleaders of capitalism see the same thing as a boon. Non-material wealth, they say, will decouple the economy from physical constraints. So the economy can grow forever! Which side is right? Neither, in my opinion.

Has Wealth Gone Digital?

Björn Brembs

The question in the title is serious: of the \~US\$10 billion we
collectively pay publishers annually world-wide to hide publicly funded
research behind paywalls, we already
[know](https://bjoern.brembs.net/2014/07/are-we-paying-us3000-per-article-just-for-paywalls/)
that only between 200-800 million go towards actual
[costs](https://bjoern.brembs.net/2015/06/what-goes-into-making-a-scientific-manuscript-public/).
The rest goes towards profits (\~3-4 billion) and paywalls/other
inefficiencies (\~5 billion). What do we get for overpaying such
services by about 98%? We get a literature that essentially lacks every
basic functionality we've come to expect from any digital object:

- Limited access
- Link-rot
- No scientific impact analysis
- Lousy peer-review
- No global search
- No functional hyperlinks
- Useless data visualization
- No submission standards
- (Almost) no statistics
- No content-mining
- No effective way to sort, filter and discover
- No semantic enrichment
- No networking feature
- etc.

Moreover, inasmuch as we use the literature (i.e., in terms of
productivity and/or journal rank) to help us select the scientists for
promotion and funding, we
[select](https://bjoern.brembs.net/2016/05/on-the-productivity-of-scientists/)
the candidates publishing the [least
reliable](https://bjoern.brembs.net/2016/01/even-without-retractions-top-journals-publish-the-least-reliable-science/)
science.

Taken together, we pay 10 billion for something we could have for 200
million in order to buy us a completely antiquated, dysfunctional
literature that tricks us into selecting the wrong people. If that isn't
enough to hit the emergency brakes, what is?

We may not be able to buy paradise with 10b annually, but with such a
low bar, it's easy to get anything that's at least not equally abysmal.
The kind of modern technology we *can* buy would probably
[solve](https://bjoern.brembs.net/2015/04/what-should-a-modern-scientific-infrastructure-look-like/)
most of the most pressing issues with our literature, cover all our
needs in terms of data and make sure we can cite and reuse all
scientific code in a version-controlled manner -- and then leave a few
billion to play around with every year.

With the fruits of our labor firmly in our own control, we would have a
flourishing market of services, such that whenever our digital
infrastructure would lack the functionalities we expect or becomes too
expensive, we can either switch service providers or hire our own
experts without loosing our content.

As an added benefit, cutting the steady stream of obscene amounts of
money to a parasitic industry with orthogonal interests to scholarship
would prevent further buyouts of scholarly ventures such as Mendeley or
SSRN and with it the disappearance of [valuable scholarly
data](https://savageminds.org/2016/05/18/its-the-data-stupid-what-elseviers-purchase-of-ssrn-also-means/)
in the dark underbelly of international corporations.

One reason often brought up against canceling subscriptions is that
faculty would complain about the lack of access subscription
cancellations would entail. However, already published literature can in
principle (although substantial technical hurdles still need to be
overcome) be accessed via a clever combination of services such as
automated, single-click inter-library loan,
[LOCKSS](https://www.lockss.org/) and
[Portico](https://www.portico.org/digital-preservation/). Moreover, some
libraries have seen substantial cost-savings by canceling subscriptions
and instead supporting individual article downloads. Finally,
institutional repositories as well as pre-print archives need to be
leveraged whenever the publisher-version isn't available. After all, we
have [DOAI](https://doai.io/) and the pre-print versions are [almost
identical](https://arxiv.org/abs/1604.05363) to the final article. With
such an effort, most users likely wouldn't experience more than maybe a
few hiccups, but they're already used to patchy access anyway, so it
wouldn't look vastly different from what people are experiencing now. In
fact, if subscriptions were canceled, there would be a substantial
incentive to get the most modern access tools and to keep them up to
date, so for many institutions this might actually increase the spread
and ease of access, compared to the current largely subscription-only
access model. Thus, it is technically feasible to cancel all
subscriptions in a way that most users probably wouldn't even notice it.
Essentially, all we'd have to manage is replacing one patchy access
system with another patchy access system. While this may not exist
out-of-the-box, yet, it should not be too complicated to assemble from
existing technologies. One could call this a "legal
[Sci-Hub](https://bjoern.brembs.net/2016/02/sci-hub-as-necessary-effective-civil-disobedience/)".
Add to that an information campaign that alerts users that while no
major disruption is anticipated during the transition, some minor
problems may arise, and everyone will support this two decades overdue
modernization.

Another reason often provided is that the international cooperation
between institutions required for such a system-wide cancellation to be
effective were impossible to accomplish. That is a problem less easily
dismissed than the supposed lack of access to the literature. After all,
some governments explicitly don't want their institutions to cooperate,
they want them to compete, and even to develop "[world-class
competitiveness](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31930/10-p58-bis-business-plan.pdf)"
(page 17):

[![competitiveness](https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/Ci5wU-mWsAAgwNZ1.jpg){.aligncenter
.size-full .wp-image-1313 decoding="async" width="598" height="78"
srcset="https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/Ci5wU-mWsAAgwNZ1.jpg 598w, https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/Ci5wU-mWsAAgwNZ1-300x39.jpg 300w, https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/Ci5wU-mWsAAgwNZ1-50x7.jpg 50w"
sizes="(max-width: 598px) 100vw, 598px"}](https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/Ci5wU-mWsAAgwNZ1.jpg)

In this regard, I recently listened to a podcast interview with
[Benjamin Peters](https://mitpress.mit.edu/authors/benjamin-peters),
author of "[How not to network a
nation](https://www.amazon.ca/How-Not-Network-Nation-Internet/dp/0262034182)".
His description of the failure to develop the internet in the Soviet
Union (compared to the successful developments in the West) reads like
an account of how not to make open access a reality:

> the American ARPANET took shape thanks to well-managed state subsidies
> and collaborative research environments and the Soviet network
> projects stumbled because of unregulated competition among
> self-interested institutions, bureaucrats, and others.

We need the same collaborative spirit if institutions are to abandon
subscriptions, just as they cooperated to spend money to draw cables
between institutions, even though they were separated by borders and
even oceans. If in the 1980s, our institutions collaborated across
nations and continents to spend money on a research infrastructure
nobody yet knew, can't they collaborate now to save money being wasted
on an obviously outdated infrastructure? Has neoliberal worship of
competition poisoned our academic institutions to such a degree, that
within 25 years they went from cooperating even if it means spending
money to never cooperating even if it means saving money? I refuse to
believe that, even though that's what some try to tell me.

Instead of trying to tell scholars to behave ethically in spite of the
downsides to them personally, maybe we ought to tell institutions that
our infrastructure is outdated and that we need the functionalities
everybody else but academics are enjoying? We need to get the same
mechanisms going that in the 1980s got our universities to invest in
networking hardware and cables, despite a functioning telephone and
snail mail system. Cancelling subscriptions doesn't mean losing access,
so nobody can tell me that canceling subscriptions is more difficult
than installing compatible networking hardware across the globe. I'm now
paying for my phone bills out of my budget, while my skype calls are
provided by my university. Maybe rather than trying to convince scholars
to choose the ethical over the advantageous, it would be more effective
to ask our institutions to provide us with modern technology and have
those who still want to use the legacy version pay for it themselves?

Framing our issue as an ethical one ("the public needs access to
publicly funded research!") may work, but it is a slow, ineffective and
uncertain approach. Framing it as merely a technical modernization
strikes me as potentially quicker, straightforward and effective.

***UPDATE** (May 23, 2016):*

Some people have asked for evidence that canceling subscriptions and
instead relying on individual downloads can save money. Besides hearsay
from several libraries,
[this](https://twitter.com/hildabast/status/732641033071251459) is a
piece of evidence which should be quite convincing that this can work
for some publisher/library combinations (click for larger version):

[![wiley
tokens](https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/CirdIq6XEAA3thR1-225x300.jpg){.aligncenter
.wp-image-1317 .size-medium loading="lazy" decoding="async" width="225"
height="300"
srcset="https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/CirdIq6XEAA3thR1-225x300.jpg 225w, https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/CirdIq6XEAA3thR1-38x50.jpg 38w, https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/CirdIq6XEAA3thR1.jpg 600w"
sizes="(max-width: 225px) 100vw, 225px"}](https://bjoern.brembs.net/wp/wp-content/uploads/2016/05/CirdIq6XEAA3thR1.jpg)So
if libraries were to cooperate in identifying more such opportunities
and then cleverly combine this action with LOCKSS and/or Portico as well
as smart (single-click) ILL between those libraries whose Big Deals have
already run out and those which are still running, given enough
participants, almost all of the already published literature ought to be
accessible. It may not be trivial, but it's definitely feasible and the
technical problems are not the main obstacle -- it's the collaboration
that needs to be established. Moreover, this only needs to work for a
relatively short time, until most of the journals have run dry of
funding and ceased to exist.

**Update to the update** (June 8, 2016): Similar to the example above,
[other
libraries](https://www.lib.fsu.edu/news/fsu-libraries-journal-subscription-changes)
have canceled big deals and come out ahead. Also here, providing
previously subscribed content combined with rapid ILL from collaborating
institutions worked just fine. (Link thanks to Micah, in the comments)

Indeed, the OA Tracking project at Harvard is collecting such examples
under their own
[oa.cancellations](https://tagteam.harvard.edu/hubs/3/tag/oa.cancellations)
tag. Quite a nice list of cancellations there. It's a fact, canceling
subscriptions can be done without faculty revolt and with substantial
savings.

***UPDATE II***

Triggered by online discussions, a few hypothetical use cases:

1.  A user is requesting an older document from a journal that their
    institution longer subscribes to, but was accessible in the past.
    The link resolver checks if it can be served via LOCKSS or Portico.
    If not (weird that LOCKSS/Portico would not serve if content was
    already purchased before!?), then the resolver extracts the article
    meta-data (importantly, the DOI for use with
    [DOAI](https://doai.io/)) and screens the institutional repositories
    or places such as PubMedCentral, arXiv/bioarxiv or ResearchGate for
    the document. If all that fails, the link resolver checks for ILL
    availability with an institution whose Big Deal has not expired,
    yet. If none of these 3/4 services can serve the document, then ask
    user if they want to send copy request to author (single click) or
    download individual article and pay the fee (faculty get informed
    about their usage/costs!).
2.  A user is requesting a brand new article from a journal that their
    institution is not subscribing to. The link resolver extracts the
    article meta-data (importantly, the DOI for use with
    [DOAI](https://doai.io/)) and checks for availability in
    repositories. If unavailable, check for ILL. Both not available, ask
    user if they want to send copy request to author (single click) or
    download individual article and pay the fee (faculty get informed
    about their usage/costs!).
3.  A user is requesting an older document from a journal their
    institution never subscribed to. The link resolver extracts the
    article meta-data (importantly, the DOI for use with
    [DOAI](https://doai.io/)) and checks all relevant repositories, then
    ILL. If both fail ask user if they want to send copy request to
    author (single click) or download individual article and pay the fee
    (faculty get informed about their usage/costs!).

***UPDATE III** (Jan 17, 2017):*

I've collected a short [list of
ten](https://bjoern.brembs.net/2016/12/so-your-institute-went-cold-turkey-on-publisher-x-what-now/)
different ways to access journal articles without a subscription, nine
of them completely legal. Clearly, canceling subscriptions (or not
renewing them) is not the big deal it once was. If we used the saved
funds to invest it in our [digital
infrastructure](https://bjoern.brembs.net/2015/04/what-should-a-modern-scientific-infrastructure-look-like/),
by the time all subscriptions had run out, we would look back and wonder
what took us so long.

***UPDATE IV** (Feb 16, 2017):*

Since the start of 2017, about 60 German institutions lost all access to
the journals of publisher giant Elsevier. According to a [news
report](https://www.nature.com/news/german-scientists-regain-access-to-elsevier-journals-1.21482?utm_content=buffer2bea8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer):

> The loss of access to Elsevier content didn't overly disturb academic
> routines, researchers say, because they found other ways to get papers
> they needed

It's official. It works. We don't need subscriptions.

***UPDATE V*** (May 2, 2017):

In addition to the [long list of
reports](https://tagteam.harvard.edu/hubs/3/tag/oa.cancellations) about
successful and painless subscription cancellations, there is now an
[evaluation of an informal
survey](https://scholarlykitchen.sspnet.org/2017/05/01/wolf-finally-arrives-big-deal-cancelations-north-american-libraries/)
of 31 US-based libraries. 24 of the sample had cancelled Big Deal
subscriptions and the author's conclusion was that "relatively few
libraries that actually do cancel their Big Deals end up regretting it".
Obviously, more and more libraries realize that subscriptions are bad
value for money and do just fine without them.

***UPDATE VI*** (December 14, 2017):

SPARC is now also [tracking big deal
cancellations](https://sparcopen.org/our-work/big-deal-cancellation-tracking/)
across the globe. It can be done, the evidence is out there for all to
see.


The question in the title is serious: of the ~US$10 billion we collectively pay publishers annually world-wide to hide publicly funded research behind paywalls, we already know that only between 200-800 million go towards actual costs.

Why haven’t we already canceled all subscriptions?

Cameron Neylon

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[David Crotty](http://www.cshblogs.org/cshprotocols/), over
atÂ [Scholarly Kitchen](http://scholarlykitchen.sspnet.org/) has [an
interesting piece on
metrics](http://scholarlykitchen.sspnet.org/2010/10/04/ouroboros-and-peer-review-new-proposals-continue-to-chase-their-own-tails/),
arguing that many of these have not been thought through because they
donâ€™t provide concrete motivation to researchers to care about them.
Really heâ€™s focused mainly on exchange mechanisms, means of persuading
people that doing high quality review is worth their while by giving
them something in exchange, but the argument extends to all sorts of
metrics. Why would you care about any given measure if achieving on it
doesnâ€™t translate into more resources, time, or glory?

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You might expect me to disagree with a lot of this but for the most part
I donâ€™t. Any credible metric has to be real, it has to mean something.
It has to *matter*. This is why connecting funders, technologists, data
holders, and yes, even publishers, is at the core of the [proposal Iâ€™m
working with at the
moment](http://cameronneylon.net/blog/a-collaborative-proposal-on-research-metrics/).
We need funders to want to have access to data and to want to reward
performance on those measures. If thereâ€™s money involved then
researchers will follow.

Any time someone talks about a â€œsystemâ€? using a language of currency
there is a key question you have to ask; can this â€œvalueâ€? can be
translated into real money. If it canâ€™t then it is unlikely people
will take it seriously. Currency has to be credible, it has to be taken
seriously or it doesnâ€™t work. How much is the cash in your pocket
actually worth? Cash has to embody transferable value and many of these
schemes donâ€™t provide anything more than a basic barter.

But equally the measures of value, or of cost have to be real.
Confidence in the reality of community measures is crucial, and this is
where I part company with David, because at the centre of his argument
is what seems to me a massive hole.

> â€œThe Impact Factor, flawed though it may be, at least tries to
> measure something that directly affects career advancementâ€"the
> quality and impact of oneâ€™s research results.Â  Itâ€™s relevant
> because it has direct meaning toward determining the two keys to
> building a scientific career, jobs and funding.â€?

The second half of this I agree with (but resent). But it depends
absolutely on the first part being widely believed. And the first part
simply isnâ€™t true. The Thomson Reuters Journal Impact Factor does not
try to to measure the quality and impact of individual research results.
TR are shouting this from the treetops at the moment. We know that it is
at best an extremely poor measure of individual performance in practice.
In economic terms, our dependence on the JIF is a bubble. And bubbles
burst.

The reason people are working on metrics is because they figure that
replacing one rotten measure at the heart of the system with ones that
are self-evidently technically superior should be easy. Of course this
isnâ€™t true. Changing culture, particularly reward culture is very
difficult. You have to tackle the self-reinforcement that these measures
thrive on â€" and you need to work very carefully to allow the bubble to
deflate in a controlled fashion.

There is one further point where I disagree with David. He asks a
rhetorical question:

> â€œShould a university deny tenure to a researcher who is a poor peer
> reviewer, even if he brings in millions of dollars in grants each year
> and does groundbreaking research?Â  Should the NIH offer to fund
> poorly designed research proposals simply because the applicant is
> well-liked and does a good job interpreting the work of others?â€?

Itâ€™s interesting that David even asks these questions, because the
answers seem obvious, self evident even. The answer, at least the answer
to the underlying question, is in both casesÂ *yes*. The *ultimate*
funders *should* fund people who excel at review even if they are poor
at other parts of the enterprise. The work of review must be valued or
it simply wonâ€™t be done. I have heard heads of university departments
tell researchers to do less reviewing and write more grants. And I can
tell you in the current UK research funding climate that review is well
off the top of my priority list. If there is no support for reviewing
then in the current economic climate we will see less of it done; if
there is no space in our community for people who excel at reviewing
then who will teach it? Or do we continue the pernicious myth that the
successful scientist is a master of all of their trades? Aside from
anything else basic economics tells us that specialisation leads to
efficiency gains, even when one of the specialists is a superior
practitioner in *both* areas. Shouldnâ€™t we be seeking those efficiency
gains?

Because the real question is not whether reviewers should be funded, by
someone in some form, but what the relative size of that investment
should be in a balanced portfolio that covers all the contributions
needed across the scientific enterprise. The question is how we balance,
these activities. How do we tension them? And the answer to that is that
we need a market. And to have a functioning market we need a functioning
currency. That currency may just be money, but reputation can be
converted, albeit not directly, into funds. Successfully hacking
research reputation will make a big difference to more effective
tensioning between different important and valid scientific research
roles, and that's why people are so interested in trying to do it.

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Image via Wikipedia  David Crotty, over atÂ Scholarly Kitchen has an interesting piece on metrics, arguing that many of these have not been thought through because they donâ€™t provide concrete motivation to researchers to care about them.

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