Marco de Wit March 20, 2022
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Part I:

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Part II

 

Our high technology civilisation is possible only by the invisible hand that makes it possible to support billions of people.

 

The motor of the invisible hand is private property that allows individuals to make contracts about interactions such as bartering or trading commodities against money. This creates market prices which help to coordinate production, distribution and consumption processes as if by an invisible hand.

 

[Pencil-movie]

 

High information costs

However, because of changing tastes and conditions prices do not give enough information about future supply and demand. It would be too expensive for producers and distributors to try to gather perfect information about changing conditions and especially the changing tastes of each individual consumer. Similarly it is too expensive for individual consumers to try to find out exactly what potential and actual commodities are being offered where and when and at what price and quality.

 

 

Guess and risk

Because of high information costs entrepreneurs have to make high risk investments by trying to guess what commodities will be in demand in the future at certain prices and how to produce and distribute those commodities to consumers. 

 

Monopolies and cartels

This uncertainty then causes the entrepreneurs to decrease information costs by controlling supply and prices with monopolies and cartels. These not only raise prices but also creates regulatory and state captures which lead to tyranny and wars.

 

Decreasing information costs

Production and consumption could be made more efficient if the entrepreneurs had more information about changing tastes and long-term demand. This could be arranged by making long term purchase contracts with individual customers. All that is needed are a middle-men who can help individual consumers to give information about their long-term wants and make sure that producers satisfy those wants with commodities that are as cheap and high quality as possible.

In the past consumer groups and cooperatives have functioned as such middle-men but with the development of the internet it is now possible to lower information costs much more drastically. All that is needed is an online website that offer business and personal consumer profiles that include all relevant information about the demands of consumers and supply of businesses. The website can then connects buyers and sellers either directly or through transaction cost lowering middle-men such as free online personal secretaries and personal consultants.

The only problem is that people and businesses would first have to enter their information to some website. This raises serious privacy issues but nowdays it is possible to encrypt information and make sure that the identities are revealed only during the transaction. Another problem is that such a website suffers from the chicken and egg dilemma. Why would one go to the trouble of entering one’s complete information to a website if many others have not already done so? Only if there are already many existing profiles is it possible to coordinate supply and demand so efficiently that great price reductions are possible.

However, there is one exception: Service providers such as lawyers, doctors, accountants and consultants are happy to have even a few more clients because the clients usually return. The service providers are even more eager to offer their services if they can do it online and serve the successively thus eliminating waiting times.

Transaction costs can further be decreased with middle-men such as free online personal secretaries that help make deals with both service providers (consultants) and product sellers (shops). These free online secretaries can also advertise the website and give the human touch to the system

It is as simple as that. Lowering information and transaction costs would greatly decrease consumer prices and increase business profits. Everybody would win by lowering the

 

 

 

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