The end of the cash nexus

by John Q on March 5, 2009

Tyler Cowen has a short post which covers a number of themes I’ve been going on about for ages, though never with a fully satisfactory analysis. He starts by pointing to work by Michael Mandel suggesting that much of the measured productivity growth in the US has been bogus (see also Matt Yglesias on this). I agree, particularly as regards the financial sector.

More interestingly, Cowen goes on to note that

there was some productivity growth but much of it fell outside of the usual cash and revenue-generating nexus. Maybe you will live until 83 rather than 81.5 and your pain reliever will work better. In the meantime you will read blogs and gaze upon beautiful people using your Facebook account. Those are gains to consumer surplus, but they don’t prop up the revenue-generating sectors of the economy as one might have expected.

I agree and I think the implications are profound, if still hard to predict with any accuracy. There has been a huge shift in the location of innovation, with much of it either deriving from, or dependent on, public goods produced outside the market and government sectors, which may be referred to as social production.

Some suggestions, not fully argued, over the fold

*If monetary returns are weakly, or even negatively correlated with the value of social production, there’s no reason to expect capital markets to do a good job in allocating resources to supporting innovation. (This point seems rather less controversial than when I made it in 2006.)

* As a corollary, it seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes (this issue is being discussed, in a much more abstract setting, at Crooked Timber)

* If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours. The financial crisis seems certain to produce at least a temporary drop in average hours, but the experience of the Depression and the Japanese slowdown of the 1990s suggest that the effect may be permanent

* Creativity, broadly defined, seems likely to become more important, while markets, particularly financial markets, become less so. Firms that want to survive and prosper will have to behave quite differently from the way the did in the past. Google is an obvious example of a firm that is trying to do this, if not always succeeding.



soru 03.05.09 at 8:58 pm

I suspect rather a lot of the modern economy, especially the housing market, is something vaguely analogous to dueling in the 18C.: a kind of invented way of making certain virtues (honour, thrift) still matter after they were in the process of becoming functionally obsolete, at least on the level of an individual, non-specialist citizen.

If that’s so, you’d only expect improvements in average welfare have as little to do with changes in the economy as a change in probability of being successfully invaded by the French had to do with an improvement in average sword-fighting skill.

The reverse doesn’t follow though – according to wiki, 4000 members of the French elite were killed in duels over a 18 year period, which does sound like it could have been militarily significant.


Jed Harris 03.05.09 at 9:25 pm

A bunch of reactions to this fascinating set of ideas.

We all agree a lot of the productivity growth outside the cash nexus is in peer production (such as all the contributions to this very discussion). Tyler’s comment seems to focus on the lighter weight part of that. He says “In the meantime you will read blogs and gaze upon beautiful people using your Facebook account.” He could also say “and investigate the human genome through thousands of professionally authored Wikipedia articles, all via your Firefox browser running on operating systems like the Mac OS or Linux.”

Not surprisingly the analysis by economists (Tyler Cowen, John Quiggin, Michael Mandel) focuses on the shrinking cash nexus. But shouldn’t those analytical tools be applied to the rapidly growing peer nexus, especially since the work there is economically (if not monetarily) very substantial? I agree with John that the capital markets will play a decreasing role in the allocation of scarce resources. But resources (including at least human creative efforts, computer storage, bandwidth and CPU energy, etc.) are still being allocated. What allocation processes are taking over from the capital markets? How well will these processes allocate resources to maximize welfare? What does this question even mean in the absence of prices as a universal measuring stick? (Shades of intersubjective utility…)

More to follow.


Jed Harris 03.05.09 at 9:54 pm

A bit more.

Back in 2007 I wrote a bit about how our social categories have to change due to the movement of innovation out of the cash nexus (though unfortunately I didn’t have that elegant phrase). My first post was about Capitalists vs. Entrepreneurs with a few more in the following months 1, 2, 3. But I’m only now beginning to have some ideas about the alternative fabric of coordination that could replace exchange and money. If anyone knows of work on this I’m very eager to hear about it.

Given the importance of the cash nexus it is hard to accurately value activities and products that don’t cost anything or generate revenue. But this is a perceptual and disciplinary problem we have to solve, or we’ll be running into future landscapes completely blind. We’re getting a lesson in how that feels from the credit markets right now.

Also as a footnote to my remark on the human genome and Wikipedia: One of the organizing mechanisms in Wikipedia are portals (which I only recently learned about); each portal provides an organized “front end” to a complex domain. Check out the portal for Molecular and Cellular Biology and the many many thousands of articles it refers to. Remember this is all outside the cash nexus, and be amazed.


Ian Milliss 03.05.09 at 10:46 pm

The open source movement has been growing for years as a sort of parallel universe to the “rubbish finance” sector – an almost equal and opposite reaction but constantly haunted by the stealing of the commons through corporate copyright and dodgy patents laws. I just wonder if in a perverse way this is how the invisible hand may have a bit more life in it, or maybe this is the real invisible hand rather than the corrupt and manipulated invisible hand of the financial markets. Regardless it is clear that human adaptation and ingenuity has produced large numbers of people who have been developing entirely different economic structures as the official structure corrupted irretrievably.


lemuel pitkin 03.05.09 at 11:42 pm

it is hard to accurately value activities and products that don’t cost anything or generate revenue.

Hard — or impossible?

Which is greater, an apple or an orange? Except in the context of a market exchange, the question isn’t so much hard to answer, as meaningless.


lemuel pitkin 03.05.09 at 11:48 pm

Which is more valuable?, I should have written.


Walt 03.06.09 at 12:00 am

Apple. Come on, Lemuel, ask a hard one.


DC 03.06.09 at 12:55 am

Obviously that would depend on the socially necessary (abstract) labour required to produce the apple/orange.

I think Leon Blum survived a duel by the way.


greensmile 03.06.09 at 1:03 am

I have come to the belief that most of our nation’s critical metrics, CSI in particular, are skewed for political reasons by the administration. They who write the paychecks for the Bureau of Labor Statistics get to call the tune. I was never particularly trusting of numbers touted by the Bush League but mostly just because they lied about so much else. Now I have just read Kevin Phillips’ Bad Money and I think its clear: the emperor’s resume’ is a forgery as much as his nudity is kidding no one but those who stare down the barrel of his guns.


Matt Steinglass 03.06.09 at 2:59 am

This is all pretty easy for academics to theorize about, since their salaries derive from a mix of government grants and tuition payments by students, a form of rent-seeking certification much like a guild system. That leaves them free to do a lot of free creative production that doesn’t itself generate obvious revenue. But the implications remain grimmer for anyone who was actually attempting to make creative content or information the basis of their income. We will increasingly have to find employment in economic sectors that do still fall within the cash nexus in order to subsidize that rather significant portion of our existence which requires cash, and conduct our creative and informational activities on a hobbyist basis. The academic world is of course one economic sector that remains within the cash nexus, but the glut of graduate students shows that it cannot absorb the demand for paying employment. It is unclear how many bureaucrats government can reasonably employ. The financial sector once seemed a promising place to send smart people with no other obvious avenue of employment, but as it turns out it was dangerous to allow creative people too much access to the world’s cash flow. So how, apart from trying to monetize the currently unmonetizable, are us non-academics (journalists etc.) supposed to pay our rent in this brave new world?


John Quiggin 03.06.09 at 3:00 am

Greensmile, do you mean CPI ?


Delicious Pundit 03.06.09 at 3:15 am

But the implications remain grimmer for anyone who was actually attempting to make creative content or information the basis of their income.

And all us sitcom writers nod our heads…


John Quiggin 03.06.09 at 3:54 am

Matt, these changes certainly won’t be beneficial to everyone – radical changes rarely are.

But your point reinforces my suggestion that we’ll see a move of resources out of the market sector, through less total hours of work (preferably shorter hours for all rather than higher employment). Obviously this implies less consumption of market goods, something that is inevitable in the short run anyway.


Eric H 03.06.09 at 4:20 am

Jed, have you read Eric S. Raymond’s The Bazaar and the Cathedral? As I recall, he suggests that reputation can be a replacement for cash and exchange (though mostly as a way to get to opportunities to make cash and exchange). As you imply, the Open Source movement is broadly replacing market coordination for any number of things, including cars, tools, and other hardware. See for example the Open Village Construction set project noted by Kevin Carson in a recent Mutualist Blog post.


John Quiggin 03.06.09 at 5:26 am

Eric, I’ve read the other Eric, and drawn on his ideas. But his focus on reputation, while relevant for open-source software wizards, is by no means the only motivation for social/non-market production. Dan Hunter and I have written a big paper about this


Utisz 03.06.09 at 8:13 am

Academics could do their bit by resisting the increasing marketisation of education. Most of them have the option to join a union and put this top of the agenda. Sadly, most of them have made a Faustian bargain for wage increases. By the way, I’d recommend The Commoner website, which has long been theorising autonomous spaces outside of the cash nexus.


bianca steele 03.06.09 at 2:09 pm

You keep talking about a trend toward fewer hours of work. I know very little about economics, though I occasionally read the business press, blogs, and general interest magazines. I haven’t been able to listen closely to NPR much lately either. I’ve tried to educate myself a little about economics, but haven’t found a way into the subject yet. So, though I know bits and pieces here and there, I don’t know how these trends are measured.

I just can’t grasp where that trend could be coming from. Salaried workers, who don’t get extra pay for more hours, are working longer hours. Hourly workers are frequently required to work mandatory overtime. What does “fewer hours” really mean?

I don’t know what “creative workers” means to academics, but in the general press (the NYT, Business Week), at least a few years ago, it seems to mean marketing, advertising, graphic design, journalism, the television industry, and innovation. In fields like law, it means the members of a firm who plan out strategy (those who do the grunt work — except, presumably, those being groomed for higher things, at least one hopes — would be located in lower-wage countries, such as India and China).


Alex 03.06.09 at 2:21 pm

This is a good question; how do you account for OSS in the national accounts? It’s there; it’s producing stuff; we know people value it because they use it, make it, and even sometimes pay for it despite it being theoretically free. But it’s econometrically invisible.


dsquared 03.06.09 at 2:28 pm

The national accounts measure transactions; if people pay for open source software that is recorded as consumption or investment. Otherwise it’s basically assumed to be a hobby.


bianca steele 03.06.09 at 3:01 pm

In fact, there are people who get salaries for developing open-source software — either as their only task or as one among others — just as there are people in industry who get salaries for following groups like the ITU.


BKN 03.06.09 at 3:38 pm

What Matt @ 10 said, plus the following: in my experience, most of the people beating the drum for Open Source and analogous movements/phenomena are either:
(a) tenured profs
(b) twenty-somethings whose activities are being subsidized by their parents, or who don’t mind living in a van, a tent, a squat, a friend’s basement, etc.

I’m neither (a) nor (b).


Shane Taylor 03.06.09 at 4:04 pm

Mandel says “The financial crisis is the symptom, not the cause.” Is this line some attempt to say “garbage in, garbage out,” and exonerate finance for its inherent instability? Do you think he has settled that it was not the reverse: the false measurement was a symptom, not the cause of deep problems in finance?


Bruce Baugh 03.06.09 at 4:57 pm

I’m a 40-something writer and editor who’s very keen on having a big commons, and have contributed to it with material for my own lil’ niche. And I’ve made some decent money through the commercial sale of well-formatted presentation of text that is, under the terms of the license used to write it, freely available for others in the field to reuse, with very few constraints. People will pay for the services of an art director, editor, and so on – at least, enough of them well to make sales that work out to a word rate as good or better than I’d have gotten writing the same kind of thing under terms that don’t allow for free reuse.

What I find, and what friends who’ve gone much more wholeheartedly into writing things with an eye on immediate release into the commons find, is that one ends up doing a different mix of work, but less radically transformed than either foolish hypesters or foolish critics assert. Good – which is to say, worth the while of some sufficient number of customers – work made in traditional ways will continue to flourish, simply because consumer time has value too, and nobody can play their own editor all the time. It’ll just exist alongside alternatives, with expectations shifting around in various directions.

The most important thing someone trying to create work they’d like to sell can do about the commons is to stop worrying about freeloaders. You can’t stop them anyway. Just focus on whether there’s enough of a paying audience, and how to identify and reach it and who cares about the rest?

My own concern is just the awareness of how much this all does depend on people still hauling away the garbage, stocking the store shelves, delivering the mail, and so on.


ad 03.06.09 at 6:14 pm

Goods outside the marketplace are less taxable. Imagine trying to tax facebook accounts, for example.

So if this is true the governments tax base should fall as a fraction of the economy. Perhaps even in an absolute sense, as people moved over into the non-taxed part of the economy.


virgil xenophon 03.07.09 at 1:16 am

Following on the comments of BKN, Matt@10 and Bruce Baugh, it seems to me that there are some very dysfunctional unintended (even if predictable ) consequences that attend to the trends so described here. Graig’s List is one such example, it seems to me. Here is a “networked,” virtually not for profit cooperative enterprise that has destroyed a large part of the economic model that newspapers use to sustain profitability, and thus their very existence.

In some ways Craig’s List seems analogous to new plant/animal species introduced into new environments that have no known predators and thus come to crowd out/exterminate the native flora/fauna–often with devastating environmental consequences–especially in the case of unrestricted animal predators
who often end up extinct themselves via starvation once they have killed off all the native species that were their food supply (or, in the case of the triumph of one species of plant-life making the resultant mono-culture highly susceptible to disease.) One may see the vivid actual processes worked out when this happens in isolated closed systems in the natural world such as billi-bongs and oasis-type environs.

In the case of Graig’s List, when combined with web-sites/blogs which give information away for free–yet depend on salary-based news organizations rooted in the financial, market-based world to produce it–this trend may see the demise of a large segment of the internet once the animal (the newspapers) upon which the essentially parasitic blogosphere feeds dies. Already one sees some blogs such as TPM, etc., hiring their own reporters–but this entails real costs that a viewing public may not wish to pay for and neither will advertisers as Pajamas Media has found out.

A very wise businessman when asked by me why his major competitor went out of business replied: “Because he didn’t charge enough for his services.” He went on to explain that while everyone is always trying to eliminate the middle-man, they are often far less successful in eliminating the middle-man’s costs–which are very real or middle-men would not exist. Most businesses today in the market economy are busily trying to externalize their internal costs (which is why one tangles with interminable automated phone trees on one’s own time rather than having a salaried phone operator of the firm one is calling do the work.) But their is a limit to this and in any event they can never get “lean and mean” enough to ward off predators whose costs are essentially zero (for statistical purposes) by comparison. But once the host body is dead, the parasitic competitors have no means of generating the lifeblood (in this case information) on their own that they previously obtained cost free–which means
that the functional equivalent of the newspaper–with all it’s attendant costs–will have to be replicated somehow if the same level of “services” is still desired by the general public, i.e., if the example here (the newspaper) did not already exist, it would have to be invented–and for all the same reasons it was invented in the first place.

I, for one, think the concept of “the end of the cash nexus” is of limited utility. People have to eat. How are they to obtain the means of existence save via the cash nexus provided by the market-place? Unless, of course, the genteel poverty so represented by the university existence from whence most academics come is seen as the nirvana toward which all should not only aspire but be forced to adopt–as opposed to mere crass commercialism cravings for material betterment. It all reminds me of the futuristic societies I read about in the Science Fiction novels of my youth where robots had eliminated all work for humans. Always glossed over in the plot lines was
how, in fact, humans were supposed to then sustain themselves and maintain the option of preferential individual lifestyles–save for the feudalistic existence (however cushy) inferred (by graphic plot depictions if not exactly formally/explicitly described) by the authors.


virgil xenophon 03.07.09 at 5:21 am

I should add that I don’t want tp leave the impression that I do not recognize that these cooperative, non-cash oriented systems are (and will have) very real dynamic effects (for good AND ill) upon the current socio-economic ways the world is structured. It is just my belief that ultimately while they will undoubtedly will/have an important evolutionary and/or revolutionary role to play in the coming years, they cannot, it seems to me, serve as a replacement paradigm for societal organization notwithstanding the fact that almost all the trends Quiggin notes/ observes are obviously true to one degree or another. John Quiggin’s analysis of the trends reads more like a devoutly hoped for result as opposed to a dispassionate study of the subject–but that’s just me, and in any even he is entitled to his views–which certainly may hardly be said to lack merit in the case of the subject matter under discussion–and a timely subject it is.


BKN 03.07.09 at 4:54 pm

Is it possible for me (and my two kids, 8 and 11) to enjoy a middle-class lifestyle while I do, as Bruce Baugh’s post seems to suggest, some fluid mix of writing a blog, creating/editing wikipedia pages, hosting a podcast, posting videos to YouTube, swapping and remixing MP3 files, tweeting, etc.? Only to the extent that my activities are subsidized by the thrift of previous generations and/or the income (and forbearance) of someone in a (heavily state-subsidized) service industry with relatively high-value skills that are (currently) difficult to outsource.


Bruce Baugh 03.07.09 at 6:44 pm

BKN: Well, I immediately think of John Scalzi in this context, though where you get Wikipedia, podcasting, YouTube, remixing MP3s or any of that stuff out of my comment, I couldn’t say. I write and edit prose. That’s all I do. I have no graphical talent to speak of and whatever music talent I have is deeply constrained by auto-immune and neurological problems. I’m dealing with writing essays, manuals, and fiction.

One of the things this thread hasn’t touched on but should is the growing opportunities for hobbyist creators to get some audience and some reward for their effort. This is the case for quite a few of my friends, who have day jobs doing whatever that enable them to maintain a middle-class lifestyle, and who write or compose or illustrate on the side, giving it a few hours a week, a weekend a month, or something of the sort. The opportunities for quality production of amateur work are amazing, and getting better all the time. Some creative effort needs full-time attention. But not all does. If anything, there are some kinds of creating that may really benefit from not being someone’s job.


Ryan Miller 03.07.09 at 6:45 pm

John: As a systems engineer with quite substantial non-market (but economically productive) “hobbies”, I feel quite strongly the question you raise about the prospect for reduced market working hours. The trick is that I suspect this hinges quite strongly on the power/bargaining dynamic between workers and employers, because since much of what I do is creating automated solutions thus increasing my own productivity, they have been much, much more willing to throw increasingly large amounts of money my way than to give me more time off, despite my preference for the opposite. It’s just a lot more efficient for them to have fewer higher-quality workers. The solution that my friends and peers have come to is to work somewhere for 2-3 years and then take 1-6mos off living on savings before moving on to the next job. This is fairly effective, but I’m not sure that level of uncertainty will go over well once my peer group has more children to feed.

BKN @21: This strikes me as just very obviously incorrect. The productivity of the whole tech sector has been dramatically improved by open source; the big reason being not because of any capital-savings or quality-improvement (which may or may not exist) but rather because something gotten for “free” can be chosen by the developer without engaging management in a time-consuming approval process. Microsoft is probably the only Fortune-500 tech player that isn’t absolutely up to its ears in open source software, in terms of consumption and creation.

virgil @25: I think this is an important insight, but I’m not sure the consequences are as dire as you suggest. I’m increasingly finding that local news is being researched better by blogs and wickedlocal than paid papers, which always seem a day late and a dollar short. Conversely, how much do 99.5% of newspapers add on world news, and really how much independence do we get from having the NYT and the WP, which rarely seem to have much in the way of substantive disagreements? Perhaps there is some gap around state/regional news, which has higher collection costs than local, but less visibility and market leverage than national/global.


Martin Bento 03.08.09 at 12:29 am

Virgil wrote:

“People have to eat. How are they to obtain the means of existence save via the cash nexus provided by the market-place? ”

I think this gets to the point. So much of the tival labor of our time is abstract, yet the market has to restrict distribution to commodify it (with physical goods, natural scarcity constricts distribution, and property rights control this). The product is not scarce, but the labor to produce it still has opportunity and sometimes capital costs. Perhaps it’s time to recognize that Capitalism cannot address this and socialize intellectual production, as we already do to a degree in the academy. Here’s what I propose as applied to music (haven’t thought through newspapers yet):

1. The tax authorities take a trivial amount, say $10 a taxpayer, in to support music. In the US, this would generate about 2.5 billion a year, enough to supply an average of $25,000 to 100,000 artists, for example.

2. Musicians who want to qualify have to register and release all recordings they want considered in freely-copiable form.

3. Taxpayers get to go to a website and allocate their ten dollars. This preserves the market’s ability to conform to taste and reward popularity.

4. Taxpayers who don’t care and don’t allocate get their money put into a fund for “elitist” art: the sort of experimental or classical work that may not attract a huge audience but which society finds worth supporting. No one is compelled to support this stuff, as they could always direct their funds elsewhere.

5. Taxpayers who object could release a recording and allocate the money to themselves. They must actually make a farting noise record or whatever, and direct money to it. Hence, the system is voluntary, not compulsory, but those who opt out have to be public cheapskates.

So, no one is forced to support it, but most will. Artists can get rewarded directly according to their public support. The “cultural elite” can also fund projects that lack popular support, but no one is compelled to pay for this. And the whole program is, strictly speaking, voluntary.

Would the US do this? Not first, I imagine. Socializing anything is too taboo here (although we’re going to have to nationalize the banks if we don’t want decades of impoverishment, and that will challenge this taboo). But no one said the US had to be first. The first nation that does this, and restricts eligibility to its residents and legal citizens, will attracts musicians from all over the world. Why would anyone want to do that? We all know about those unruly musicians, right? Well, yes, but this can be the basis of a cultural ferment, and all the classic Richard Florida arguments come into play here. But if not the US who?

It would be the best choice for a large nation, an up-and-coming power that has musical traditions with global appeal. I see two major candidates: Brazil and India.


Martin Bento 03.08.09 at 12:31 am

“tival” > “vital” dyslectics untie!


Alex 03.08.09 at 11:51 am

in my experience, most of the people beating the drum for Open Source and analogous movements/phenomena are either:
(a) tenured profs
(b) twenty-somethings whose activities are being subsidized by their parents, or who don’t mind living in a van, a tent, a squat, a friend’s basement, etc.

You missed c) IBM. Even in the telecoms industry, which is usually the absolute antithesis of (b), a hell of a lot of stuff runs on Linux these days.


BKN 03.08.09 at 4:38 pm

Martin Bento:

I haven’t thought this through, but wouldn’t your scheme create an opportunity for someone to, for a buck or two, to make a farting noise recording for others in their name?

Bruce Baugh:

Didn’t mean to put words in your mouth. (Some of my remarks are a thinly-disguised cri de coeur that clearly belongs in some other forum.) These phenomena seem to my mind as analogous, at least at some level. Maybe they’re not. I’m just a little baffled why some people put so much time and effort into things that they won’t necessarily get paid for and, in many cases, won’t even get credit/recognition for. I don’t see this as a viable way of life for large numbers of people over the long haul.


Bruce Baugh 03.08.09 at 6:44 pm

BKN, I feel very much sympathy for the problem of reacting to what others have said elsewhere. It’s not an easy thing to manage.

As for money-making, try this as an angle: The stuff I’ve done that allows lots of reuse made me money with fewer intermediaries, and in particular let me avoid some of the pitfalls familiar to anyone who’s done technical writing as work for hire. (Documents that could have been part of printed manuals were instead sold online, through a storefront that automagically sends me the percentage I’m contracted for each month rather than the publisher having to issue a separate check after he gets his cut. Very, very nice in a field where print distribution stinks so bad.) Once it’s out there people can pass the text around as they wish but in practice they end up often willing to pay for the layout, illustration, and the rest of the bundle.

Part of contributing to the commons is making money in different ways, and having the option of sticking with existing practice, jumping on a potentially productive bandwagon, or experimenting. Reuse isn’t at all incompatible with making money, and sometimes making really good money.


Martin Bento 03.08.09 at 7:11 pm

BKN, well, making misrepresentations to the IRS is a fairly serious deal. And for what? To cheat someone out of their right to apportion their ten dollars? This doesn’t strike me as likely.


Martin Bento 03.08.09 at 8:32 pm

Bruce, could you point me to where some of your stuff is sold or to websites that discuss this? I might be interested in doing something along these lines.


Bruce Baugh 03.08.09 at 9:53 pm

Martin: Sure. Drop me a line at for more focused rambling.

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