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Supply, Demand, Natural Language & Free Markets — Some Preliminary Thoughts & Ideas

Many if not most — or even all? — (educated) people have probably heard of supply and demand before — and perhaps also that they are the basic building blocks of free markets.

Likewise, many may be familiar with the expression “supply creates its own demand” (which is a sort of shorthand for views expressed by Jean Baptist Say (and known in economist circles as “Say’s Law”). But I would like to step back even a little bit further (than merely a couple centuries ago) … to a point before scarce resources became a thing. A very long time ago, maybe back in the times of the “Garden of Eden”, there was an abundant supply of things. All the things were there, and there was no scarcity of anything (except, perhaps, for unicorns — if such a concept even existed back then).

It was obviously not until much later that scarcity was something which happened, and that humans had to figure out a way to deal with. Fast forward many millennia, and at some point money became one of the solutions which was widely used (and has been used, and will probably continue to be used for the foreseeable future [1] ) to address the issue. It must have been sometime around this time that the notion of supply and demand also became more widespread (presumably, at some time before this happened, some things may have been exchanged for other things — indeed, I believe some of the first coins actually represented livestock of different kinds, and holding such coins was perhaps interpreted as owning the represented livestock).

Since such ancient times, my hunch is that supply and demand were more or less neatly separated: the things were described with language, and their ownership could be accounted for with coins. At some point, coins no longer represented actual things but rather simply amounts … of something. Perhaps the something was at first a “precious” (or particularly scarce) resource (such as gold) … and indeed this was arguably still the case up to just about a century ago. At any rate, today money is mainly simply a unit of exchange — and it is widely accepted as purely numerical measurement instrument.

Likewise, most things which are to be measured in monetary units are expressed in linguistic units (quite often a written contract describes / defines what is being offered “for sale” in exchange for an agreed upon amount in monetary units). Economists are usually quite keen to gloss over that there are obvious differences between apples and oranges, and they often prefer to turn everything into “widgets”, thereby transforming the complexity of the real world into generic units of such abstract and theoretically genericthings“.

So what we have had for a very long time is an exchange system which has two sides: supply uses linguistic communication (qualitative data); demand uses numerical communication (quantitative data). Marketplaces, where these things can be bought or sold, use some kind of (more or less formalized) language to define / describe these things (people are generally reluctant to buy a cat concealed in a sack; they generally want as complete clarity as possible about what they are supposed to exchange their hard-earned money for).

In economics, this is simply assumed to work completely perfectly — one of the main tenets of such a perfect marketplace is perfect information. Of course the real world is rarely (if ever) quite that perfect. Most “real world” cases involve allow for such imperfections. Ask anyone if they have ever been disappointed with something they have paid money for, and the only surprised look you might get would be about how anyone could ask such a foolish question about such a ridiculously obvious “fact of life”.

However, another issue remains severely neglected: Since the expectation concerning perfect information about these innumerable units of abstract widgets is obviously much more illusory rather than somewhat realistic, the so-called market price seems much more holey than being completely holy (as any card-carrying free market economist would certainly argue — see also “Some Market Price is Probably More or Less Accurate at Some Moment in Some Marketplace (& Socio BIZ Rule #2)“). Matching up supply and demand is in fact not at all straightforward. No, it is (especially in so-called “real world” and / or “IRL” cases) much more immensely complex.

Now let me go one step further. Online, this complexity is actually very central and crucial to the business plans of many if not even most (perhaps even all?) so-called “leading” companies that “make money” online. These companies earn enormous profits by matching linguistic expressions (representing supply of certain “things” and also demand for certain “things“) with the price they charge for their “match-making” services. Beyond that, they also make money by monitoring such linguistic expressions and suggesting other “neato” products and services the customer might also be interested in (and “click on” or whatever).

What seems to remain constant throughout (modern) history is that linguistic expressions are the language of supply, and so-called “consumers” are limited in their ability to express demand to expressions in the language of money … and that a sneaky middleman will almost always find a way to make a quick buck (see also “The Social Construction of Publishing“). Doc Searls (of “Cluetrain Manifesto” fame) introduced the notion of “vendor relationship management” many years ago — long before it became clear to many “leading” companies that they would much more prefer monopoly power to such much more distributed approaches. I am inclined to simply add this: The bigger they come, the harder they fall! 😉

[1] see also “In What We Trust” [ ]

By New Media Works

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