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Economy as Network

If we assume that value is subjective, and that consumers accumulate it (or the things that give it) around themselves, and that businesses expand by providing it (or the tools for others to provide it), then we begin to get a picture of the economy as existing, in the most fundamental way, within a network of social relations.

Every person can be seen as occupying a node in this network - buying, selling, borrowing, lending, and laboring for wages - and significant long-term changes take place only when large numbers of these nodes are impacted. Thus the economy could be said to grow and store value in a permanent way by spreading it across a broad expanse of that network, in other words widely distributing it through society. Which makes the web of interactions, the economy, more healthily and robust.

And makes fertile ground for innovation. For example, historian Eric Hobsbawm argued that the industrial revolution might not have happened if there were not a large number of skilled artisans and “mechanics” ready to become entrepreneurs (and turn their fabrication shops into small factories) when the opportunity presented itself.

This does not mean that according to this theory some small parts of the network will not grow rapidly while others stagnate - consider the financial markets. But as we have seen this kind of volatile growth tends to be insecure, for the same reasons that made it rapidly expansive in the first place.

If value is proposed, but then fails to be confirmed, on a small or localized scale within the network, the web of the economy can more easily absorb the contraction (see Value proposed and confirmed). Compare that with what this theory tell us happens when an important market crashes. When a speculative bubble bursts, a large amount of proposed value, money that had existed only on paper, suddenly vanishes. This creates a strain that spreads out into the network of the economy, as each individual and each enterprise attempt to avoid falling into the hole. If there is not enough real value stored in the neighboring parts of the network, the crisis can spread until it can threatens the entire system.

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analysis/economics/economy_as_network.txt · Last modified: 2014/12/25 11:43 by ram