IEEE Spectrum recently published an article on the the value of the Internet.  It discusses and economic report, The Internet Economy in the G-20, from The Boston Consulting Group. 

 

Dig-Man-II-4.2-Trillion-ex8_large_tcm80-100429.jpgThe report attempts to quantify the value of the Internet and makes the case that the Internet is still changing rapidly and will have a huge impact on the world economy.  Written from a public policy standpoint, the report attempts to quantify the elusive value of things such the ability to research products or services. 

 

In an undergrad economics class, I remember learning about the difficulties of measuring inflation over decades because the whole market changes.  My professor, Dr. Denslow at the University of Florida, brought up the example of how watching a movie in your home would have been very expensive 20 years ago but now the VCR had made it affordable.  If he teaches the class the today almost 20 years later, maybe he uses the example of Microsoft Encarta’s $400 CD-ROM encyclopedia.  If an Internet connection provides access to thousands of such encyclopedias and databases, is its value millions of dollars? 

 

This question is so confusing because it involves appraising the value of something that is changing the very nature of value in the economy.

 

This economic revolution is similar to the changes brought about by the introduction of agriculture of industrialization.  Going from a hunter-gatherer economy to an agricultural economy increased the types of goods and services available such that it became impractical to trade them by barter.  Money was needed to allow trading without mutual coincidence of wants.  In an agricultural economy, arable land was the primary means of production and most wealth was held in the form of land.  When societies shifted to an industrial economy, factories become the primary means of production.  There is a finite amount of arable land, but factories can be created without limit.  So industrial economies rely on fiat money whose quantity can be controlled by central banks, with the goal of matching the amount of money to the amount of wealth in the economy. 

 

Automation and the Internet are moving us toward another economic revolution.  Automated factories can produce material goods with few people.  The Internet can distribute intellectual property such as software, music, phisiables inexpensively.  The very questions that researchers asked regarding giving up sex or material things in exchange for the Internet unintentionally juxtapose the primary stores of value in each type of economies. 

ValueofInternet.jpg

 

Daniel Pink, in his book Drive: The Surprising Truth About What Motivates Us, puts it this way. 

  • Hunter-gatherer societies are driven by Motivation 1.0: Survival (food, avoiding a premature death, sex). 
  • Industrial economies use Motivation 2.0: Money
  • Information economies aredriven by Motivation 3.0: Autonomy, Mastery, and Purpose

 

It’s worthwhile for the researchers to attempt to quantify the effects of the Internet on the world economy.  The very questions they ask, however, illustrate that the Internet and automation are revolutionizing the economy in a way that is hard to put a value on.