SUMMARY
Here economics is analyzed in terms of three elements: atoms, bits and wits. Atoms are physical outputs, whose scarcity augments worth. Bits are intangibles; network effects link abundance to worth where complementarity rules; here, competition fails and cooperation is efficient.
Learning counts for growth. Bounded rationality yields planning horizons as an ordinal measure of wits, showing the balance of substitution with complementarity as horizonal: horizonal growth tips that balance in favor of complementarity, prioritizing concerts over conflicts of interest, strengthening the economic case for cooperation as our route from myopic culture into a saner society.
Atoms, bits and wits show why substitution is limited to short-run atoms, while complementarity characterizes long-run atoms and all bits and wits: competition stifles growth in this setting. Claims of generalized complementarity make a very strong argument for cooperation as efficient.
Atoms, Bits and Wits: The Economic Case for Cooperation
I. Introduction
This essay reframes economics with three elements: atoms, bits and wits. A standard economics of atoms assumes substitution, ignoring complementarity. The realm of bits, of intangibles, is ruled by complementarities, such as with information networks. Wits, or planning horizons, show a unified cognitive frame, emphasizing complementarity. Complementarity yields an efficiency case for cooperation.
II. Atoms
Economics since Adam Smith has focused on physical goods, assuming substitution, decreasing returns and scarcity rising from conflict. Social choices turn things to goods, whose cost is the worth of foregone options. Scarcity is all; choices trade one good for another. Substitution settles conflict through competition.
These models stand on decreasing returns starting in agriculture: the best land is planted first, after which poorer land is used. This idea, applied to production, ties rising cost to output due to fixed inputs, so firm size is self-limiting, allowing competition. Here rivalry aligns selfishness with the common good, though flaws in the claim are ignored.
Natural monopolies want regulation. Transport networks join complements with substitutes in a composite tangle, where increasing returns subvert competition. In these second-best domains, rules adapt to specific cases so rivalries should be questioned along with other traditional laws. There is a history here.
The 1930s debates in economics, assuming increasing returns, closed with the ‘Hicksian Getaway’ as decreasing returns became rigid doctrine. A challenge in the 1960s was blocked by the ‘Hirshleifer Rescue’ extending this Age of Denial. In the 1970s, increasing returns and complementarity introduced systems theory. Increasing returns sit like gorillas in delicate china shops. For all long-run atoms, complementarity comes with increasing returns.
An inductive frame for price-setting is also relevant here. Setting price on some P* traps a flow of sales at Q*, revealing a (P*,Q*). All other points on cost and demand curves are invisible outcomes, imagined but never revealed. We only get the world we have; other paths stay unseen. Choices are based on theoretical options still unexplored.
The full context of (P*,Q*) is unseen, so unknown; textbooks start this story too late, with ‘given’ relations scribed on reality. (P*,Q*) also includes some measure of unit cost, derived from a series of timed expenditures. These specific cost projections are only estimated, not known. The neoclassical story ignores the cognitive factors in choice, which occur in complex strategies. Sales at a P* set to include a unit cost and markup produce social effects. Within an exclusive context of substitution alone, Adam Smith’s Invisible Hand turns selfishness to our advantage.
This benignly individualistic caricature assumes independence: substitution has gains opposed, in a conflict of values, with no heed to consilience where we revel in neighbors’ joy and lament their misfortunes, showing a real interplay of substitution with complementarity. A transport model with substitution has traffic in one direction, instead of framing routes so to raise an institutional question. Substitution wants competition; complementarity, cooperation. How will we choose? Substitution rules short-term atoms, with complements everywhere else.
What does this mean? The old ‘water-diamond paradox’ has water (for life) free, with diamonds (trinkets) held dear: here, more reduces price; value recedes with sales. Complementarity, in network effects (Metcalfe’s Law), has value rising with sales, so abundance raises price, flipping our ancient paradox. The matter of which prevails, substitution or complementarity, yields a choice of competition or cooperation. The issue requires solution, as we only get one set of rules. Substitution assumptions stem from ‘industry’ aggregation, which packs the answer into the question. Complementarity inverts all that. A distinction of atoms from bits and wits sheds light on the matter.
III. Bits
The realm of bits – of intangibles – is not one of substitution. Abundance trumps scarcity, making collaboration efficient. Intangible goods are complementary; output fosters enjoyment of life, flourishing with knowledge. Here relations are ‘both vs. neither’ (aligned) and not ‘either/or’ (opposed). With human needs aligned, the linkage of value to scarcity flips; the ‘water-diamond paradox’ cedes to ‘network effects.’ Bits show abundance; scarcity has no role. We’re all better off the more we share. This is an economics of love: the more I give, the more I get; hoarding means less for all. Bits should be priced at zero.
An information network is how a knowledge economy works. Transport captures interdependence, balancing complementarity with substitution: end-to-end and parallel links are related through routes and travel direction. With atoms, the balance of our relations opens an institutional choice. For bits such tradeoffs are gone, as sharing gives gains to all: yours contribute to mine wherever rising tides lift boats. Welfare is internal, living and dying inside our souls, so why economists tie it to atoms is strange: feelings are infectious; private emotions spill onto others. If so, complementarity is central to economics since well-being is insubstantial. Bits call for cooperation.
Bits are complementary; here rivalry undermines output. Information needs collusion; bits are not lost when shared: much like love or smiles on the street, your gains augment mine. Rivalry yields conflict; cooperation applies to bits and all long-run atoms. How would complementarity work? Can we imagine it? How do we act?
Complementarity yields a world of social, not acquisitive, values. Do my needs serve yours? If so, with new implications, since your well-being contributes to mine: we collude to achieve our dreams. But there is an ethical element to this story introduced through wits. For atoms, short-term conflicts cede to enduring accord. For bits, complementarity rules; scarcity yields to abundance, favoring cooperation. Atoms and bits shall link to wits.
IV. Wits
Time was ignored; now we include it. All cost and demand curves are imagined projections in agents’ minds. We choose among images standing on theory. We claim substitution, favor rivalry, and deem collusion bad. The error may lie in our theoretical lens and not out there in the world: we need diverse perspectives to know.
The fit of images to reality shapes our understanding through planning horizons. There is no homo economicus here. Every decision is haunted by uncertainties at all moments of choice. The planning horizon (H*) is set where surprise subverts expectation: we deem our horizons long until they show up as short. Learning glues theory to fact to expand our ranges of vision. With outcomes uncontained, rational limits matter. This is what H* represents.
All we do ripples outward forever, but knowledge does not. Planning horizons occur wherever rational limits appear, as surprises supersede expectation. The impact of horizon effects on pricing, growth and efficiency offers a novel look at entropy as organizational slack. Horizon effects shift us on an entropic continuum of wits, linking our ranges of vision to their economic consequences. Longer horizons will diverge from more myopic concerns.
How will a price-setter’s horizonal length affect P*? Without H*, we have no price theory. The time horizon in choice is like a move horizon in chess. With tradeoffs known – near-move contingencies culled – the further ahead players see. Choices in chess are path-dependent, inter-reactive and irreversible. Horizons in chess and choice grow through learning and accurate expectation. (P*,Q*) is one member of a horizonal family.
Horizonal growth cuts price, raising sales. Horizon effects – shifts in H* – reveal an ordinal linkage of P* to H*: longer H* reduces P*, ceteris paribus. But what of its social effects? Local substitutes would raise P* while complements want it reduced. The net effect on one member’s price in any group is shown by the difference of that member’s own-profit maximizing price (P*) and its joint-profit maximizing price (Pʹ) within any group. That difference signifies their net interdependence: Pʹ > P* means substitution; P* > Pʹ indicates complementarity. In turn, this difference supports the case for rivalry with substitution, and for joint operation with complementarity.
This is how wits come in. Horizon effects are contagious; these shifts have social impact through interhorizonal complementarity: your reliability makes you more predictable; learning is a public good; you are a disturbance in my world; we are role models for each other; we learn by imitation. Horizon effects shift our relations: horizonal growth favors complementarity over substitution, turning us from conflict to concord. Declining horizons make us myopic; connections are horizonal. Horizonal growth better aligns personal with social aims, and they improve ecological health by fostering cooperation. Horizons serve as an ordinal index of social maturity and conscience.
Horizonal growth through learning is stalled by competition; that is the nub of the problem. If institutions fail to evolve toward cooperation, economic growth is stifled. Social advance calls for collusion; rivalries shrink our horizons: such symptoms of stress surround us. Unrealistic constructions show horizon effects in myopic cultures.
It is hard to overstate the risks. False claims of decreasing returns, substitution and scarcity yield tragic costs. A short-term atomic case for substitution defers to one for complementarity everywhere else. Denial of increasing returns has brought terrible harm to us in ethical and ecological losses, spreading violence, while inequities sweep across our social landscape, poisoning all they touch. Examples abound of these symptoms.
V. Examples
Social relations are complementary, yielding a case for cooperation. Rivalries spawn myopic concerns, as seen in media, education, politics, and ecology. Complementarity offers a kinder view, where mutual gains supersede discord: here we applaud each other’s successes, suffering all losses together. Acquisitive values split us apart. With learning complementary, competition retards growth through denial. Long-term impacts spill outward; if so, all we do matters. We yearn for integration. Much work in human psychology shows well-being is social: isolation brings depression; we all need connection. The individualistic cast of economics steers us ill. Media, education, politics, and ecological losses show examples of how our systems have failed us.
- The Media
Our media dumb down content due to myopic concerns. Commercialization truncates vision: news for profit displaces sense with conflict and trivia; junk created for entertainment demands public control. Journalism must be funded like government and education, or as unionized local news. Our internet access is slow, costly, unfair, resistant to innovation, transparency, and democracy, dividing elites from others; digital media stunt awareness and brain growth, hampering creativity. Reflection dies in a myopic culture, revealed by a public captured by inanities, numb to ethics and truth. Imposing competitive frames in complementary realms stifles learning, calling for collusion. Complementarity among bits says privatization has failed. Local wi-fi networks support democratic communities, while rivalrous systems entertain, but do not lift or enlighten, due to our educational system.
- The Educational System
Education is our route to horizonal growth. Competition favors opposition over conjunction. Your knowledge enhances mine; cooperation helps all. In education, rivalry yields stressful avoidance of error and fears of learning, growing closed minds in denial, while digital living curbs insight, critical thought and contact. A widespread use by students of paper mills shows how educational institutions are undermining themselves, with failures stretching beyond economics: global measures of health, crime, and corruption show effects. Without public support, the universities’ future is grim. Massive Open Online Courses (MOOCs) in STEM undercut the humanities, while democracies need informed voters. With an uncaring electorate, liberty has no chance. Competition nurtures a myopic culture with symptoms of illness. Education can help, with cooperation needed both here and in politics.
- Politics
Politics stuck in partisanship poisons us all. The horizon effects of elector rivalries, superficial reportage and disengagement of voters are exacerbated by corporate money, yielding poorly-made decisions with urgent topics simply ignored. This social policy wasteland distracts us from ecological loss. Can we limit corporate power? The public sector needs restoration, as do antitrust laws. Free speech is being crushed by silencing whistleblowers; science is also subverted by power. U.S. health is some of the worst and costliest globally, as private incentives swamp public concerns. Sabotaging the U.S. Postal Service is just another example, while private prisons lobby for harsher penalties, longer sentences and other restrictions, so profit displaces the public good with shameful incarceration rates. Worse, surveillance systems saturate schools and workplaces, making them prisonlike spaces.
Our partisan political system blocks popular measures with no ethical limits, while the banking scandals show white-collar crimes amply rewarded. Big Wealth threatens our lives, liberty and the pursuit of happiness. Police are too often a threat, while politicians strive for power. Why do we tolerate this?
Public goods show a way out, with libraries, highways, schools, and other resources shared by all. Privatization cloaks all this behind a competitive veil. Our myopic culture resorts to violence for political gain, while we dribble away our rights. Such a gridlock casts shortsightedness as a dangerous source of vital loss spawned by political license. Economists’ love for rivalry is stifling debate, in a tragic concatenation of economic and social loss, with issues ignored though lives are at stake. Resolving these problems calls for seeing through their horizonal links. The economic case for cooperation is strong. Our failure to curb power reveals ecological losses as well.
- Ecological Losses
A political license subjecting us all to frequent abuses of corporate power reveals a hazardous trend. Oceans stripped of fish, forests and jungles shorn of wood, needed life-forms under threat, all leave us in dire peril. Longer horizons could curb this abuse, but egoistic claims and a fear of reality yield denial. This is a Prisoner’s Dilemma calling for unity and organic cohesion; human-caused ecological losses are horizonal by definition: a myopic culture risks all we have. This is our horizonal problem, borne in a gradual loss of vitality. Alienation from nature is harming our mental and physical health. The issue is cultural: climate science ranks carbon before restoration, while melting ice caps and glaciers raise seas. Increasing ocean acidity yields biodiversity loss, coral reef failures, shellfish destruction, while toxic algae blooms and dead zones cause mass mortality of invertebrates, fish species, seabirds, etc. Such effects suggest more attention to Wholes over parts. Few will know what we’ve lost.
Water, energy, biodiversity, all are important for survival; they call for unified thought and decisions. We have no price on health or community; short horizons are destroying us while politics shuffles on. Shooting messengers threatens our future; myopic behavior risks all. Horizonal growth must become a priority for our systems designs; sustainability is horizonal: long-term effects should be realistic, consistent, and durable. Greening any economy is no easy task, despite all its opportunities. A resilient culture will be enjoyable, based on a love for all life.
- Summary of Examples
Examples from media, education, politics and ecology illustrate a fading culture reeling into collapse, oblivious to risk, its systems staggering under failures from myopic concerns due to wrong assumptions; substitution needs to yield to complementarity in economics. Substitution stands on decreasing returns, asserted by Hicks in 1939 and reinforced by Hirshleifer in 1962, ushering in an Age of Denial about increasing returns, corporate power abuse, disequilibrium, market failure, ecological loss, etc. Externalities are ignored, due to claims such effects damp out, while complementarity emanates spreading cumulations of impact: these externalities expand outward.
Examples were reviewed. The media dumb us down, due to a fear of learning in education, as public concerns die young in politics. Ecological health is ignored, while we resist reforming ourselves. The problem is cultural, due to myopia. Systems of vital living complexity do not fragment gently. When civilization – all life on our planet – dangles in the breach, it is we who must change our ways.
VI. Conclusion
Atoms, bits and wits show complementarity across social relations. Substitution of short-term atoms cedes to complementarity for long-run atoms and all bits and wits. Competition spawns a myopic culture in complementary realms; scarcity models cede to abundance with horizonal growth. Atoms, bits and wits show why a horizonal view will open an economic case for cooperation and learning in media, education, politics and ecology.
The argument started with long-run atoms where rivalries spawn a myopic culture. Since bits show abundance, competition holds us back, calling for cooperation. Wherever complements overrule substitutes, rivalries stifle learning and growth. Wits show horizon effects stemming from bad designs and wrong economic assumptions.
The essay ends with four examples. The media threatens democracy while a rivalrous system of education stimulates secretive fears of failure, risk and diversity; in politics, money trumps good; and the ecological losses from myopia risk all life on the planet. Short horizons signify a dangerous threat to us all, due to poor economics.
Substitution is special, not a general feature of social relations. Why economists founded theory on opposition is strange; human emotion calls for consilience. With human needs aligned, complements overrule substitutes, so cooperation is efficient in a more benign economics. This is how horizonal theory opens some meaningful lessons, so we ought to examine incentive structures for their horizonal impact; all of us shape each other’s awareness for better or worse. Since we are role models for each other, everything we do matters. If so, we must forgive failures and improve ourselves. Such should have vital effects on us all.
AUTHOR’S NOTE: This essay is a distillation of a two-part series of formal academic treatments of this subject titled “Atoms, Bits and Wits: A New Economics for the 21st Century – Parts I and II.” Both parts can be found here for Part I: https://www.tandfonline.com/doi/abs/10.1080/07360932.2014.933116; and here for Part II: https://www.tandfonline.com/doi/abs/10.1080/07360932.2014.933117?journalCode =rfse20. For those of us who find our access to these materials blocked by privatized informational paywalls, see two chapters on these subjects in Chapters 3 and 16 of Frederic B. Jennings Jr., THE ECONOMICS OF HORIZON EFFECTS https://www.academia.edu/33743074/THE_ECONOMICS_OF_HORIZON_EFFECTS_2016_FINAL_PUBLISHED_VERSION_978_3_330_05796_8_pdf.
Photo by Randy Fath on Unsplash
