I had a long conversation last night that went into the very early hours of the morning with a friend of mine. At a certain point there was a "you should write about that" moment. So here I am, writing about it.
As you may know, economist Paul Krugman has won the Nobel Memorial award in Economics. Alfred Nobel did not establish this prize, instead it was established by the Bank of Sweden to piggy back on the Nobel Prizes. It comes with a hefty cash award, and is generally regarded as the most important honor for publicity sake in economics, though people on the inside, I am told, follow the "Fields Medal" more closely.
There are of course, political overtones to the award. However, it is also an award for the actual work done, and that work is in the subject of trade, capitalism and consumerism. And it touches on what I study irl. More specifically, the subject of consumer taste, which he wrote about in an important 1979 paper does, and part of my work touches on his theory, which has become known as the "New Economic Geography."
When I began my study, I did not know his work, and, honestly, I am not really competent to teach a class in it. Well, maybe I am, but let's put that aside for a moment.
No, wait, I can't. Let me explain his theory in simple terms.
People buy things, and they like a variety of differences in what they buy, and they like variety in choices. They like choices for their own sake, in addition to the choice they end up making. Shopping is, in itself, a pleasure.
Now, it's well known that a business that expands and has capital, can make each addition item more cheaply up to a certain point. This is called "economies of scale." It also works against consumer choices, because the more economy of scale, the fewer participants, and the harder it is for a new firm or individual to enter in to the business.
So on one hand, consumers like higher quality, lower cost goods. On the other hand, they like choices. These two things make it so that even firms that are no competitive on capital terms, can still remain in the business, if what they offer is different. In decision theory they spend a great deal of time talking about indifference of choices. What choices, don't really matter? If there is high consumer indifference, then there will be more concentration, because the capital advantage of higher quality and lower cost, or higher returns, will feed on itself. One company does better than others, so investors put money into it, banks loan to it, and it can invest in more capital, or buy up competing firms that offer genuine choices, and come to dominate the market.
Think Starbucks, at a certain point, they were rich enough to buy any one who was better, and better than anyone who wasn't rich enough. And so we get over roasted road tar as "coffee." Bleah.
OK now trade. His theory is simple: there is the advantage of capital production, and the cost of transporting the goods. If the cost of moving things is high, then economy of scale never really happens. Each firm competes in a sphere of a particular market. Some exceptional goods get moved if they are really better, but no area can overwhelm the others. However, when transportation costs come down, the area that a firm can sell to gets larger. As it gets larger, it can get to economies of scale. As it does that, it can then compete over a yet larger circle. The process feeds on itself, and pretty soon only a few centers of production dominate the market on a national, or even global, scale.
As my friend point out to me, the important part about Krugman's theory is that it explains several things that "old trade" theory didn't, and it predicts that there will be a dramatic shift from the natural monopoly of distance - that is, a firm is protected from competition because other competitors have a barrier in moving the goods - to the monopoly of capital and economies of scale. The playing field tilts, and the market changes rapidly.
Now, what does that have to do with art history? Well. Alot.
You see some kinds of art are very value dense, and ship easily. Like paintings. Others don't ship well at all. Like old buildings. Painters, themselves, are relatively mobile, and so can be hired. In the decorative arts, the aspect of capital is even more important, because most decorative arts are about producing high quality work in sufficient scale that everyone who is important can have it, but of sufficient barrier that they can't easily be duplicated. Even if that means royal intervention.
Take porcelain, which is something I spend a lot of time on. China established porcelain factories early. The most important of these was near the source of the right kind of white clay. This works because the clay is bulky and hard to ship, and by itself, not particularly valuable. It isn't easy to pick out from other white clays visually. It's just clay, until combined with the right feldspars, and fired with the right techniques.
When the cost of porcelain shipping was prohibitively high, Europeans used lower quality pottery. They didn't know any better, even though higher quality earthenware goods were available to them, the cost was high enough that it could never be the taste of the elites. However, once the cost dropped, suddenly there was enough porcelain to develop a taste for it.
And that's not in Krugman's work, but at that point New Economic Geography starts to take over, and in lots of ways. China initially had the knowledge of porcelain, and the capital. What it did not have was a knowledge of European taste, and it was hard to get this information. At first, Europeans did not have the knowledge of making the good kinds of porcelain, and so they made inferior kinds as they experimented. In the lingo of the trade, "hard paste" is the right kind of porcelain, and "soft paste" is any other kind. European's tried mixing glass with white clays, then figured out feldspar and so on. Finally in Germany hard paste was rediscovered, and then an way of making it at scale was discovered. Rapidly other European nations copied this, finding out which deposits of clay were the right kind, and what to mix with it.
So in the first stage, Europeans competed with better Chinese porcelain because it was cheaper, because of mercantile barriers, because of knowledge of local taste, and much cheaper transportation costs. As transportation costs dropped, this was no longer sufficient.
In the second stage, where the demand for porcelain became almost a necessity in the centers of wealth, the local European product focused on art. Even when a nation could make hard paste, the capital advantage of better art, and the rent advantage of being closer to taste makers, was enough to provide an advantage. This was particularly true in France. Think about it, someone who paints porcelain really wants to move up, and paint walls, and canvases and other things. So it is an advantage to be close to the centers of aristocratic demand, and not necessarily as important to be close to the clay itself. The people close to the raw materials make a better base, but they don't paint as well, or as much to the taste of the times. It isn't transportation costs of the thing itself, but information costs. It's hard to climb the court ladder if you are in some distant place.
The third stage combines the two. People specialized in painting porcelain, and there was a unity of art and technology. But this took a remarkably long time.
So back to Krugman. Krugman's theory is important for the development of artistic taste, because it gives certain lines where the market for art objects will shift from raw economic factors. What can be called a "phase change" by people who work in economics. However, where there are other phase changes, ones that are as measurable, clearly there is another factor at work, and that is a factor of information and economic rent in social space, not just physical space.
Part of my assertion is that these differences are, in fact, very much the same as the transportation versus economy of scale division, because what they are is specialization against economy of taste.
So that's my personal look on what Krugman's Nobel prize means to me, it is part of my work now, and I am grateful to the people who patiently explained why I should read some papers by a geeky guy at a geeky university, and look at how his papers had to do with the creation of aesthetic objects for everyday life.
How does this apply to SL.
In SL, now a days anyway, it was different once I am told, transportation costs are nil. And yet, a few producers do better than others, but the markets never collapse below a certain point. I am going to posit that there are centers of taste, and that the flow of information keeps many areas of inferior production in business, like about 80% of the shoe makers on sl, while at the same time creating a space for both big content houses, and new players, to vault in. There is, then, an economic geography to SL information, and it should be possible to measure the cost of moving information in SL, by measuring the economy of scale effect in that particular market.
This isn't completely my idea, I will admit, but I like the idea that by seeing which areas have quality, it is possible to see how expensive it is to move information.
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