This is the first of three book reviews I’ll be publishing this week in preparation for my Wednesday talk at Internet Hungary on “The Artisan Internet and Digital Craftsmanship.” Here is a (slightly outdated) blurb: “Facebook, Amazon, and Google are today’s online equivalents of the giant corporate shopping malls that defined offline retail commerce throughout the 1990’s. But just as independent boutiques, bookstores, and farmer’s markets are making their comeback in gentrified city centers, so too will the Internet see an emergence of independent artisanship around open standards like OpenID, and led by digital natives yearning to express their individuality in a world of indistinguishable mass-manufacturing.

I had already read Chris Anderson’s initial essay about “Free” in Wired, and a couple months later I heard him re-formulate his ideas on stage in front a skeptical audience at Pop!Tech just after the stock market crashed. The theme of last year’s Pop!Tech conference was scarcity and abundance; for Chris Anderson, those two fundamentals of economics are the keys to understanding the transition taking place as information, products, and services lose their physical form and become digitally and universally available online.

The 20th century was a largely a century of atoms, Anderson writes, but the 21st century will increasingly be a century of bits. Seth Godin, looking at the top 100 companies today, found that only 32 of them produce actual things. In the economy of atoms the concept of ‘free’ simply transfers cost from one product or service to another. For example, I can get a cell phone for free at AT&T, but I will end up paying for it over the next two years with a costly service contract. In fact, market researchers are paid well to find out where to distribute the cost of any product so that we believe we are getting a better deal than we actually are. (Cheap printers, expensive ink; cheap razor, expensive blades; cheap pizza, expensive soft drink.) But in the economy of bits I can sign up for a free email account at Gmail (or any other number of companies) with the expectation that I will never pay a cent – not for my email, and not for anything else.

This is because the cost of storage, processing power, and bandwidth is halving every year. What it costs Google to stream a YouTube today will halve by this same time next year. If the cost of storing and delivering digital content is cut in half every single year, argues Anderson, the inevitable cost is so close to free that it no longer makes sense to charge consumers. Rather, companies working in the digital economy will have to find other ways to bring in revenue. They can package advertising into their content; this is how video games are increasingly making money. They can sell valuable information about those who use their products; most social networks do this without informing their users. They can also engage in the gift and reputation economy; a blogger can build up a reputation of being an expert about a particular topic and then get paid to speak and consult at private events.

It is hard for us to imagine abundance properly. Our brains are hardwired to think about scarcity – after all, that has helped us survive for thousands of years. “If we get what we are seeking, we tend to quickly discount it and seek a new scarcity to pursue,” Anderson writes. “We are motivated by what we don’t have, not by what we do have. Economically, abundance is the driver of innovation and growth, but psychologically, scarcity is all that we really understand.”

Our tendency to emphasize scarcity over abundance was demonstrated in 1972 by Paul Ehrlich who famously lost a bet to Julian Simon over resource scarcity. Ehrlich was the author of The Population Bomb, a popular book at the time which, says Wikipedia, “argued that mankind was facing a demographic catastrophe with the rate of population growth quickly outstripping growth in the supply of food and resources.” (Most people my age think that this argument is only now coming into vogue.) Ehrlich went so far as to write “If I were a gambler, I would take even money that England will not exist in the year 2000.”

Simon, a libertarian economist, was skeptical of Eherlich’s claim and challenged him in the pages of Social Science Quarterly to a wager of $10,000 “that the cost of non-government-controlled raw materials (including grain and oil) will not rise in the long run.” He even let Ehrlich choose whatever raw commodity he wanted.

Ehrlich chose five metals – copper, chromium, nickel, tin, and tungsten – and they agreed to wait 10 years (from 1980 until 1990) to see if prices of raw commodities would rise (as Ehrlich insisted) or fall. Again, Wikipedia:

Between 1980 and 1990, the world’s population grew by more than 800 million, the largest increase in one decade in all of history. But by September 1990, without a single exception, the price of each of Ehrlich’s selected metals had fallen, and in some cases had dropped through the floor. Chrome, which had sold for $3.90 a pound in 1980, was down to $3.70 in 1990. Tin, which was $8.72 a pound in 1980, was down to $3.88 a decade later.

Ehrlich lost the bet because he didn’t understand that technology was evolving faster than resources were being depleted. Even as population and demand for natural resources grew, the efficiency of extracting and delivering those resources grew even faster – a scary thought for environmentalists and future generations alike.

As a 1997 article in Wired observes, “Ehrlich was wrong about higher natural resource prices, about ‘famines of unbelievable proportions’ occurring by 1975, about ‘hundreds of millions of people starving to death’ in the 1970s and ’80s, and about the world ‘entering a genuine age of scarcity.’” Still, in 1990 he was given a MacArthur Foundation Genius Award, and Julian Simon’s sober skepticism regarding our tendency to always worry about the end of the world was quickly forgotten.

Ten years ago the average person in the developed world spent a sizable portion of her disposable income on information: newspapers, magazines, books, tabloids, journals, tutorials, and textbooks. Today the internet has brought about the end of information scarcity. Each new abundance creates a new scarcity, and our new, still-unaccustomed abundance of information has led to a scarcity in attention.

In his search to better understand post-scarcity economics Anderson finds himself consulting not academic journals, but works of science fiction, which frequently rely on a plot device in which some machine makes scarce things abundant (like Star Trek’s matter replicator). For Anderson, these are book-length thought experiments about what happens when expensive things (like information once was) become free. In E.M. Forester’s 1909 short story, The Machine Stops, humans are no longer able to live on the surface of the earth and instead live in individual, underground pods where all their bodily and spiritual needs are met by an omnipotent, global machine. Vashti, one of the story’s two main characters, spends her life happily chatting with other isolated humans via her cell-phone like device, though she’s never able to meet them in person. Eventually humans forget that they were the ones who created the machine and, according to Wikipedia, “treat it as a mystical entity whose needs supersede their own.” (90 years after Forester’s The Machine Stops Ondi Timoner directs We Live in Public.)

Another early skeptic of technological abundance was Fritz Lang, who in 1927 directed Metropolis. In Lang’s famous silent movie, machine-created abundance benefits only a select few. His view of society is divided into two groups: “one of planners and thinkers living in luxury high above the earth, and another of workers dwelling and toiling underground to run the machines that sustain the wealthy.”

One of the first thinkers to examine post-scarcity psychology is Abraham Maslow whose famous 1943 “hierarchy of needs” proposed that the basic physiological requirements of every human are “breathing, food, water, sex, sleep, homeostasis, excretion.” (And, for the record, yes, I love that he lists sex before sleeping and shitting. I picture a masquerade ball of constipated, insomniac nympomaniacs.) After those basic needs are met, we seek safety, love/belonging, esteem, and then self-actualization.

Chris Anderson puts it in blunt, economic terms: “When all physical needs are met, the most important commodity becomes social capital.” This explains why a generation of bloggers, open-source programmers, podcasters, and filmmakers continue to invest their time, attention, and skills in producing ‘information’ that won’t make them any money. Their basic needs (food, water, shelter) are met; what they seek now are the higher levels of Maslow’s pyramid, which are intrinsically linked to social capital. Earlier generations that remember a world of pre-abundance struggle to understand our motivations.

In 1968 Paul Ehrlich was sure that the world’s growing population would bring about food scarcity in the 1970’s and 80’s. Instead, the industrialization of agriculture made food production so efficient that Amartya Sen was awarded the Nobel Prize for demonstrating that famine was no longer caused by food scarcity, but rather government incompetence.

Food, once a scarce resource, became abundant. It is possible (as I, and so many other college students have proven) to survive in the US on as little as $5 a day, and still have enough left over for a 40 oz. beer, or even a bottle of wine at night. So what has abundance done to the culture of food? Increasingly, middle- and upper-class Americans care about how food is made as much as how it tastes (corn-fed beef, many steak snobs insist, tastes better than grass-fed beef).

With a coffee shop on every corner today it is difficult to imagine, but coffee was also once a scarce commodity. Today it is in over-abundance and agricultural development consultants advise coffee farmers to switch to a crop that is in higher demand (such as bamboo). As coffee moved from scarcity to abundance a culture of coffee artisanship has spread far and wide. Today almost every office offers their employees free coffee, but many still walk to their favorite coffee shop and pay up to five dollars for a cappuccino. An abundance of mediocrity creates an increasing marketplace for artisanship.

Chris Anderson points to Google as a company that understands the foundations of making money off of ‘free’. They constantly roll out new products, he points out, but only expect to make money on just a few. This is the same business model behind internet media companies like Internet Brands, Inc. which owns dozens of websites (including, most don’t realize, WikiTravel) but only makes money on just a few.

The problem with this model isn’t that it doesn’t work, but rather that it leads to a proliferation of crap. Rather than giving years of attention to individual projects and products, the ethos of the internet is to launch as many products as quickly as possible and hope that the economies of mega-scale will turn a profit. This is the business attitude that defined retail for decades: sale more for cheaper to more people. Artisan boutiques and material craftsmanship has managed to make a comeback in the material world. What interests me is if and when the same trend will take place online.