1994-04-04 - Economic assumptions

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From: hughes@ah.com (Eric Hughes)
To: cypherpunks@toad.com
Message Hash: 7854fbcd2563688da9a4c1d2ad4ae368e7935fc75ae8b51919e09b2014742fb0
Message ID: <9404042126.AA08549@ah.com>
Reply To: <199404041904.MAA08571@mail.netcom.com>
UTC Datetime: 1994-04-04 21:38:53 UTC
Raw Date: Mon, 4 Apr 94 14:38:53 PDT

Raw message

From: hughes@ah.com (Eric Hughes)
Date: Mon, 4 Apr 94 14:38:53 PDT
To: cypherpunks@toad.com
Subject: Economic assumptions
In-Reply-To: <199404041904.MAA08571@mail.netcom.com>
Message-ID: <9404042126.AA08549@ah.com>
MIME-Version: 1.0
Content-Type: text/plain

>> I can imagine that bandwidth in the fibersphere for text transmission
>> will be too cheap to meter, which means that the cost of metering
>> would more than the marginal revenue.  

[re: overload]
>Rather, by the _forwardings_ of other masses of
>stuff, written by others. "MAKE.MONEY.FAST" is but the most recent
>example. Not to mention images, coredumps, etc.  

I only talked about text transmission, not about arbitrary bit
transmission.  The situation for automatic bit sources is not the

>I'll go out on a
>limb and speculate that cheap delivery makes a fee schedule of some
>sort _more important_, not less important. 

Look, there is a cost to using the price mechanism.  When the cost of
the thing being purchased becomes too small, it's no longer economical
to price it.  That doesn't mean that it's free.  It means there are
other structures for accounting.

One transaction per packet will almost always be more overhead than
it's worth.  There are other ways of paying for service, though, by
connection, by total bandwidth, by link.  The structure of the
transaction is different, because a different thing is being

Flat rate local phone calling is common.  The expensive part of using
a local phone switch is the switching, not the connection.
Maintaining the connection is cheap.

>Of course, this is up to
>the service providers; anyone who wishes to provded a free bandwidth
>link should be free to do so!)

This is irrelevant.  The Libertarian-PC police aren't around, last I

Tim made the statement that pay-as-you-go was the obvious choice.
That's not at all obvious.  The accounting mechanisms are but one
aspect of the transaction costs involved.  It is quite possible that
the only economically viable communications services are aggregated
services.  Whenever you have aggregation, there is some persistence,
and that yields an identity.  (It need not be a personal identity.)

There are some interesting questions here.  What is the characteristic
length of that persistence?  It will vary depending on the cost to do
another transaction.  The length of persistence is the length of
exposure of an identity.  What are the forseeable tradeoffs between
link costs, switching, and general-purpose computing?  This gives some
idea about where the bounds of accounting will fall.

Analyses which disregard transaction costs are unrealistic.  The
question is not one of paying for service; let's bury this libertarian
hype against socialism right now.  The question is what the structure
of the communications market, both buyers and sellers, will be.

I want a system with low transaction costs, because that lowers the
characteristic persistence time of a communications transaction, and
the smaller the time, the better the privacy.  That means we have to
lower the transaction costs.

Let's take remailers as an example.  One current suggestion is to add
some sort of money system to the remailers as a condition of use.
This is exactly the wrong priority at the current time.  The remailers
are already hard enough to use, and adding a payment system on top of
that will make them used even less.  Making a system harder to use
increases the transaction cost.

The current priorities should be to lower these costs.  When the
remailer system begins to be overloaded, then adding some restriction
on use, perhaps by means of payment or a payment analogue, will be
warranted, because it will lower overall transaction costs, trading
off ease of use for throughput and reliability.

What are some of these costs that should be lowered?

-- Finding out that remailers exist and what they do.
-- Finding a remailer to use.
-- Deciding what remailer to use.
-- Figuring out how to use a particular remailer.
-- Formatting a message for a remailer.
-- Receiving mail through a remailer.

There much more need for improving the ease of use of remailers than
for paying for them.

The less expensive privacy is, the more privacy there will be.
Privacy has non-linear benefit; the more that people are private, the
better any individual's privacy actually is.