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Researching Distributed Currencies.

Over the course of my time here studying Web Science, I would like to do some in depth research into distributed currencies. A distributed currency is a form of money with no centralized processor or controlling authority. At the moment there are only a handful of distributed currencies in existence, and the majority of them stem from Bitcoin. Bitcoin is a “totally” anonymous and distributed online currency. It’s similar to PayPal in that you can use it to buy things online and send/receive currency quickly and conveniently.

PayPal is the opposite of a distributed currency, it’s centralized. PayPal handle all the processing of transactions, and they are also the authority for all transactions and for this service they charge a small fee on each transaction (varying from 2% – 8% of a transaction + a fixed 20p.) If PayPal doesn’t like a transaction, it will slow it, stop it or outright take your money away (googling PayPal took my money returns over 6million results.)

A distributed currency is not centralized. The transaction processing is handled by anybody who chooses to use the currency which normally involves running some client software. Because it’s running on anybodies computer, the currency must be designed in a secure way that doesn’t allow individual clients to tamper with or reverse transactions. The implications of this are a totally unregulated currency where nobody can decide what is right or wrong.

The pro’s of this are that people can make transactions for anything they want, without the worry of their account being frozen or their transaction being blocked or slowed or outright refused by a regulatory authority like PayPal. There is no single point of failure (or corruption.) Also, there is no mandatory fee’s to use these currencies or make transactions. The open distributed nature utilizes the internet in the way it was intended. It could be argued that centralized services governed by one authority undermine the entire point of have the internet (a distributed network) in the first place.

Bitcoin is totally anonymous also. If you want to receive money, you give someone a wallet address. You can have as many wallet addresses as you want which has the end result of it being impossible to link transactions to people. However, combine anonymity, money, and no regulation or authority and sure enough, you get criminals.

Bitcoin received a lot of publicity after the launch of a website called silkroad which was described as “the Amazon marketplace of drugs” which allowed users to by all sorts of illegal items including drugs and weapons – all paid for by the anonymous distributed currency Bitcoin. As well as Silk Road for weapons and drugs, there have also been suggestions that Bitcoin is used to trade in other illicit things such as hiring bot nets, hitmen, slaves, prostitutes and more.

Because there are supposedly a large amount of criminals using Bitcoin, there is a lot of fraud. Browsing Bitcoin forums and it’s not hard to find posts of people frustrated at being scammed out of several hundred Bitcoins (the current conversion is 1btc = $3) because there is no regulatory authority to reverse fraudulent transactions.

However, that’s not to say everyone that uses Bitcoin is a criminal or that every transaction is related to an illegal item. The idea of totally free online transactions should appeal to anybody that sells online, as it could result in lower product prices for the end user.

Over the course of my research, 1 of the many aspects of distributed currencies I would like to look into is ways of making a distributed economy that is less risky to use (e.g. reducing fraud and scams, it maybe that this means reducing anonymity) but maintaining the benefits of free transactions and no single point of failure/corruption.

My 2 subjects of research

My background is in computing science, I think it would be useful for me to also have a better understanding of economics and and criminology for the aspect of research above. Why?:

Economics: wikipedia described economics as “the social science that analyses the production, distribution, and consumption of goods and services.” I believe a deeper understanding of this and the methods associated with economics would allow me to conduct more informed, appropriate and educated research and to account for and explain the necessity of currency, trade and economies. Specifically I would like to look into online/cyber economics as it’s important to understand the differences (if any) between how people trade online vs. in the real world and how to cater towards these differences and incorporate them into my future research.

Reading Material
I’m not sure yet, I’ve been looking for economics books relating to the web and internet but have been unsuccessful in finding any so far. If anyone has any suggestions, please don’t hesitate to put them forward!

Criminology: wikipedia describes criminology as “the scientific study of the nature extent, causes and control of criminal behaviour in both the individual and in society.” In order to protect something against crime and fraud, I believe it’s important to first understand why people commit crime and fraud in the first place. Specifically I would like to look into cyber criminology to try and get an idea of the research methods used to access and understand such a dark corner of the web. I’d like to learn if and how researchers in this area get full, truthful and honest answers from an area that is inherently full of people willing to mislead.

Reading Material
Not 100% sure on this one yet, but here’s a few ideas:

Cyber Criminology: Exploring Internet Crimes and Criminal Behaviour (2011)

http://www.crcpress.com/product/isbn/9781439829493

“Approaching the topic from a social science perspective, the book explores methods for determining the causes of computer crime.”

Cyber Forensics and Cyber Crime: An Introduction (2008)

http://www.amazon.com/Computer-Forensics-Cyber-Crime-Introduction/dp/0132447495/

“It includes and exhaustive discussion of legal and social issues, fully defines computer crime…provides a comprehensive analysis of current case law, constitutional challenges and government legislation”

The web has changed the way we consume content, and I want to investigate this change through the disciplines of Economics and Law. There are several related questions I hope to address.

How has the law evolved (or not) in response to the shift from print to web-based media? How and why has consumer behaviour changed with regards to content on the web? How do the two relate to each other? Is the current intellectual property regime in inevitable conflict with the economic decisions of content consumers?

I’m going to start by reading some textbooks. So far (with thanks to Alison), I have begun to leaf through Information Technology Law, by Andrew Murray (in particular, Part III: “Digital Content and Intellectual Property Rights”). I imagine that after attempting to read the whole IT law textbook I’ll end up having to get some more basic understanding of the law from additional sources. I’m also hoping to get in contact with some people who Alison recommended, namely:

• Professor Steve Saxby (head of IT law research in Southampton)
• Laura German (2nd year Phd Web Science, from a Law background)
• Dr Roksana Moore (who gives lectures on IT law this term)

As for economics, I’m going to read the straightforwardly titled Economics, by Paul Samuelson and William Nordhaus (apparently a classic introductory textbook). I also have Modern Industrial Organization, Dennis W. Carlton, Jeffrey M. Perloff, in particular, Chapter 16: “Patents and Technological Change”, again thanks to Alison.

Finally, because my interest is in consumer behaviour and economic decision-making with regards to the consumption of digital content, I would also like to look at ‘behavioural economics’. An Introduction to Behavioral Economics, by Nick Wilkinson and Matthias Klaes, will hopefully give me the relevant background. I also hope to get in contact with Professor David Gill from Southampton’s Economics department, who specialises in behavioural economics.

At present I have a set of questions around the primary ontologies of disciplines and their relation to the web. These questions are to do with: how easy is it to collaborate within subjects and between subjects, how much do they lend themselves to being webified – either in relation to being encapsulated on the web, being disseminated via the web or via the mechanism of using the web as a medium for collaboration? I will probably, I think, be looking at trust as seen through the lenses of either psychology, or perhaps sociology, and then perhaps, the economics around these sorts of transactions. This is all very uncertain and questioning at present – I will be asking more questions of myself and then hardening and refining these, and deciding on the appropriate subjects as I go along. Plenty of reflexive thinking about the process of deciding on research questions as well as more objective thinking on the sorts of questions to ask!

After having concentrated solely on economics, and deciding that i’m going to have to accept that i’ll struggle to find an obvious link between my research issue (reputation on the web) and the discipline, i thought i’d spend this week looking at a psychology. I’ve had a bit more exposure to this area than economics, but i’d never claim to have significant knowledge of the approach. So more basics i’m afraid.

My principle texts have been:

Psychology – The Science of mind and Behaviour by Richard Gross
Psychology by Bernstein et al
Psychology by Neil Martin

The clearest definition that i managed to find in the three books was in Gross, and states that psychology is the scientific study of behaviour and cognitive processes. There is also an interesting proposition in Bernstein and Gross that we can all be considered psychologists insofar as we all develop theories about what other people are like, and use these theories to help us explain / understand, predict and control other’s behaviour. The discipline is also branched into a number of distinct but interrelated areas; i’d heard of several of these (Behavioural, Cognitive, Clinical and Educational), but was surprised to learn there is such a thing as Biopsychology. I briefly scanned the definitions of each in order to have a fuller understanding of where i might like to concentrate my reading after i’ve got a firmer grasp of the basics, and at the moment i’m thinking of Behavioural and Cognitive (although Personality Psychology sounds like it could be relevant if it is sufficiently widely recognised as a distinct area.)

I then found that these different branches are themselves sub-branches of a divide further up the chain between ‘basic’ and ‘applied’ psychology. I was beginning to get a bit lost, as each book seemed to have a slightly different take on where the divisions lay, but the first chapter of Gross seemed to provide the clearest explanation. His way of distinguishing between the different aspects of psychology  quotes Legge (1975), and gives a good flavour of the overlaps and interconnected nature of the discipline: research carried out under the banner of psychology can be divided into that which focuses on processes or mechanisms underlying various aspects of behaviour and those which focus more directly on the person.

The Process Approach

This consists of the biological bases of behaviour, learning, cognitive processes and comparitive and is often referred to as experimental psychology (with the term ‘experimental’ being used to distinguish scientific psychology from the philosophy from which it emerged.)

The Person Approach

This consists of social psychology, developmental psychology and individual differences. It is this branch which i believe will be of more use to me in terms of being able to apply the approach of the discipline to my research question, and as such i began to concentrate my reading in this area. In particular, social psychology seems like it will have much to offer.

Social Psychology

I managed to find a fairly succinct definition by Gordon Allport which seems to sum up the text books’  definition in their introductory sections: social psychology is concerned with understanding how how the thought, feeling and behaviour of individuals are influenced by the actual, imagined or implied presence of other human beings. Given the nature of reputation, tied up as it is with trust and relationship building, I’m certain I need to concentrate on this area. A little bit of reading around the edges led me to find several chapters in Gross and one in Martin that discussed aspects of social psychology, but having gone through these I think it would be more useful to get several books that are specifically about it.

So i’ve managed to find the area i need to concetrate on, and have an appreciation of the distinctions that exist within the discipline. I’m feeling much more confident about psychology being useful to my question than economics! I will get some social psychology texts this week, and try and focus in further on the area that i think will be of most use.

                Back to economics and making money, even if technically economics isn’t actually concerned with money per se, but rather assets.

                Primarily the goal of all firms is to maximise profit, failure to do this either results in the company failing, and going out of business or being purchased and subsumed by a more successful business (which ironically could be a good thing for small retailers and producers). The profit of a company is calculated simply by the total revenue of a company minus the total costs. There are always restraints on the total amount of profit that a company can make, the main three of these are technological constraints, informational constraints and market constraints. As discussed in a previous blog, economist define technology in a general way, as any method which influences the production of a good or service, as such the type of retail outlet chosen by a company is a technological constraint. For example the constraints on Novatech, a technology company, which relies on catalogue sales, differs to the constraints on Best Buy, a large superstore, which in turn differs from Maplins, which relies on many smaller stores, which further differs from the restraints on sellers based on Amazon and eBay. Companies are restrained by their nature as changing requires a large investment, which in turn affects future profits. Informational constraints occur as it is impossible for a firm to have all the information that may impact on its future growth and development, however gathering information costs resources including time. Workers are not robots and also may change productivity unexpectedly, furthermore it is not possible for a company to predict when a new technology, or new competitor may enter the market, all of these are informational restraints. The final constraint that a company faces is market constraint, this is constraints which occurs due to external market factors, for example if the global market suddenly shifts away from a product, increases a resource cost or any other external market factor. All factors influence the uncertainty level of firm.

                Firms help to gain profitability by ensuring efficiency, both technological and economic. To ensure technological efficiency, firms need to produce goods or services using the least possible inputs, that is a firm which requires fifty workers and 50 units of capital to produce a good or service is more efficient than a firm which require seventy-five workers and 50 capital to produce the same good. Economic efficiency occurs when the firm can produce a good for the least possible cost. That is a firm that can produce a good for £8 per unit is far more economically efficient than a firm than that can produce the same good for £10 per unit. It is far harder however to predict economic efficiency as it depends far more on the relative cost of resources and is not a fixed number, for example a company which relies on oil rather than synthetic fuels may be efficient when the cost of oil is low however may be inefficient after a price hike in oil. Inefficient firms do not maximise profit.

                When dealing with workers, companies help ensure efficiency by the use of two primary systems, command systems and incentive systems. Command systems rely on a company hierarchy to manage the workers, creating many hierarchs and layers in each firm. However managers may still have incomplete information regarding the workforce, and rely on the personal traits of the individual managers. Incentive systems work by offering incentives to workers for increased productivity. In a rather ironic system, incentive systems offer payment for workers who do their jobs! Many incentive schemes rely on share schemes to help motivate workers, however such schemes fail to have much impact if an individual has a negliable impact on the day to day operations of a firm. Alternatively several companies rely on a purely incentive pay system, where a workers pay directly correlates to their performance, despite still used considerably in the sales industry, this type of payment is on the decline due to minimum wage laws. The final action that companies use to try to motivate workers is the use of long term contracts, it is theorised that as the worker will be at a firm a long term it is beneficial to help improve the company and ensure its profitability, I have doubts with this however and can only see this working in a recession and when there is a limited number of job opportunities, in a booming economy workers are likely to be far more mobile and active in seeking an improvement to their current situation.

                 Most firms employ both systems to help ensure efficiency, as the management provide an easy way to disseminate information through the firm as well as a way to manage workers. Many companies also face a specific principle agent problem, ideally it is best that agents (workers and managers) work in the best interest of the principles (the firm), however agents often have their own agendas which may not benefit the firm as a whole, for example a manager may actively engage in behaviour to cast doubt on a superior to gain a promotion, this action however may not improve the firm as a whole, and may in the long run impede productivity. 

                It is also important to examine the types of businesses that currently exist in capitalist society. Proprietorships are lone traders, which tend to employ smaller workforces, in which the owner has unlimited liability. Unlimited liability is where the assets of the business and the assets of the owner are considered one and the same, including personal property, this means that if the firm owes a debt to creditors the owners personal assets can be seized to repay the debt, it is also likely that the firm would die when the owner is no longer capable of running the company due to ill health or death. The second main type is partnerships, which is effectively viewed as as coalition between sole traders, were all partners share risk and reward, these can be far more stable than lone traders, however may be slower to react as agreements may be hard to reach between partners. Companies are a mass coalition of share holders, all of which have limited liability, where the assets of the company are distinct from its owners, companies tend to be large, regional, national or global enterprises. Such large companies can however be inefficient in that decisions may be slow to agree on, and even slower to filter through the layers of company hierarchy. The company is however the most stable and long lasting options for investors.

                All firms must operate in a marketplace, with different marketplaces being qualitative different trading environments. Some markets are characterised as perfect competitive environments, this is where many retailers compete selling identical products with no trading restrictions, this is often seen in primary industries such as mining and farming. Monopolistic competition exists where large firms compete by selling very similar but slightly different products, such as sports shoe retailers, and is best characterised by large firms, who rely on reputation and product differentiation to gain sales, large firms also actively attempt to block entry to new firms due to their sheer size and market dominance. Oligopolies exists were a limited number of companies compete to gain market share, all selling qualitatively similar goods. Finally monopolies exist where one company dominates a market virtually to the exclusion of all competitors; the most apparent example of this is in computer operating systems where Microsoft dominates by a clear margin (with a market share of over 90%). In order for consumers to gain the most out of a market, perfect competition is desirable as it helps ensure lower prices and increased internal efficiency. Market share has tended in the past to be regionally based, however since the growth of the web buyers are free to purchase globally, allowing smaller retailers into market places, encouraging growth and competition between retailers, as each seeks to offer a better deal than its competitors.

                 As can be seen the internal operation of a firm are essential in its successful actions in the external business environment.

                Until next time.

After spending the last few weeks getting to grips with the very basics of economics i’ve now looked at how the various approaches and mechanisms used by the discipline could more directly be applied to the issue i’m looking at – reputation and its value. I’ve continued to concentrate on undergrad texts, primarily Economics by Parkin, Powell and Matthews, A Course in Microeconomics Theory by Kreps and Economics by Lipsey.

As i mentioned in the last blog economics assumes that individuals act in their self interest; that is, they will do things in a way that will maximise their position according to their values. When you choose to enter into a transaction with person a as opposed to person b, you will do so because you perceive that transacting with person a will leave you in a better position than transacting with person b will. One of the considerations that may lead you to this conclusion will be the degree to which you believe person a will act with integrity, and this integrity will be externally demonstrable by their reputation.  Hence,  reputation can be considered something that affects competition, and the way in which economics deals with competition needs to be considered.

There are four market types in economics:

Perfect competition, where:

• many parties offer identical goods to many buyers,
• there are no restrictions on entry into the industry,
• existing vendors have no advantage over newcomers, and
• all parties to a transaction are well informed about the prices of products.

Monopolistic competition, where:

• a large number of parties compete by making similar but slightly different products,
• production differentiation gives each monopolistically competitive firm an element of monopoly power,
• barriers to entry are limited.

Oligopoly, where:

• a small number of firms compete, and
• natural or legal barriers prevent the entry of new vendors to the marketplace.

Monopoly, where:

• one firm produces a good or service for which no close substitute exists,
• natural or legal barriers protect the firm from newcomers to the market.

With these definitions in place it would be possible to draw parallels between the different types of market and instances on the web where reputation comes into play. As a very rough example, an expert forum on Visio could be considered a Oligopoly, as people will only listen to the advice of a small number of recognised experts, and in order to be considered an expert a user must have certain qualities (such as a long and illustrious posting history). Newcomers will struggle to impose themselves.

I next looked at game theory as a way of potentially understanding how people may try and to actively enhance their online reputations. Game theory is something i’d heard about previously, particularly the prisoner’s dilemma, but i’d not really explored it sufficiently to be able to see how it might apply to the issue i’m tackling. Very briefly, it serves as a tool for studying strategic behaviour; that is, behaviour that takes into account the expected behaviour of others and the recognition of mutual interdependence. To take this back to the reputation issue, people building a reputation do not do so in a vacuum; their reputation will only benefit them if it is ‘better’ than somebody else’s. As such, those attempting to enhance their reputation may decide to act in certain ways due in part to their perception of what their competitors may be doing.

. The prisoner’s dilemma is probably the example that most people are familiar with: two criminals have been apprehended on suspicion of committing a robbery and are being held in separate cells. The police know that the two together committed the crime, but lack sufficient evidence to convict. They are each therefore offered a deal – convincingly implicate the partner. If neither implicates the other, each gets no time in jail. If each implicates the other, each receives a short amount of time in jail. If one implicates the other but is not implicated, the implicator gets off (and gets a greater share of the proceeds of the crime) and the implicated goes to jail for a longer period of time. Each ranks the four possible outcomes, with the result that it is best to implicate your partner, next best to not implicate and not be implicated, next best to implicate and be implicated and worst to not implicate but be implicated. Abstracted, this suggests that co-operation is not in one’s best interest if the other party intends to co-operate (in the prisoner example co-operating meaning co-operating with each other by not implicating each other.)

Gaining an understanding of the economic constructs of markets, competition and game theory has certainly been an interesting exercise, and i’m glad i have had the opportunity to look at them in more depth, but i still worry that the link to my issue area is a little tenuous. I believe they could certainly add something to the understanding of one type of strategy actors may pursue when attempting to enhance and capitalise on their online reputation, but just as likely people could choose to completely ignore any notion of competing with others and still gain a positive reputation. I’ve discovered a little bit on social capital, which will hopefully fill in the blanks, and will write about this next week.

Last week I investigated how sociology used historical analysis, cross cultural research, individual case studies and the examination of changing social trends. This week I return to economics, with an examination of the nature of supply, and elasticity in a market. These theories are central to which goods get to a market, and the price at which they retail.

                Supply is the amount of any good or service that a company is willing to produce for a set price. Building on this the law of supply states that all other things remaining equal, the higher the price of a good the greater amount which is supplied. Companies cannot produce every product demanded by the market due to supply constraints and the need to remain profitable. As such it’s imperative that companies calculate the required supply, and not to flood a market. The main factors affecting the supply of a good in a market are known as the factors of production, first among these is price, if a good is expensive to produce, less are made, furthermore if the price of producing a good increases, due to external factors, for example the price of producing a plastic toy will go up if oil prices rise, as such less toys will be produced. Competition and complimentary goods also affect the supply of any given goods, in highly competitive markets its prudent to supply a smaller number, if there are a large number of complimentary goods, supply goes up. The expected future price of a good also effects supply, if a good is predicted to rise in the coming months, the supply available now will be reduced to save supplies for later use, ensuring later profitability. Conversely if the price of a good is expected to fall, it is good to increase current supply as such to reduce the impact of the reduced price. The number of suppliers in any given market also governs the total available supply. The more producers there are the more that it is possible to produce and supply to the consumer. The final factor that economists consider affecting supply, is technology, this is a catch all term to describe pretty much any other factor, and can be concerned with actual technological issuess, for example, a company invests in a new machine which allows them to produce and supply twice of much of any product for the same price as before, supply will increase. Technology however could also include factors such as a natural disaster, which may reduce the availability of raw materials and hence reduce supply.

                Supply is based on planed sales of a product. Based on the relationship between the nature of demand (See blog 2) and its interaction with supply, all sales of any given product eventually reach an equilibrium, where the quantity of a good demanded equals the quantity of a good supplied. How much a product is demanded affects the overall selling price as individuals are willing to spend more money on the product, if a product is rare, for example a mint 50 year old comic, then demand goes up relative to the quantity available, and hence price goes up. A surplus or excess of any product will reduce the relative value of any product, and reduce price. Based on this relationship it  is important that businesses manage the available supply and demands of a product to ensure god returns. Advertising helps increase demand for a product, reduced supply increases price, as such if consumers value a product demand goes up, and if this available in limited quantity, price goes up. It is to be noted that sellers commonly reduce price to a point lower than the idea market cost to gain increased market share, this tactic is common among supermarkets, especially in the run up to large events such as Christmas.

                With markets always moving to achieve equilibrium, large scale shifts in supply or demand can lead to uncertainties in a market. The price elasticity of demand give a measure of how responsive the market is to price changes, some products are inelastic, such as alcohol and petrol, both products have consistently increased in price, yet demand has remained unchanged. Other products however are very elastic and are affected by minor shifts in price, for example if a large box of Dazz is sold at £18, demand and supply will settle at this price, if a similar box of Bold enters the market at £10 the demand for Dazz drops substantially. This occurs because Bold is a close substitute for Dazz and hence acts to increase the elasticity of the market. The web has increased the elasticity of many products, as it has allowed a greater awareness of many products substitutes, hence the relative price falls.

                Similar elasticity exists for supply, as the cost of producing any products may vary as a function of the quantity demanded. if the cost per unit of producing an item does not vary based on the quantity produced, its supply can be considered inelastic, if there is a price point that any quantity of units can be produced then the supply can be considered elastic.

                 So why do we care about supply? The web has turned most of the globe into one big market place, hence the supply of the majority of items has increased. This means that the relative price of products have fallen, allowing consumers increased power in the market. Consumers have freedom and power, potentially reducing the relative importance of traditional economic theory.  

Until next time!

This week, I went historic.

As part of my sociology reading, it was apparent that societies do not just exist in isolation, but rather are the product of thousands of years of traditions and culture. A central theme suggested by Gidden’s is that society is the product of uncertainty, when individuals work together they increase their chances of success. In response to this, society can be seen as having evolved in distinct epochs, hunter-gatherers, pastoral and agrarian societies, traditional non-industrial, post industrial or modern societies, and post modern information age societies. Not all societies evolve at the same pace, if at all, with external factors influencing their development. According to Kautsky (1999) traditional societies were based on the desire to create an empire, for control of limited resources. Post industrial revolution, there was a mass exodus of labour from the countryside and a migration in to cities which became large population centres, with this migration came a shift in social life, as people became one of many, the majority of relations became impersonal.

In response to the decline of traditional communities, a new community was formed, with the rise of the nation state, individuals felt part of a much larger society, as such rather than being a member of a village they became English, or French, or Spanish. (As an aside historically Italy and Germany became states long after most of Europe, and they remained city states far longer) The rise of the nation states gave far more influence to the relative governments, allowing for the start of national agendas.

The growth of nation states allowed for the expansion of western imperialism, founded primarily on fortune and firepower, nations were far stronger, both in terms of sheer productivity, and technology, such as gunpowder based military, than those who opposed them, the subsequent result was the rise of colonial superpowers, with the rise of the British and French colonial empires, based on trade. The Spanish empire, which had embarked on imperialism based primarily on looting rather than trade, had failed to innovate and was in decline by this time. Colonialism was driven primarily by economics, and central to capitalism was a growth of inequality and poverty, western powers became richer at the expense of indigenous populations, helping to create the third world. It has been found that societies that industrialised in the modern age have had some of the largest groths ever recorded, for example South Korea is now one of the worlds leading exporters of modern goods, despite being an agricultural society until post the Korean war, in the 1950s, of course western investment has acted to encourage this growth, with the US investing billions to turn the nation into a capitalist paradise, as a result of the Cold war.

So what causes theses societies to change? Unfortunately there is no one theory on this, but rather societal change is influenced by culture, physical environment and politics. Factors such as religion influences cultural, these can act to enhance or reduce the speed of change, such as the demands to translate the Latin bible into English in the sixteenth and seventeenth century, resulting in increased literacy rates for the average population. Culture is also influenced by communication technology, mass communication has encouraged the growth of societies, from the invention of the printing press to the development of the internet. One of the largest influences on culture is the individuals that govern, and influence them, leaders can be seen as an extension of societal desires, a true embodiment of the culture, leaders can be great war leaders, such as Napoleon, or Caesar, scientific and industrial innovators such as Newton or Brunel, or great social motivators, such as Ghandi, Washington or even Jesus. Physical environment motivates social trends due to limited resources, the ancient Egyptian empire relied on agriculture as there were insufficient  animals to hunt, whereas native Americans were never encouraged to develop farming based communities due to an excess of bison and buffalo, natural resources also encourage conflict as imperial powers attempt to gain advantage. The influence of politics is also a complex relationship, Marxist theory states that politics are a direct consequence of the economic nature of a society, however there are examples where fundamentally different political organisations have both used capitalists economies, such as Nazi Germany and the US. A far clearer link can be seen as the ultimate expression of political will and its affect on society, the military. Countries like the USSR and North Korea invested vast sums of capital into the development of military might, resulting in a twofold impact on society, due to limited finite resources, investment into the military reduced investment into the welfare and productivity of the nation, having a negative impact on growth, secondly strong aggressive military can lead to a reduction in individual freedoms, acting to reduce creative innovation.

 So how does all this relate to the modern world and economics? The western world has emerged due to a decline of traditionalism and a growth of rationalism, key to capitalism is the idea of self improvement, the same idea that drove individuals into the cities is still driving the desires of millions today, the growth of communication technology has freed the individual, people are free to develop their own distinct personality, and own identity. The growth of the same technology has increased the power of the state, allowing governments alter the lives of many in sweeping decisions, such as mass cuts to public spending. The society we live in today may be fundamentally different to societies of the past, but we are the product of our history.

The modern post industrial world is based on globalisation, driven mainly by the growth of ITC and the web. Globalisation has allowed individuals to transcend national borders and have a far greater sense of social responsibility across the globe, for example the web has allowed real time images of natural disasters on the opposite side of the globe, encouraging people to try and help, despite individuals ever likely to even visit the country in question. Wars are no longer fought with the aim of territorial gain, but to protect rights, usually based on western morality. Many have suggested that the web has brought the world closer, but all this has achieved is the flattening of culture, to be replaced by a global culture, based on an Anglo-American ideal, the British empire is far from dead, it just went digital. English is by far the global language of trade, the global language of the web, western imperialism could still be seen as alive and well. Globalisation is the complex marriage of society, economics, technology, and individualism, ideals which the west have long encourage and developed. Trade may have brought prosperity to many second world nations like China, but in an increasingly weightless economy (Quah,1999) the west still holds most of the trump cards.  

It is impossible to truly separate sociology and economics, they are intrinsically linked.

In order to establish whether i can look at economics in sufficient detail to make it a worthwhile exercise (in relation to the question of reputation) i’ve been focusing on that for the last ten days. Things are a bit more promising i think; provided i concentrate on the social capital side of things i’m confident i can tie everything together coherently.

I’ve been making my way through Economics by Parkin, Powell and Matthews, which i’ve found very accessible and easy to read. The authors try to illustrate reasonably complex concepts (for me they are reasonably complex, anyway) with simple analogies, the majority of which for some reason seem to include David Beckham. Below are the key things i’ve got from the first part of the book.

What is Economics? 
It is the social science that studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

Microeconomics & Macroeconomics
Microeconomics is the study of choices that individuals and businesses make, the way these choices interact in markets and the influence of governments. Macroeconomics studies the performance of the national and global economy.

Two Key Economic Questions
How do choices end up determining what, how and for whom goods and services get produced?
When do choices made in the pursuit of self-interest also promote the social interest?

Trade-Offs and Opportunity Cost
Trade-offs are a way of conceptualising the process of making a choice between alternatives. For example, when you choose to write your IDR blog rather than watchint the One Show you face a trade-off. By writing this blog i am (hopefully) becoming better educated and giving myself a better chance in doing well in this course, which may lead to a better career later down the line. But i am missing the One Show, so i am trading off current entertainment(?!) with my future ‘performance’.  Linked to this is opportunity cost. If i want to go and see ‘Due Date’ this weekend, the cost of the ticket will preclude me from having a pub lunch on Sunday. Therefore, the opportunity cost of seeing Due Date is the pub lunch i won’t have; that is, the pub lunch is the highest valued alternative that i would have done if i did not go to the cinema.

Margins
If i study five nights a week instead of four, and my marks go from an average of 50 to 60, the marginal benefit of that extra night’s study is the difference between my old and new average – 10%. The marginal cost of getting that extra ten percent is the night i lose socialising. In order to evaluate the benefits, i would have to establish whether the extra marks outweigh the cost of socialising less.

Human Nature and Social Interest
There is an economic assumption that humans act in their self interest; that is, they make the choices that get hte most value for them based on their values. A question the book seems very keen on addressing is when self-interested acts are alos in the social interest.

How Economics is Studied
Economics is not an experimental science, ands as such has to be studied through other means. Given that you cannot really conduct bound economic experiments in the laboratory, the book details and describes methods used to study economics. These include Observation and Measurement, Model Building and Testing Models.

I’ve been necessarily brief; there really is a lot of material that i’ve tried to distill down to the core components. Thus far it’s a rewarding task, and i feel quite comfortable with all of the concepts above although i’m fairly sure i had at least an elementary understanding of most of them. I’m going to press on with this book for the next week or so, as it has only touched on social capital and i think this will be the area that i can most strongly link back to my topic area.

This week, I have begun to investigate the economic component of the independent disciplinary review; the main text I used for this was “Economics” by Parkin, Powell and Matthews. The authors describe economics as the social science of choice, and they differentiate between two main types, microeconomics, the economics of individuals and small businesses; and macroeconomics, the economics which concentrate on nations and large multinational companies.

The next large theme handled was production, including 4 main factors of production, land, labour, capital and entrepreneurship. Land refers to the raw materials used in the production of goods, labour the work that individuals must complete in order to produce the good, capital the assets that a company must have to produce the goods and entrepreneurship, the organisation and goals the business possesses.  Simply by looking at these factors it is clear that the digital revolution would fundamentally change what, and by whom goods are produced. The increase in digital media means that companies, and increasingly individuals do not require large amounts of natural resources, for example, a mash up artist just requires a copy of the intended parent files. Additionally many digital users do not require vast assets to produce goods, many of which can be created using a PC, potentially with a key piece of required software, this is far smaller than the large production facilities which many companies are required to possess. It is clear therefore that just from a basic level that the web has altered or has the potential to alter the fundamentals of economics. The authors contend that the information revolution in the 1990s and the subsequent growth of the web has altered the lives individuals in much the same way as the industrial revolution of the 1700s and 1800s.

Economics does take a negative view of individuals, arguing that all individuals are fundamentally self centred and individualistic, who always act according to self interest.(As an aside, economics  seems to view individuals as being governed by the id, and pleasure principle in Freudian psychology) This action is taken as a given by economists, who argue that the role of the state is to manage the wants of the citizens, as no individual can ever be truly satisfied. Scarcity is a common to all, as individuals inherently want for more, they can never be satisfied, due to limit of resources, making every decision a trade-off. This is easy to see in everyday transactions, as individual only has a finite set of resources, as such we must make decisions on how best to use our limited source. Based on the notion of limited resources, economics also focuses on opportunity costs, that is the cost of not doing something else with the resources an individual possesses. Interestingly economists only look at this in terms of profit and loss rather than simply opportunities for other activities, for example an individual may invest a significant amount of time developing social bonds by spending time with a large group of friends, the individual has not gained a direct use of their capital, and as such they may have been better investing their time into completing required work. Sociologists could argue that spending time with others fosters the gain of social capital, a potentially valuable resource. The investment of resources is always a trade off between activities, as such actively investing in the future reduces the resources available now, in exchange for increasing the potential for resources in the future.

As Individuals only have a finite set of resources, it is obvious that individuals benefit from specialisation, individuals cannot be the best at everything, but by specialising and gaining expert skill levels in one subset, they can produce the best goods they can. If multiple specialists from different skill sets combine, they can then trade, allowing all parties to gain a benefit, and access to goods otherwise denied to them. Interestingly this is where the growth of the web contradicts with classical economic theory, many of the youtube sensations, or web mash up artists are not experts in these fields, and in the vast majority of cases are not trading their ideas for a form of capital gain, but simply to be a member of a community, or to express creativity, of course it is possible to argue that these could count as investments into the future but it seems very unlikely that this is the motivating factor behind such actions.

The next large economic theory I focused on was demand and supply, a key tenet in economics, central to demand is the law of demand, which states that if all other factors are equal, the lower the cost of an item the higher the demand. It is possible that this is where the web has fundamentally revolutionised consumer behaviour, the web has allowed individuals to access information, at a relatively low cost, that would have potentially remained inaccessible, Wikipedia has allowed everyone with an internet connection to learn about a variety of topics, e-commerce has allowed individuals to access goods otherwise denied to them at a lower cost. The web is used in rural areas of developing countries to check the global price of goods to ensure that the farmers are getting a fair price for the goods that they produce. People generally want greater value for money, demand more, and value innovation more. Of course it could be argued that these social trends started long before the explosion of the massed web, but the web has fundamentally changed the perceptions of value and the way the global game is played.     

The coming week I will be returning to sociology to see how sociologists can help explain these trends, and consider whether we are simply in the start of a snow ball, and whether this trend could continue indefinitely in its current state, or whether these trends are somehow doomed. The web has allowed the Djinn out of the lamp, and people don’t want him to go back in. If classical economics is based on the “Wealth of Nations”, written in 1776, is the coming age characterised by the wealth of the individual, with classical economics being resigned to antiquity?