1/ Blockchains will expand the power of markets to corners of society we cannot today even imagine.
2/ By creating new markets and exposing new activities to the price mechanism, blockchains will dramatically improve resource allocation.
3/ In "The Use of Knowledge in Society," Hayek explained that the price mechanism acts as a form of knowledge.
4/ In Hayek’s view, Capitalism was successful over successful Communism not for the commonly cited incentive problem (e.g. "why would I work harder when I can’t get paid more?"), but because of the lack of a price mechanism.
5/ The factors and conditions of production as well as the preferences of individuals is not something that can be fully known to a single individual, but is “decentralized” and “distributed” among different people.
6/ In a capitalist economy composed of markets, many different intelligent and hardworking individuals try to understand their industries. All of that knowledge is “priced in” to the market and visible to all other participants in the form of price.
7/ Each individual makes decisions based on the prices of different good and services. Those decisions (to buy, sell, hold, etc.) then impact the price, affecting other actors without any central coordinator.
8/ When it became cool in hipster restaurants to serve bacon on everything, there was no central planner that had to tell the bacon industry to produce more bacon.
9/ As supply stayed mostly fixed and demand increased, the price of bacon increased sending a “message” to produce more bacon.
10/ Everyone in the bacon market got this message whether they or not they knew anything about hipsters in Brooklyn and avocado toast.
11/ This message also got passed to consumers and other restaurants serving bacon: those actors then had to choose whether to make less money on their bacon dishes, increase the prices, or to stock up on bacon for the future if they anticipated higher prices, etc.
12/ These “messages” in turn fed back into the price mechanism.
13/ In this way, the price mechanism aggregates and passes on knowledge more effectively than any central planner ever could.
14/ As blockchains expand into areas that have never been touched by markets, we will get a far more efficient use of resources because of the price mechanism, we will get far more efficient resource allocation
15/ Imagine getting in a car to commute to work. You will see a sliding scale offering you the ability to set an arrival time and calculate the cost of the ride. ...
16/ If you want to arrive quickly, the car will make a flurry of micropayments to other cars allowing it to pass. If you're not in a hurry, you may choose a later arrival time and lower fare, allowing other cars fly past in return for the lower fare.
17/ Currently, it’s not technologically feasible to solve traffic problems with the price mechanism, but that technology will exist in the future.
18/ Traffic is one example, but I suspect there are many problems which will be solved or improved by exposure to the price mechanism and the knowledge embedded in it.
19/ H/t @aantonop for the car example. As always, tweets are me thining out loud. Feedback/thoughts/criticism welcome.
