Re: Commoditized

Fascinating read. Here are some of my thoughts. I think you do a nice job summarizing theoretically the utility flows in any set of transactions. Your points about new products being commodizied through lower frictions and increased market entry are for the most part valid. The industry has seen explosive growth in derivative products and as people have become more comfortable with more complex and exotic products, the more they are traded... which enhances liquidity... which in the end commoditizes the product.


THe key in my opinion is to sell services and not products. Like you say, it won't be long before others can accurately price even your most exotic structures and start competing. What is much harder to replicate is the client relationship side of the equation. Salespeople are not brokers... they have to really understand a) what their client's needs are and b) what's happening in the market.


Your comment about cornering the inputs is also quite interesting. THis would certainly be the ideal solution but what you have to realize is that the inputs are people... the traders, salesmen, strategists, etc. You could have the best models, the best software and the best informatiion, but if i come in and hire your top talent, within a few months i'll be competing in all your markets and within a few years i'll be way ahead of you.


In short, yes, products are increasingly becoming commoditized but the nature of the game has changed from selling products to selling services(expertise) and if anything, i think this will be a harder market to corner.

You gave an example about how a big player showed up out of the blue, and moved the volatility. This left the analysts scrambling.


There are several ways to get this information. You can

1) wait for it to hit the tape,

2) pay strategists and traders to deduce it,

3) pay salespeople to collect it, or

3) pay clients to deliver it.


Inadvertently, using expensive manpower, you do pay clients to deliver it. Talking to traders and salespeople, and submitting to friction, is the only way they can acquire proximity to whatever unique value magnet you control.


Put differently, you have to deliver ever more fantastic services, to subsidize the manpower. In other words, the information topology is not, like, self-inflated. Like, you you aren't paying the client directly for information collection.


Why must I attack this topic at night, when my mind is totally burnt out!? Let me clarify what I mean by "topology" while I collect my thoughts:


http://www.twoplustwo.com/cgi-bin/newforums/exchange.pl?read=35263


You are manufacturing the service out of information, gathered and processed by people. I say, you need people to process it, but not to gather it. And you can also make it cheaper for the client to deliver it, through some type of better automation. When it is cheaper for the client to deliver it, and he is paid directly based on quantity and quality - rather than indirectly, through some lumped-together analog carpool of services - the supply will be better regulated - price-regulated like everything else in the economy - towards optimality.


But let me digress into some of my thoughts on "quality" people. I once worked in the customer service department of the major manufacturer of a near-monopoly product with daily delivery and a short shelf-life. It was my job to lean on a list of several hundred smaller clients, on the phone, so as to squeeze their demand information out of them in time to coordinate production and delivery logistics with the plant, the distribution nodes, and the fleet drivers.


Notice, we did not give clients any price breaks for getting their orders in on time, all I did was lean on them - and even sweet-talk them - to try and get enough out of them to punch into the coordination database. There was a cutoff point, past which they might not end up with the exact inventories they wanted but, short of that cliff, they bore little cost for postponement and silence. But that is not the point of my story.


The point is that our department was staffed by three decent people working fairly hard. I thought it could have been staffed by two excellent people working very hard, or one absolute freak, using three headsets and two Nextel DirectConnect pagers at once. But equilibrium for the department was four people. Why?


Because four retards are more flexible, more adaptable, more resilient, than one freak. You can afford to pay each of them half as much as the freak - for a total of twice what you would pay the freak - and still come out ahead. If one of them is sick, they can still function. If one gets a better-paying job and ditches, they can still function. If their job description and necessary talents change slightly, they are more likely to have someone who can adapt, or you can have a smooth transition by firing and replacing just one of them. You can plug and play.


In other words, I think multi-person structures, acting in a sort of ecosystem like dumb microbes, are actually smarter and more adaptable than high-quality super-people, like at Goldman Sachs. I think, with a combination of the right groupware, the right information-payment topology and pricing metric - and a minimum number of retards to staff it - you can actually create a superior biological machine which services clients better, and costs them less in time and hassle at their end.


But I think the key is automating the incentive structure, to encourage and discourage behavior patterns on part of the client. Today, you basically massage them and steer them into doing what they need to do for the whole system to work. But, like you said, it takes mega manpower on both sides to man the interface, and dance the dance without stumbling or falling out of step.


More advanced automation also is a way to connect many small brains into one big brain, where individuals are pruned out or reinforced in like synaptic connections, devoted regions, and hemispheres. Automation fine-tunes and delivers the correct incentives and constraints to each point in the chain, even where the coordinated points are inside a single institution. People don't always have optimally-synchronized aims even with the same organization


I think, the utility of the inputs is not conveyed to clients, in the form of a structure of behavior incentives, in as optimal and streamlimed a fashion as it might be.


Maybe I'll try again tomorrow!


Thanks, Javelin, for keeping the topic alive, and giving me a chance to get it right - someday.


I need a good 40-hour session of 30-60 - followed by a 12-hour drive with loud music and radio fuzz - to put my brain right. THEN, I'll tell you what I'm talking about, as clearly as you have told me. Maybe being tracked by an endless/video-game stream of expendable Haitian assassins would help...


Know any?


eLROY

Here is a slightly more concise explanation.


Let's say there are two inputs:


1) the original inputs, meaning asymmetric information, and asymmetric friction/access/leaning ability, and

2) expertise to build those inputs into an output - with which you buy more inputs, and create surplus value.


I say, you are swelling number 2, to compensate for a vacuum of number 1. Meaning, as it is today, it is easier for a shop to spend money and purchase number 2 outright. So, for every unit of number 1 you can't buy - and because your process results in number 1 dissipating and becoming symmetric as fast as you can take it in - you substitute two units of number 2.


There is more friction to another firm hiring your experts, than to them simply enjoying your information, implicit in the prices at which clients-in-common are willing to transact. So you maximize your accumulated investment in the high point or concentration that flows downhill less easily - meaning expertise or flesh.


So you let number 1 go, when I say you could reestablish friction. At the same time, because of this, I say the total quantity of number 1 in the system - symmetric or asymmetric - is going down. Meaning, because it creates little advantage, you don't pull the coordination information into the system in the first place. So you sort of have this information communism where, unpaid, nobody is producing any at the source. And that which is produced is at the maximum labor cost. Moreover, that high cost is only covered because the first incremental units of anything are way out front of the diminishing-marginal-returns frontier.


So, you have to bust this information communism - this free-flow of quotes - and you'll and up with more information for your experts to work with. Meaning, the whole process should be geared towards incentivizing clients to put more asymmetric information in the hands of your experts, cheaper. And this can be accomplished through better, automated private-property controls and exchange mechanisms in information, both between firms and clients, and even between parties within firms.


As it is, you are constructing something asymmetric, to buy something symmetric. You're not recyling your outputs into more inputs as efficiently as you could, so you keep having to, like, go to the well, and replenish. And I can hardly expect you to disagree with me, when I speak in such broad, abstract, generalities! Heck, it's so general, you just might agree with me end-to-end!


eLROY

Ok, where do i begin? Like you said, as your arguments are quite theoretical and broad, its hard to take issue with anything specific.


So, i'll try to tackle some of the more practical points. First, i don't think this is an industry where 4 mediocre people can replace 1 bright person. 4 bad traders will not make as much as 1 good one, 4 bad salesmen will not bring in any more business... if anything they'll destroy reputational value, and 4 bad strategists aren't of much use either.


There is certainly room for the 2nd tiers and niche players in this industry, but for bulge bracket firms 90% of the revenues are generated by the top 10% of the clients... which means you really do need good people.


Which brings me to my second point. You simply can't automate the process with regards to these clients because thats not what they want. Even for the simplest of products, no one is going to do a billion dollar transaction over the internet. But the other issue is that the nature of the transactions are too complex to automate. Say you have a large UK insurance company which sold guaranteed return investments at 6% when rates were much higher. Now they're in trouble and come to you for help(in reality, they don't come to us, we go to them). So then we have to come up with a solution that would best meet their needs.


Or lets say that you think corporates bonds are a great bargain and you try to sell that idea to fund managers. They agree with you but having been burned by Enron, they don't want short term default exposure... that is they like coporates medium to long term but they can't be seen holding a bond which defaults in the short term(it is important to note that appearances are crucial, often fund managers can't do what they really want because they run the risk of being embarrased in the short term altough they may be right in the long run). So we structure a basket of 50 corporate bonds which has default protections against any 3 names for 6 months... securitize the whole thing, establish a special purpose vehicle in the Caymans and sell the bonds.


These are some typical deals which happen everyday and it is not possible to automate them. The transaction itself is only a small part of the entire process and whether you automate that or not is really of no consequence.


I think the point i want to make is that most clients in fixed income are actually not that price sensitive. You are not going to get pennied to death if you can provide real value added in your client relationship. Have to go now, more thoughts on it later.

"No one is going to do a billion-dollar transaction on the Internet."


True, and that is why the equilibrium size of firms and transactions - having evolved prior to the Internet - has been so large! Before the Internet, you had no choice but to have people in one organization talk face-to-face with people in another organization. So, to realize economies of scale, the organizations - and the bandwidth of exchanges carpooled through a single analog relationship - tended to become as big as possible.


And centers of decision-making had to be physically close, meaning centralized rather than distributed, because distributed nodes could not be coordinated via some kind of, like, intra-organizational information price, system to foster altruistic, or non-quid-pro-quo data-sharing incentives. (Actually, I once came up with a groupware paradigm called "token-packet transfer" - analogous to holes moving in the opposite direction from electrons in microchips - to solve this problem:)


If you increased the information bandwidth of Internet trades, the equilibrium size of transactions would go down, as their precision and frequency would rise. The telephone line was the death of Manhattan. You are saying the information bandwidth of the Internet is too narrow, and I'm agreeing with you! I'm saying the information bandwidth of the Internet can be exploded! There is no information that cannot be exchanged, and no need that cannot be met, in a price-implicit/electronic-exchange way.


If all you're saying is that you don't recognize this, or you don't know how to do it, or the whole concept is totally alien to you - and you need flesh human beings holding hands in order for two entities to dance - I am agreeing with you. There is no longer any need for the economies of scale of a monolithic billion-dollar transaction, period. Adjustments can be broken up, gradual, periodic, fine-tuned, continuous. The economic quantum shrinks with decreased friction.


(I don't even frankly understand why government-collected economic statistics are still released in such awkward burts and lumps! Though I do understand why the symmetric-distribution costs created by Reg FD - with the price for information fixed at zero - would encourage less frequent, larger bursts released by corporations. Also, it is important to note that some goods like airplanes - and not commoditized as to time and place of delivery or maintenance condition - are so large and indivisible, and so few, that they will probably subsidize two actual human beings actually talking for a long time to come.)


"4 bad traders will not make as much as 1 good one."


1 Bad trader with 3 units of information will make as much money as 1 good trader with 1 unit of information. That's what I am saying, that by placing your traders in an information vacuum, your are putting a huge burden on them to be good! Moreover, I am insisting that the quantity and quality of information can be brought up cheaper than the quality of traders - only big brokerages are failing to recgonize this possibility!


You folks just haven't got the foggiest notion how to automate without losing information bandwidth. And that is why you can't make money in any automated businesses, but only in business where the presence of human beings, to collect information, is subsidized by the value they add. In other words, flesh people basically do two things, they engineer, and they talk. In roles where there is no need for engineering, the value they create by talking isn't enough to overcome the friction they create by having to talk, and pay their salaries.


But when you automate, you lose the incidental value they create by talking. I say, automate, but in a way that collects information even better than the combination of transaction/price-implicit and talking-explicit you used to get. And since talking was usually the time axis, you need to collect time axis information which is detached and floats separately from immediate transactions - meaning "Gestures."


"Now they're in trouble and come to you for help."


Sounds like the original strategists could have been better - or at least had better time-axis visibility:)


"Or lets say that you think corporate bonds are a great bargain and you try to sell that idea to fund managers. They agree with you but having been burned by Enron, they don't want short term default exposure."


Here, you have constructed a situation where the ultimate decision maker - the mob or investor - is at a disagreement with you over near-term default rates. There is no need to apply the kind of manpower and customization you describe. As any software company will tell you, customization on a client-by-client basis is the death!


I would say that given you already have fixed overhead, in terms of the manpower already trained and in place, this is the cheapest way to do this transaction. But I would say the equilibrium way for this transaction to happen, given current technology, is for separate, liquid electronic marketplaces for disaggregated and building-block bets - for various strips in essence - to spring up.


That way, instead of structuring anything - or talking to anyone on the phone - you just enter into some kind of a "default swap" with an anonymous counterparty. As you take the friction costs of people having to talk on the phone out of it, the number of varied and obscure products in which independent exchanges can be cost-justified rises.


"You are not going to get pennied to death if you can provide real value added in your client relationship."


I agree 100%. But I think the point that I want to make is that, where you are getting pennied to death, you should actually be making money there, too! You could create even more value. And your problem is your reliance on individual human beings to create value, and your inability to design machines and systems that don't piss it away.


The way you are structuring it, the more machines you add per person, the more incredible volcano-islands of value in the middle of it the remaining people have to be. It is the topology of your whole information paradigm (and make no mistake, the creation of information, and of coordinated, non-redundant inventory and production decisions in response to it, is the entire creation of value) that makes dumb people less and less cost effective. It's self destruction, a slippery slope.


It's just natural that, since you lack private property in information, or at least in a way that can be automated, the value of anything that collects information woudl go down per unit, and the value of anything that uses or leverages information would go up per unit. And since the only way you can collect it is by people talking to people, you would end up with a smaller and smaller core of people who are absolute freaks when it comes to using information, and at collecting it, in terms of units of information per person.


More simply, your total units of information has gone down, or at least not risen relative to dollar volume, but since people are expensive, your equilibrium units of information per person has risen. And your collection-people per units of data collected as gone down (your units collected per person has risen), to where it costs the least, and gains you the most, for the first incrmenetal units of data collected - and the biggest-bandwidth relationships between the smallest, most freakish people are subsidized by customization-engineering which needs people anyway.


If you could get more information, for cheaper - and not give it away - dumb people would have something to do. If you could raise your incoming information relative to your outgoing information - by creating billing barriers - and relative to your total high-cost/flesh surface contact with other entities - other than by distorting your ratio of brain size to flesh surface - you'd be in business!


Sure, when we only had people, and had no Internet, the scales of things were built around the high costs of people, and of geographic communications friction. And no pricing mechanism for information arose at all, because people mingled, and shared information, as a totally free byproduct of having to talk. Nowadays, the cost of people is priced in, primarily as a measure of their engineering and friendlinees utility, but still not by measuring their commoditized-information utility - since they aren't a good way to assemble voluminous quantities of minuscule fragments anyway.


In other words, time-axis information has historically freeridden along the transaction pipeline, not price implicitly, but by transactants talking. Now, you are saying information freerides through the engineering apparatus. I'm saying, it's time for information to get it's own payment mechanism, so it can pay to inflate its own, independent propagation topology.


And while the per-fragment value of information may be low, the per-fragment acquisition cost can be made lower by automation! The quantity of information needs to be price-regulated, rather than to fluctuate haphazardly as a byproduct of fluctuating exhanges and adjacencies, which factors are regulated by, or are fine-tuned in reponse to, other, independent incentives and needs.


In other words, of course you can't afford to have a bunch of idiots sitting around, seeing as what little information they collect, your machines piss it away anyway, and their data becomes non-unique. At its simplest, it is simply a problem of rgeulating the flow of information, in profitabel acquisition transactions, so that it flows towards and can be retained at high points, and can be turned over profitably.


"more thoughts on it later."


eLROY

You're saying, people will always need to do airplanes (my example). And I'm saying, airplanes have this perpetual tendency to dissolve into seats, and sheets of metal, and smaller and smaller fragments, that don't subsidize your super-people.


Plus, I'm saying that you shouldn't have to have a deal be of the type that requires structuring by people in order to make money. The fact that they are structured by people, and make money, is kind of a semi-coincidence.


The real essence of what makes a deal profitable, is whether you create and apply unique information. You create high-points of information, and of know-how, of knowledge. And I'm saying you could also create these islands using combinations of machines and idiots.


Your profitable structures are profitable, at their core, because they exhibit information-friction characteristics. Everything else is just smoke, mirrors, and ego.


Rather than just homing in on these big complex, like, knots of friction in the economy - and sending a team of my best people to chew up and resolve them in big chunks - I would be a creator of billions of tiny, commoditized knots, out of thin air.


eLROY

I concede, Javelin, I am speaking in very general terms. But the truth is, I do not have any specifics to speak about! I have not been inside of an investment back, or spoken to an investment banker, since I was a teenager.


I don't mean to offend anyone, but when the World Trade Centers collapsed - and that huge snow of papers and debris collected in drifts - I was actually tempted to do, like, an archeological dig, to learn more about the specific tools and rituals, and social/organizational patterns of the banker, in the year 2001:)


So, I wish I could say "take this guy, and teach him to do this," or "put a screen that looks like this on this guy's computer." Then you could say, "You are wrong, that has been tried, here is the specific problem." But as it is, I would be doomed to be wrong - and would lack any specific material to combat your first comeback - and so my being right on general principles would be unduly discredited as a result.


I am convinced there are enormous, unrealized organizational possibilities in finance, and that they could be realized through only the slightest, gradual refinements in the skills and activities of what existing employees are doing today. Put differently, I may paint a cartoon, but if I had the details to fill in, they would be superficially indistingusihable from the details as most people perceive them today. Just move a cup-holder here and there!


What is an even bigger question, in my mind, is why such innovations as I envision haven't been adapted and copied already, in the laboratory of accidents. They would certainly propagate through an instant survival advantage! My suspcicion is that, in the next 10 or 20 years, they will. Already, I am taking note of various organizations whose information topologies seem most likely to evolve into the topologies I envision within the coming years.


It's funny, because the billionaires of tomorrow really are, in many cases, the losers of today. Their advantage will come by no fault of their own, as they have no idea what they are onto, in what direction their current progression of trials and errors will naturally lead them. Meanwhile, you have people like Goldman Sachs, making a conscious effort to move in an unknown direction - by adding Meg Whitman to the board of directors and so forth - and yet there is nothing their big brains and ambitions can do to help them, short of getting lucky!


I feel like one of those naturalists, who makes a film of birds mating and dying in the wild. Sometimes you wish you could grab a bird, and say "Listen, you dumbass, the water's just over there!" But if I were to try that from so far away, and get the location of one tree or hillside wrong, the bird would have to distrust me and end up dying anyway.


eLROY

eLROY writes: *** But I would say the equilibrium way for this transaction to happen, given current technology, is for separate, liquid electronic marketplaces for disaggregated and building-block bets - for various strips in essence - to spring up.


That way, instead of structuring anything - or talking to anyone on the phone - you just enter into some kind of a "default swap" with an anonymous counterparty. ***


I think you overestimate the capabilities of the fixed income clients. Almost all of them have some ability to evaluate what is offered to them (amazingly some of them have none!), but for most, this ability is limited and not very precise (whence it is still possible to improve their investment performance over what they could accomplish without you despite charging them fairly large commissions). Many (most?) fixed income clients do not have the analytic ability to construct portfolios from commoditized building blocks. If you offered these to them, they would be very afraid of getting ripped off (and rightly so ... not because you're trying to, but because they couldn't tell the difference between a good deal and a sinkhole).


Note: I am not writing this to shoot down your ideas. I am very intrigued, but I'd like to understand them better.

The way to tell the difference between a good deal and a sinkhole is by tight feedback loops in the evolutionary topology. The outcome has to either kill or grow the decision structure directly. As an illustration, consider that the Argentinian mob will never know jack about economics.


The mob's problem is not their inability to select a leader whose plan will cure the economy. The problem is their attempt to elect any savior who promises to supervise local activities centrally, and the local disasters then not feeding back directly to distress at the center - and the local decision about whom to put at the center not being directly connected with the local disaster.


When economic activites are supervised locally, wealth and responsibiltiy is gradually shifted from a thousand failures to a thousand successful people. And the locus of decision making gets closer and closer to the firsthand information. Meaning, you have to be close enough that if they can't sort but you can, that if they die then you do too. As long as the price is paid by the person who is wrong - and the decision is disaggregated to target the specific error - then it sorts itself out.


Let's go back to 1983, before anybody knew what AIDS is. Nobody could test anybody for AIDS. But, culturally, people had been instructed not to engage in promiscuous sodomy and drug use. I don't count on anybody's ability to evaluate what is offered him in the sense you mean it. If that was required in biological systems, dogs would eat rocks. It is not necessary to know how we select what to do or not. What is known is that easily-selectable processes - and easy ways to select them - will sort themselves spontaneously out of an incomprehensible mismash, through very rapid evolution.


If you have seen me post about my OFT (Orderly Feedback Theory), you will understand the easiest way for structures to evolve which can cope with their environment is when their internal complexity is equal to the complexity of everything they are adjacent to, on all subspheres and super-spheres. If the decision maker is unequal to the decision, the apparatus simply needs to be broken up into smaller, separately-evolving entities.


But pushing scales in the opposite direction is information friction. It is easier for a population of similar people to ship their similar investment objectives in to a central manager - in terms of an incentive-marker-and-feedback structure - than for the central information and transaction facilities the manager is adjacent to to be made adjacent or routed to all the similar individuals separately.


The outlier brain has historically been so much bigger than anything it could be directly adjacent to. So you sub-ship or compact large decisions, affecting large numbers of people, involving large numbers inputs, down into small structures, involving small handfuls of people working very closely as a team. That way, you took advantage of historic links in proportion to their cost and availability, by having a small marker link back to the affected atoms, and a wideband link from remote sources carpooled to the central decision maker.


Of course, when people pool together, they more live and die all at once, and there is less chance to discover and weed out new evolutionary advances. Or, when traits are lumped together in single decision structures, a single bad trait can kill all the good traits. Diluting dominant traits is a primary accomplishemnt of multi-sexual recombination.


In case you still don't follow my argument, let's go rigth to the heart, the human brain. There is no small subset of synapses that is capable of choosing between correlated instruments to add to a portfolio. There may not even be an entire, single person who can do it, he may need an outer layer of assistants, filtering and passing in only the most relevant information. All these things work because the simple decision sub-structures they are made up of have few enough links, to a simple enough environment, that they can evolve to make a correct decision which they are up to or equal to.


In case you haevn't noticed, one outcome my theory implies is that the Internet revolution was required by the laws of physics to precipitate business failures on an unprecedented scale. You simply cannot connect all these structures together - so that the price chart of memory chips for instance would take over 2,000 coefficients to curve-fit - and expect them to adapt ways to cooperate.


To try to insert a facility like VerticalNet between a population of global business would be like trying to build a person by connecting a stretch of continuously-conductive wire between his eyeballs, to his tongue, and to his hands and feet. There has to be a sufficiently-complex initial internal structure for the adapted structure to weed itself out of by junction busting - on sub-scales and super-scales. (In terms of hemispheres and regions - rather than just being a continuous mass - notice the brain is born with some junctions already busted.)


It is very difficult for many buyers and many sellers connected by a central auction to coordinate production and consumption rates with random external disturbances. It is much easier for a single buyer to coordinate with and adapt to multiple sellers. Or, it is easier if some parties have higher friction than others, meaning some adapt and react, and some are fixed quantities from the point of view of others.


I have also touched, elsewhere, on the idea that OFT is why what we perceive as space - what I call "photospace" - has shaken itself down to three dimensions. Notice the intra-nuclear forces and topologies may not obey the rules of the electroweak force and three-dimensional space. But the relationship between their internal complexity and the outside or photo-world is mediated by the electroweak force - and a proportional number of intermediate electrons - to complete the super/sub transition comfortably.


So, in conclusion, the necessity of having extremely complex or central decison-makers is a byproduct of having to carpool high-cost information adjacencies. In the past, it just wasn't cost-efficient to have zillions of atomistic decison-makers. The more independently-evolving entities you had, the number of connections necessitated between them rose geometrically. The end-pattern permutations are constrained by and reflect where the original bottlenecks were.


Meaning, historically, the brain was exosomatic, but intraskullular. Now that we have extra-body connections as cheaply and abundantly as intra-body connections, it is much easier to form into multi-person, or "superindividual" brains. So, historically, we had these islands of very tight-knit people, sitting together in meeting rooms, and connected at high bandwidth - but with these huge gulfs between them. Nowadays, the face-to-face structures are being dissolved by competing cyber-space adjacencies.


We just don't need single smart people, or single firms - or gorups of smart peopel talking to groups of smart people - as much as we used to. But at the same time, people who are connected willy-nilly by wide-open, unregulated bandwidth, just burn out like filaments. So now we're left with these small pcokets of profitable businesses, at the middle of these huge information wastelands where nobody can survive, like Nasdaq dealering.


And this cold, wide-open, zero-firction, 3D-continuous wasteland is constantly eating at the little embers of high-friction, face-to-face warmth. So what we need to do is install some basic atomic forces - meaning private-property barriers - into the information superiogighway, so it can resolve itself into discrete wormholes, which weed themselves in and out, like in physical space.


Of course, some knots, which start out leading a lot of places, and well up from great distances, may always need smart people at the middle like Javelin to untangle them:) The whole purpose of "continuous," 3D space is to diffract these knots - meaning if there were nano-investment bankers, we could have 11-dimensional space, transoceanic wormholes, you name it, and Javelin would run a big central switching station, to match off and dissipate all the stacked, flanged, aliased, magnified, and backfeeding shocks from parts unknown.


Anyway, more later, and here are some supplementary posts:


http://www.twoplustwo.com/cgi-bin/newforums/stocks.pl?read=1679


http://www.twoplustwo.com/cgi-bin/newforums/stocks.pl?read=1823


http://www.twoplustwo.com/cgi-bin/newforums/exchange.pl?read=35230


http://www.twoplustwo.com/cgi-bin/newforums/stocks.pl?read=1497


eLROY

Another reason for scale in business has been in order to convey information-transmission incentives between parties in the supply chain.


Suppose there is a clothing warehouse, and a retail store. If they are owned by the same company, and the people in the store refuse to tell the people at the warehouse which inventories are running thin, the guy at the warehouse can complain to their common boss, who then disciplines the people at the retail end.


Now suppose the clothing warehouse and the retail store are owned separately. There is some piece of information, regarding what is moving at retail, which it would be worth $10.00 for the warehouse to know about in advance. Maybe he needs to alert the factory.


If there were a pricing-and-payment mechanism, the warehouser would be willing to pay the retailer $9.99 for this information. But such a mechanism doesn't exist. So all the retailer sees is that giving up this information could cost him $1.00 - since the warehouser will now "take advantage" of his need - and the information won't get transmitted


In other words, suppose a transfer of a packet of information creates a positive sum between two parties. The warehouse guy gains $9.00 by knowing what to order from the factory. And he gains $1.00 by knowing he can charge the retailer full fare, because some item is hot. $1.00 of it is zero-sum, and suffered by the retailer.


Only if there is some payment flowing in the opposite direction - $1.01 from the warehouser to the retailer in this case - will the information transfer take place. The information payment synchronizes their interests, among independent entities, in the information being exchanged!


Notice that communism - or private information property, but belonging to both of them as a result of a common shareholder - isn't nearly as optimized. The warehouse people can request the retail people provide a list of every unsold item in the store, every five minutes. And the retail people might comply, just to keep the bossman out of their hair!


In other words, if the parties are inside the same business, the information is rationed by the articulated, intermittent, high-overhead decrees of the boss, not by a price system. And the incentives and needs have to be conveyed by periodic time-consuming presentations to the boss, rather than implied instantaneously in a dynamically-adjusted information price.


So, with private property in time-axis information, an automated exchange, and a pricing metric, businesses could be smaller and more efficient. As a result, they could evolve and adapt more interchangeably, and therefore more rapidly!


eLROY


P.S. On 1-to-1 redundancy - or linear redundancy - 1-to-1 redundancy is a much simpler, but equally-tragic problem compared to many-to-many, or even looped redundancy, in the supply chain. (The supply chain is just a house of mirrors that should reflect a single, complete image from one end of the universe to the other:)


Suppose Air Jordan sneakers are really hot at Foot Locker, and they start to run out. Seeing the impending shortage - and wanting to stock up for a rainy day - some customers might buy an extra pair. Then, when their first pair wears out, they'll effectively sell themselves a second pair, as a speculator, at a later date.


The factory can see the same impending sneaker shortage looming at a later date, and start to ramp up production capacity today - to come on line right about when the customer's first pair of sneakers is due to wear out. Since the customer bought two pairs the first time, this time the manufacturer will have two pairs ready for sale. And the customer will need zero.


There, in a nutshell, is the problem with price-implicit information transmission in the spot market. Multiple people, at opaque locations, can respond to the same single redundandlty - even if there is just one buyer and seller - so long as both can carry an inventory along the time axis! So, the most important type of information to sell explicitly is time-axis visibility.