The Relationship Between Material Economy and Digital Economy

In the material economy, what is produced are tangible, discrete goods with limited supply. The price mechanism can determine the optimal allocation of material goods because these goods are adequately measured through price-quantity standards.

In the digital economy, what is generated are ideas, incentives, and infrastructure. Price is not an adequate standard for measuring these goods because they are not purely tangible, discrete, or finite, and thus cannot be measured purely quantitatively. Price is just one of many competing forms of coordination produced by the digital economy and is by no means the most decisive.

The economic goods produced in the material economy are physical goods, while those produced in the digital economy are focal goods. In the absence of direct communication, focal points are the best solutions to coordination problems with minimal friction. This means communication must largely be default or implicit. The optimality of a focal point is measured by the criteria most relevant to the specific problem it aims to solve. However, all specific coordination problems and their specific criteria are aspects of the overall, objective coordination problem of human affairs.

We can view the digital economy as a focal market. This is quite different from markets driven by memes or viral spread. In fact, it's the opposite. Memes are defined by imitation—the effectiveness of their mimicry, simulation, and replication. In contrast, focal points are defined by originality—how effectively they establish absolute, unique shared organization in the absence of direct communication capabilities. Focal points are the origin of memes; the latter are temporal derivatives of the former.

The digital economy relates to the material economy because the former produces a distributed autonomous layer of the latter. Without self-regulation of the internal market, it is impossible to achieve an efficient material economy with optimal goods allocation. Companies cannot operate without effective and positive corporate governance. This can only be achieved through distributed negotiation of objective social norms that serve as focal points.