Trent John MacDonald

Blockchains and the Boundaries of Self-Organized Economies: Predictions for the Future of Banking

This chapter uses economic theory to explore the implications of the blockchain technology on the future of banking. We apply an economic analysis of blockchains based on both new institutional economics and public choice economics. Our main focus is on the economics of why banks exist as organizations (rather than a world in which all financial transactions occurring in markets), and how banks are then impacted by technological change that affects transaction costs. Our core argument is that blockchains are more than just a new technology to be applied by banks, but rather compete with banks as organizations, enabling banking transactions to shift out of centralized hierarchical organizations and back into decentralized markets. Blockchains are a new institutional technology — because of how they affect transaction costs in financial markets — that will fundamentally re-order the governance of the production of banking services. We then explore this implication through broader political economy lens in which banking moves out of organizations and deeper into markets. We examine this as a form of institutional economic evolution in which the boundary of catallaxy — i.e., a self-organized economy — is enlarged, at the margin of the banking sector. Such institutional competition enables evolutionary discovery in the institutions of banking.

Economic Theory of Non-Territorial Unbundling

We introduce the case for non-territorial unbundling by taking a discursive approach through public choice and evolutionary economic theory. The argument begins with an appreciation of the many paradoxes and problems of majoritarian voting and proceeds to explore the theory of non-territorial and unbundled governance as means to improve political choice. I find that decoupling political jurisdiction from geographical location (so that citizens can switch political jurisdictions without switching location) and unbundling government (so that collective goods and services can be provided separately by independent public enterprises) will result in greater diversity of governmental forms, a wider range of choice for groups and individuals, and ultimately, better governance. Moreover, I contend that not all bundling should be ruled out; rather, the point is to create an ‘unbundleable’ system of governance and allow political entrepreneurs to discover ways to rebundle functions. Experimentation with bundling, unbundling, and rebundling of the various services states offer elicits the discovery of optimal bundling options for the diversity of citizen preferences.

Do Price Dynamics Drive Musical Evolution

Do lower input prices to creative production reduce output prices or do they increase product variety? We propose an evolutionary model connecting price dynamics in input markets to innovation and variety generation in output markets. Lower input prices may be competed away in market share dynamics, but they may also induce a fall in the opportunity cost of entrepreneurial experimentation, leading to increased variety in output markets. Increased variety in creative output markets (i.e. niche creation through conceptual revolution) is explained here as a consequence of the entrepreneurial opportunities due to falling input prices. This falling-input-price-induced niche proliferation mechanism is examined with price and genre data from the music industry. We find that falls in input prices do seem to correlate with music genre proliferation.