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Capitalism and the Internet, the Market as Router

Politics / US Politics May 30, 2009 - 12:42 PM GMT

By: LewRockwell


Best Financial Markets Analysis ArticleThomas M. Schmidt wries: The Internet, that glorious interconnection of separate networks, grew out of the ARPAnet, a network designed to remain operable in the case of a nuclear war. Traditional networks maintained a fixed central hub through which traffic might be directed; loss of these central hubs would lead to the collapse of the network. In contrast, internet protocols were designed with the notion of dynamically-built data paths, with specialized machines called routers finding connections to get data from place A to place B. In brief, the Internet was designed to route around failure; if the direct route from New York to Boston were blocked, a router might send data through Chicago and Denver first, with decisions on the route taken being made in a largely decentralized fashion.

Gary North has noted the irony concerning this network: "The national State in wartime seeks to control civilian access to the battlefield. Reporters are in various ways restricted geographically. Their access to communications media is also restricted… This requires control over the flow of information… (T)he cost of restricting access to unauthorized battlefield facts … has risen inexorably for the State. The decentralization of the information-delivery system is the central fact of our era… The spontaneous order of the free market inevitably trumps the plans of government bureaucrats to extend the power of the State. The Web may be the best example of this spontaneous order in human history. It has made nearly impossible the statist gatekeepers' control over the flow of information. (emphasis in original)" What is "more ironic, the Web is the unplanned child of DARPA, the military's research agency, which began building the Internet in the late 1960s," so the US Federal Government furnished the tool that has undermined its control of information.

Of course, the Federal Government retains the ability to gum up the works. The classic tale is recounted here. In brief:

Milo (Medin) was running the largest IP net in the federal government… "In 1988, a Finn – call him Lars – hacks his way into Milo's computers. Ticks Milo off. He does a trace route and finds his way back to the administrator of the domain in Finland. It's an academic site. Milo already knows Lars' IP address. You can't hide from Milo. He says to the administrator, "We have a problem. Please have a conversation with Lars." That upset the Finns, who say, "We are not going to do that! We respect civil liberties here! You can post a complaint if you like, but we can't tell the guy what to do." So Milo goes into a slow boil. Says, "I'll give you about 30 minutes to get that guy's files off our machine." "Nothing happens. So Milo issues an order: "Take down Scandinavia." The switch is pulled. Three countries go dark. They don't notice it immediately, but pretty soon e-mail messages are not getting returned. At last, three senior administrators go to Lars, so the story goes, and they say: "We don't care if you hack into the CIA; we don't care if you bring down NSA; and we don't mind if you abscond with all the financial bits in the Federal Reserve. But don't mess with Milo at NASA.'

Of course, the bigger problem is not mercurial but private-property-protecting network administrators, but the ham-fisted State. Examples abound of restrictions set up by the US Federal Government being undermined by its brainchild. For example, Internet traffic is beginning to bypass the United States and its Patriot-Act intrusions, which constitute a form of "failure" that is to be routed around: "Internet industry executives and government officials have acknowledged that Internet traffic passing through the switching equipment of companies based in the United States has proved a distinct advantage for American intelligence agencies. In December 2005, The New York Times reported that the National Security Agency had established a program with the cooperation of American telecommunications firms that included the interception of foreign Internet communications… Some Internet technologists and privacy advocates say those actions and other government policies may be hastening the shift in Canadian and European traffic away from the United States. ‘Since passage of the Patriot Act, many companies based outside of the United States have been reluctant to store client information in the U.S.,’ said Marc Rotenberg, executive director of the Electronic Privacy Information Center in Washington. ‘There is an ongoing concern that U.S. intelligence agencies will gather this information without legal process. There is particular sensitivity about access to financial information as well as communications and Internet traffic that goes through U.S. switches.’"

In this regard, the Internet reflects the rule of the market that it emulates. Entrepreneurs seek market niches in providing services to willing customers; many times the subverted obstacles to sales originate with the State. Freedom of association is one troubling area, and Federal civil rights laws have thankfully done away with de jure segregation. Paleoconservatives and libertarians would argue, however, that they now restrict private behavior to a great extent.

Into this breach the market has entered. Two recent stories discuss market-based mechanisms for obtaining a specific clientele. Robert Weissberg points out a few things about your favorite restaurants and clubs that you might have accepted, but failed to ascribe to design: "As government shoves harder and harder to deprive, say, WASPy men from mingling with other WASPy men, below-the-radar but perfectly legal subterfuges evolve." This merely reflects "an often economically driven effort to satisfy a clientele that prefers to mingle with its own. Everything is, moreover, absolutely neutral and totally legal in principle – tactics are about keeping unwanted people, regardless of stripe, away."

How might an establishment do something like this? "Imagine a restaurant anxious to attract middle-class female customers located within walking distance of a housing project populated by poor, hip-hop inclined young men. Though the ‘nice ladies’ will vehemently deny it, they will go elsewhere if forced to mingle with these ‘threatening’ young men. How, then, can the eatery survive without running afoul of discrimination complaints? … First, softly pipe in classical music, preferably of the Baroque style. … It is no accident that successful retail chains obsess over background musical programming while inept rivals often permit staff to select music willy-nilly, a policy that almost always brings trouble given horrific teenager tastes. …

"The menu is also critical. Our devious proprietor will exclude any items known to be favorites among certain lower class types – inexpensive ‘fast food’ fried dishes while pricing everything just a bit beyond what McDonald’s or Burger King offers. And no hamburgers or cheeseburgers, never! Further sprinkle a few intimidating foreign words on the menu – at least five types of quiches. The coup de grâce will be offering all sandwiches with ‘gourmet’ five-grain bread, everything topped with alfalfa sprouts and arugula, only using low-sodium, low-fat deli meats, offering soups of the cream of broccoli or lobster bisque variety, plus a mind-boggling selection of exotic herbal teas, among other ‘white’ delicacies. If a potato side-dish is to be offered, make it organic German vinegar/sour cream red potato salad, never French fries."

But is it correct to make these sorts of associations between the clientele sought and products? Credit card companies would seem to agree: "(C)redit-card companies are becoming much more interested in understanding their customers’ lives and psyches, because, the theory goes, knowing what makes cardholders tick will help firms determine who is a good bet… They have sought to draw psychological and behavioral lessons from the enormous amounts of data the credit-card companies collect every day… people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a ‘Mega Thruster Exhaust System’ was pretty likely to miss paying his bill eventually. …(M)easurements were so precise that (they) could tell you the ‘riskiest’ drinking establishment in Canada – Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. (They) could also tell you the ‘safest’ products – premium birdseed and a device called a ‘snow roof rake’ that homeowners use to remove high-up snowdrifts so they don’t fall on pedestrians."

You might wonder about these associations. "Why did birdseed and snow-rake buyers pay off their debts? The answer, research indicated, was that those consumers felt a sense of responsibility toward the world, manifested in their spending on birds they didn’t own and pedestrians they might not know. Why were felt-pad buyers so upstanding? Because they wanted to protect their belongings, be they hardwood floors or credit scores. Why did chrome-skull owners skip out on their debts? ‘The person who buys a skull for their car, they are like people who go to a bar named Sharx,’ Martin told me. ‘Would you give them a loan?’"

Both stories show the effect of government intrusion on free association of individuals, and how that intrusion has made the situation worse for the very people it was supposed to help. Previously, an arbitrary but explicit standard obstructed the admission of "others," although visitation and membership might be obtained through the guidance and friendship of an insider. Now, subtle psychological techniques and invisible analytical procedures do the excluding, and not one person in one hundred could understand why. Indeed, a paranoid mind might consider the whole effort neo-feudal, with credit scores augmented by searches for the "wrong" behavior keeping the serfs in their place, unable to obtain the loans needed to move to the "better" areas.

There will certainly be an outcry against these market innovations, with an effort to "do something." The simplest path is the Rockwellian one: repeal 64. Before you discount this as impossible, recall the one time that Congress did actually admit error: the repeal of the 55MPH speed limit; it could happen again. Alternately, the market could see the creation of companies dedicated to raising the credit scores (through making the "right" purchases and avoiding the "wrong" ones) of modern-day credit serfs. Most likely, Congress will attempt to outlaw the behavior that results from its outlawing of behavior, and the market will route, again, around legislative failure.

Thomas M. Schmidt [send him mail], a native of Brooklyn, venerates the Naval and Military Club that humiliated him by making him wear a jacket and tie at breakfast, with the request made with firm but subtle British understatement.

© 2009 Copyright Thomas M. Schmidt - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


david scott
31 May 09, 14:52
Civil Rights

Although, I personally am so far to the left, that even the even the democrats appear to me to be "right-wing," I consider myself to be a strict constitutionalist. It is my opinion that since its inception there has been an organized and systematic assault by the conservatives in the United States on the civil liberties written into the US Constitution. The “War on Drugs”; “War on Terror”; “War on Communism” and a host of other wars waged by the right wing are really nothing more than a War on People--an excuse to erode civil rights to the point of non-existence. I invite you to my website devoted to raising awareness on this puritan attack on freedom:

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