Money flows and information flows often resemble one another, and both resemble the nature of water in its pursuit of least resistance from one point to the next. Perhaps for this reason the nomenclature calls liquidity to mind – the aspect of flowing may be embedded in our linguistic consciousness. Information spreads around the surface evenly, or is guided into channels, or stopped by dams. Similarly, capital runs to its most attractive destination in a free market environment, or is otherwise pushed and prodded – which is to say, manipulated – in a market that engages in such things. The two flows, information and capital, sometimes coincide, but not always.
Some think about patents and licenses and trade secrets as protective mechanisms, while others would argue that these tools are only used to disrupt the flow of information. Both perspectives are to some extent accurate, and these are not necessarily contradictory. Dams and other barriers might also be used for someone’s protection by disrupting flows. It’s all a question of perspective, no doubt, and balancing of interests. Ecosystems may be damaged by such manipulation, even if discrete constituencies thrive. So too with patents, so too with capital markets. Always a matter of looking out for the whole and serving the greater interest. Who’s to say…
Ironically I attended a gathering of open hardware enthusiasts today while global central banks announced a coordinated effort to manipulate markets. On one hand, a celebration of the open flow of information, and on the other an artificial source of capital. The idea of open hardware (and its close associate, open source hardware, apparently not strictly speaking the same thing) is to bring to hardware production similar concepts of sharing, modularity, idea exchange and creative interaction that characterized parts of the software segment since its birth. This is now becoming possible in hardware, and while nobody really knows where it will lead, the excitement in the packed auditorium promised great things.
It would stand to reason. With free sharing of information, with enhanced flows and liquidity to cover broad surfaces, fertility should blossom. One could argue, using similar analogies about water and so on, that artificial liquidity infused into capital markets should bring similar results. There is however an important difference, which has something to do with nature. In open source technology, flow relates to liquidity that already exists and is allowed to travel where it will. In the case of monetary intervention, liquidity is artificial and the ecosystem is disrupted. In short, while open source encourages nature to run its course, relying on issues to resolve themselves – as issues have pretty much done since the invention of weapons – central banking authorities don’t hold nature in much regard and choose instead to experiment with its possibilities for mutation.
That being as it may, it is also the case that money flows are tangible and are for that reason more malleable. Information, on the other hand, is harder to fence in. When the two realms intersect, that truly becomes a fascinating study. Take, for example, the IPO process. Great pains are always taken to match up the two disparate flows, and it is a challenge indeed to mechanize the natural. An article was recently published on the subject, (in which the image of a river was invoked). Others have complained about the many flaws of the IPO process and the rules by which it is governed. In such complaints the disjointed runs of information and money are usually in the spotlight.
The more one thinks about these flows and others, about patents and their supposed protections, their economic value (supposedly); the more one thinks about the analogous situations in artificially stimulated markets; and the more one is exposed – on the other hand – to the progress that runs its course in unmonitored segments of industry; the more one is prone to conclude: Just let the flows happen, these systems take care of themselves, the path of least resistance is the best path, and liquidity always finds it on its own.