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Archive for April, 2007

Root of War

Monday, April 30th, 2007 -- By ET

Why are wars fought?

Freedom might come to mind immediately. However, it feels strange that often times both parties claim to fight for freedom.

Greed? Might be, those great conquerors in history wanted gold, goats, girls, etc. (3G!) Ever wondered why most of the modern wars are in the gulf area?

Fear? Possibly. In fear of MDW (mass destruction weapons), you don’t need a reason to invade another country and kill its president.

BBC has a new documentary on wars. With the advent of the coming presidential election in the US, wars (and the end of it for that matter) will be a hot topic. And everyone should watch this:

Part I:


Part II:


Part III:


Part IV:


MediaWiki Database Schema

Monday, April 30th, 2007 -- By ET


[[Click Image to Enlarge ]]

The Bill-Spliting Database Problem

Monday, April 30th, 2007 -- By ET

A few of us assistant professors have small gathering parties every once in a while.  We normally go out into the town to find some good food and go to a bar afterwards.  Usually one of us will be the host and be in charge of finding these places, and pay the bill up front.

Now there is an interesting problem related to paying back these bills.  It is inconvenient to pay cash after each gathering, and we don’t normally see each other quite often unless in the gatherings.  It is therefore most convenient to setup a database to automatically clear out our bills among us.  In terms of participants, sometimes, one or two of us will be missing, so the DB can not just deduct some amount from all participants.  Sometimes, someone of us may only go to the restaurant or only go to the bar, therefore, the bill should be separate for the restaurant and the bar.

The database should work like this.  After each gathering, the host should select participants to the restaurant and the bar respectively and input the total bill  amount, the DB should calculate how much each of the participants owe the host, and automatically clear out the mutural payment.

The question is how to represent the whole process in the database and use the most efficient way to implement it.  Ideally this DB should be web-based so everyone can check the status at any time, and track the whole payment/billing history.

Supporting LaTeX in my WordPress Blog

Saturday, April 28th, 2007 -- By ET

I’ve decided to support \LaTeX in my blog, just to prepare for some “more technical” posts.

Here is my favourate equation:

$$ \displaystyle \frac{f(p)}{1-F(p)}=\frac{1}{p}$$

where $$f(p)$$ is some probability density function, $$F(p)$$ is its corresponding cumulative distribution function.

By the fundamental theorem of calculus: $$\displaystyle \int_{a}^{b}{f(x)}dx=F(b)-F(a)$$

Of course, we also have $$\displaystyle \frac{dF(x)}{dx}=f(x)$$

To show off the Greek letters: $$\displaystyle \alpha (z) \Gamma (z)=\int_{0}^{\infty}{\frac{\theta^{z-1}}{e^\theta-1}}d\theta$$

I do this because I can. :-)

Ah, I need to thank the nice folks who produced this plugin for latexrender at http://sixthform.info/steve/wordpress/?p=13.

Shifting & Rotating A Demand Curve

Saturday, April 28th, 2007 -- By ET

When economists talk about changes in demand curve, they generally look at how the demand curve gets shifted. If suddenly all the consumers’ valuations are increased for some reason, the demand curve is said to be shifted outward. This means for a certain price, the demand will be higher; or equivalently for the seller, to sell to a certain number of consumers, the seller can charge a higher price.


[[Click the image to enlarge]]

 A recent paper in AER by Johnson and Myatt studies rotation of a demand curve: “On the Simple Economics of Advertising, Marketing, and Product Design” (vol 96, no. 3). The basic idea is that, through advertising, marketing, the firm can influence the dispersion of the consumers’ valuations. When the dispersion changes, the demand curve rotates.

That’s on the demand side. On the supply side, there is an interesting dual problem. Following Hal Varian (1980)’s formulation, when dispersion exists, each firm in the market has a density function f(p), which indicates the probability with which it charges each price p. Economists seem to be happy with this general form of pdf. However, when consumers interact with the seller, the seller would react to any changes in the consumers’ perceptions of the product, therefore, the density function may be changing over time. And, if it changes, I bet it would be rotating the cdf.

WordPress Plugin: Author Notify

Friday, April 27th, 2007 -- By ET

The permanent plugin page is http://blog.mikezhang.com/authornotify/

What is it?

“Author Notify” is a wordpress plugin to show a message box in all the posts by a particular author. I thought about writing this plugin because my wife moved her blog out to a new domain, and I want to put up this notification to all her posts.

This plugin is also useful when multiple writers are writing on one blog, and one of them needs to put up an announcement in all his/her posts.

Version 0.1 of the Plugin is now available for download! This version has been tested on WordPress 2.1.3, but from the way I write it, it should run on all versions.

This version contains the following improvements:

  • From zero to zero point one, an increase of infinity! (0.1-0)/0=infinity

I do not ask for donations for writing this plugin, please email me and let me know you are using it, that will make me very happy.

Download Latest Version:

Download Authornotify Version 0.1 .


  1. Download the file, and unzip authornotify.php into your wordpress plugins directory.
  2. Activate the plugin in your “Plugins” interface.
  3. Go to “Options”–>”Author Notify”, to change the “author nickname”, and the “message”.


Check out the light blue box on the page.




When working on this plugin, I consulted two related plugins:


I appreciate the respective authors of the plugins.

Freedom vs. Choice

Wednesday, April 25th, 2007 -- By ET


I wrote about the book “The Long Tail” a while ago. The central thesis of that book is that we now have the capability to search and find many many obscure products all over the global market, and therefore aggregately, these obscure products (the ones on the tail of the curve) becomes more important than the most popular products.choices.jpgWith the advent of the “long tail”, we are blessed with the explosion of choices. Many people equate choice with freedom, and the video above shows that this is not the case.Presented in the TED conference :

Psychologist Barry Schwartz takes aim at a central belief of western societies: that freedom of choice leads to personal happiness. In Schwartz’s estimation, all that choice is making us miserable. We set unreasonably high expectations, question our choices before we even make them, and blame our failures entirely on ourselves. His relatable examples, from consumer products (jeans, TVs, salad dressings) to lifestyle choices (where to live, what job to take, whom and when to marry), underscore this central point: Too many choices undermine happiness.

The presentation is very straightforward. As an author of 6 books, Schwartz certainly has a way to deliver his ideas. The picture on the left is borrowed from his article in “Scientific American”. The article’s name is “The Tyranny of Choices”.

Sometimes more is less!

Did You Know

Tuesday, April 24th, 2007 -- By ET

In my undergrad ismt101 class, I showed a video called “Did You Know”. Many people liked it. It talks about shifts in education, in technology and in our lifes. I came across a chinese version of that, so let me post both here.

English version:


Chinese version:



Tuesday, April 24th, 2007 -- By ET

Exactly one year ago, I finished my Ph.D thesis. The thesis defense would be scheduled to take place in one week on May 1st. I remember how I worked day and night to complete it and how I created a LaTeX template for it. Now, I would like to post my Acknowledgement here, just for fun.

My deepest gratitude goes to my advisor Prof. Erik Brynjolfsson. An early morning phone call from him in January 2000 opened me the door to this wonderful world of academia. I am so indebted to his inspiration, insight, tolerance and guidance through these years, without which, I would not have been able to carry out this work. Erik has deeply influenced my way of doing research, he taught me how to look at the world as a maestro does.I am very privileged to have Prof. John Little as my mentor. The courage, confidence and commitment with which I left his office each time can not be nearly described. I will spend my whole career aspiring to reach the quality of his research, teaching, and advising.Prof. Chris Dellarocas has been a genuine friend and a caring “big brother”. It is through him that I have learned to be a persevering and indefatigable researcher, and truly experienced the joy in the process. Salutations, Captain Haddock!Of course, my friends at MIT, Harvard and beyond are indispensable. One could not have dreamed of meeting with a higher caliber group of friends. I would like to thank the faculty members Tom Malone, Stu Madnick, Wanda Orlikowski, Benjamin Grosof and the students Jeffrey Hu, Leonard Lee, Harry Zhu, Feng Zhu, Nils Fonstad, David Fitoussi, Tanu Ghosh, Sumit Bhansali, Lynn Wu for creating a friendly, and stimulating environment. Special thanks go to Sinan Aral for going over the slides with me which landed me a faculty job, Adam Saunders for the unbelievable table-clothed PhD lunches, Rui Dai for introducing me to the field of economics of IT long before I took my GRE, Lingyun Wang for dragging me to GRE.

I also want to thank my parents, my parents-in-law and grandparents for instilling the passion for erudition in my blood, their decades of unconditional support made it possible for me to climb this mountain of knowledge.

My daughters Alantha and Ashley has played a major role in keeping me sane ever since they came to this world.

Finally, to Qiong Yang, my wife, I dedicate this thesis. This accomplishment is as much hers as it is mine. Without her love, patience, and sacrifice, this journey would have looked so much more intimidating.

Political Science Paper

Tuesday, April 24th, 2007 -- By ET

There is one thing that haunted me for several years at MIT. I used to describe to my friends that at the deepest night, I would wake up in sweat thinking about this. This is not exaguration, and it is indeed something quite scary.

In some of the required courses, I had to get an A in order to satisfy my course requirement. The required courses are distributed in many aspects of studies, including Economics, Computer Science, Operations Research, Statistics, etc. As one might know, these are all very strong subjects at MIT, and the grades are offered according to the curve, which means that I had to beat some of the very best people in these subjects in order to get that A. After a few semesters, I got most of them, and there was one last subject: Political Science. An alternative course would be from Organization Behavior, and looking at the content of the two, I decided to choose PS. At least I knew some of the terms in the PS syllabus: Marxism, Individualism, Freedom, etc. This turned out to be the worst decision I made at MIT.

At the end of the semester, I found that I could not really get all the materials, and could not write such a paper to guarantee an A, so I asked the professor for permission to mark it as incomplete, and would come back to satisfy it later when I have time. But as we know, you can never find more time than when you are taking the course… So I waited till the very last semester, if I didn’t get the score, I could not graduate. Till then, this thing has been haunting me for 3 years.

Then I took one month off after some job talks, and read huge piles of books and papers, and wrote a paper. That really was one work I spent quite some time and energy. I plan to release it now to the publc domain, as I will never think about it. I just feel so relieved to get over it.

Information Revolution vs. Industrial Revolution



The past decade has witnessed, owing to the advent of the Internet, great changes in the ways people communicate with each other and radical transformations in the society, the culture and the economy. The phenomenal changes brought about by the Internet are merely a tip of an iceberg that comes earlier than the Internet age, and goes far beyond what we are experiencing now. In 1973, sociologist Daniel Bell predicted the coming of what he called “post-industrial society”. According to Bell (1973), the new information society has three main features: (1) it involves the change from a commodity-producing to a service society; (2) it concentrates on codification of theoretical knowledge for innovation in technology; and (3) it creates a new “intellectual technology,” which serves as a key tool of systems analysis and decision theory – “when knowledge becomes involved in some systemic form in the applied transformation of resources (through invention or social design), then one can say that knowledge, not labor, is the source of value”. In other words, in this new society, knowledge is the main commodity exchanged in the marketplace, just as capital and labor constituted the central factors in an industrial society. Many people agree that since the end of the cold war, the more globally-interconnected economy and the enormous changes enabled by the new information technologies signify far reaching implications that the transformations deserve the name of “information revolution”.

Similar to the previous “agricultural revolution” (carried human beings beyond hunting, gathering and herding to entirely new forms of economic, political and military organization), or “industrial revolution” (exchanged animal for fossil fuel energy and introduced labor technologies that greatly extended muscle-power), this “information revolution” can be potentially studied by taking the perspective of a historian, an economist, a sociologist, a psychologist, an anthropologist, or a political scientist. Although these perspectives are not mutually exclusive, this paper tries to look at the issue through a political scientist’s lens and draw on the theoretical approaches in the literatures of political economy.

The various theories in political economy may be more or less popular nowadays, but they all continue to develop, undergoing new mutations and making fresh connections. My purpose of drawing upon these theories is far from archeological, rather, I see these theories addressing issues central to today’s debates on the political implications of the transformations in the information age. Castells (1996) pointed out that :”What characterizes the current technological revolution is not the centrality of knowledge and information, but the application of such knowledge and information to knowledge generation and information processing/communication devices, in a cumulative feedback loop between innovation and the uses of innovation.” If we substitute “information”, “knowledge”, etc. in the above sentence to “tools”, “machines”, the sentence still holds for industrial revolution. So the baseline of my paper is to recognize that information revolution will do for human capital now what the industrial revolution did for physical and financial capital before. In Varian and Shapiro (1999), they point out that “Technology changes. Economic laws do not.” The same should be true about political science. Although the phenomena we examine keep changing, we do not need a new set of principles to study them. In Thomas Kuhn (1962), scientific revolutions are viewed as changes of world view – paradigm changes cause scientists to see the world of their research-engagement differently. In this paper, our very purpose is to examine the issue of “information revolution” with the tools offered in various paradigms.

In examining each of the different theoretical approaches (a brief list: Liberalism, Marxism, Keynesian/Macroeconomics, Sociological and Cultural, Corporatism, Institutionalism), I first summarize the key issues in the focal approach, then comment on, through the lens of the approach, the possible connections between the information revolution and the industrial revolution.


Liberalism holds that liberty is the primary political value. Liberalism seeks a society characterized by freedom of thinking of individuals, limitations on the power of government and religion (and sometimes corporations), the free exchange of ideas, a market economy that private enterprise can exist, and a system of government that treats citizens equally. Thomas Paine, in defending the French Revolution, wrote The Rights of Man in 1791 as a reply to Reflections on the Revolution in France by Edmund Burke. Briefly, there are three most important points in Paine’s argument:

1. Men are born, and always continue, free and equal in respect of their rights. Civil distinctions, therefore, can be founded only on public utility.

2. The end of all political associations is the preservation of the natural and imprescriptible rights of man; and these rights are liberty, property, security, and resistance of oppression.

3. The nation is essentially the source of all sovereignty; nor can any individual, or any body of men, be entitled to any authority which is not expressly derived from it.

These three points are similar to the “self-evident truths” expressed in the United States Declaration of Independence. John Locke, among others, articulated the struggle for freedom and argued that if a government could not obtain the consent of the governed and protected the natural rights of life, liberty, and estate, a right of rebellion should be supported. His Two Treatises on Government established two basic liberal ideas: economic liberty (right to have and use property), and intellectual liberty (freedom of conscience). These ideas provided ideological justification for the French revolution and the American revolution. It is instructive to compare and contrast the political revolutions in 1848 with the industrial and information revolutions:


Table 1: Origins of Revolutions (Liberalism)

Classical liberals represented by John Locke and James Madison hold that we have not only the right to protect our property, but the right to punish those who harm us and the right to seize reparations. Locke argues that individuals can give up equality, liberty, and executive power they had in the state of nature, into the hands of the society, but with an intention in every one the better to preserve himself, his liberty and property. In a society, as long as men are guided by their God-given reason, it is their duty to protect themselves and their property. If either is threatened, they have the right and duty to withdraw their consent and dissolve the state so that a new one can be formed. In Paper #10 (Federalist Papers) Madison argues that it is safer to trust a single federal government than state governments with these powers, because it would be a larger and more pluralistic forum and therefore relatively moderate compared to smaller, more homogenous states that could easily assemble an oppressive majority. Similar to Madison, Isaiah Berlin argues that pluralism is a good way to avoid tyranny. In Berlin’s Two Concepts of Liberty, he identifies two distinct and conflicting types of freedom: negative freedom and positive freedom. “Negative freedom” refers to the degree to which an individual is free from coercion by arbitrary outside political forces. “Positive freedom”, however, means the degree of control collectively held by all individuals in society. Without negative freedom, liberty is impossible; without positive freedom, an effective government is impossible. The difference between Berlin and Madison is that Berlin believes that equality and fraternity are merely liberty’s “sisters”, and he believes that it is impossible to achieve a political state that embodies all of the social goods we value, and tradeoffs are necessary. Unlike classical liberals, Berlin is willing to trade off negative freedom with other social goods, such as justice and peace (in addition to equality and fraternity).

Individual liberty is at the heart of both political and economic liberalism. In both Hayek’s Individualism and Economic Order and Harsanyi’s World Politics paper (1969), individual liberty is studied to explain how rational-choice of individuals can bring forth the “spontaneous collaboration” that creates things which are “greater than their individual minds can ever fully comprehend.” In Hayek’s words: “The knowledge necessary for the solution of the economic problem is never concentrated in a single mind, and part of the problem is how to utilize knowledge which is scattered among many individuals. Much of the knowledge needed is not scientific knowledge but ‘knowledge of the particular circumstances of time and place’.”

Since the level of analysis in liberalism is “man”, the individual, a liberal approach to study revolutions will be on the individual level. Both “industrial revolution” and “information revolution”, to a liberal researcher, are a result of collective rational choices of individuals. Once the conditions described in Table 1 are satisfied, individuals, through the “invisible hand”, will bring about the revolutions. This is also consistent with the support of liberals to the Laissez faire market system (Friedman, 1962). These revolutions can not be planned or controlled by a centralized authority. In the case of industrial revolution, England was the leader, but the unfolding of the inventions and the using of these inventions pushed forward the revolution. Basically, one invention leads to another, which then call for yet other changes. Once individuals are free to make their choices, the “invisible hand” will push resources to the places where they are most useful. In the case of information revolution, no one deliberately designed the path to be followed. In fact, the power of the Internet lies in the very reason that it is an open system that is under no one’s control. Similar to a free market, the revolutions should be left to their own devices, the inefficiencies will be addressed in a more deliberate and quick manner than any legislative body could. According to Friedman, the citizens of the United States have become better fed, better clothed, better housed, and better transported, … and all this has been the “product of the initiative and drive of individuals cooperating through the free market.” He gives a long list of examples that governmental reforms have gone awry, and argues that “the central defect of these measures is that they seek through government to force people to act against their own immediate interests in order to promote a supposedly general interest.”

In summary, liberalism may suggest that freedom is critical in both the creation and use of information, and an open economy requires distributed information for its private companies to operate in a more decentralized manner. Therefore, the best way to ensure the success of the information revolution is to keep it as an open system and let individual decision makings drive its future. In other words, instead of searching for the causes of the revolutions, liberalism views them as emergent phenomena, and the emerging process is believed best to be left with as much freedom as possible.

Marxist View

Marxism draws on Hegel’s philosophy, Adam Smith and David Ricardo’s political economy, and 19th century French theorists’ socialism. It is a critique of society which is viewed as scientific and revolutionary. In his Capital (Das Kapital), Marx illustrated the development of capitalism from feudalism and predicted the development of socialism from capitalism. To Marx, men inevitably enter into “relations of production” when they develop their material “forces of production”, and “it is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.” (Marx, Contribution to the Critique of Political Economy) This notion is to be understood by observing the process of primitive communism getting replaced by slave states, which was replaced by feudal societies, then by capitalist states; these capitalist state would be overthrown by the self-conscious portion of their working-class, or proletariat, and socialism gets created and, eventually, a higher form of communism can be formed. So revolution is a very important and integral part of the Marxist theory. “Class” is an important concept in Marists’ analysis. The capitalist society is viewed to be divided into two social classes: the “proletariat” (individuals in the working class who sell their labor and do not own the means of production) and the “bourgeoisie” (who owns the means of production and exploits the proletariat). Like in any previous form of society, the modern bourgeoisie is itself the product of a long course of development, of a series of revolutions in the modes of production and of exchange.

According to Marxist views, at a certain stage of the development, the material forces of production in society come in conflict with the existing relations of production, then an epoch of social revolution begins. The social revolution helps to change the economic foundation and transform the superstructure. The new social, economic, political, and cultural system will then be the most suitable to match the “forces of production” with the “relations of production”.

In the case of the French Revolution, feudalism (thesis) created its own opposite (antithesis), the bourgeoisie. The bourgeois class grew up because agricultural society required markets to sell goods. Over time, bourgeoisie became as powerful as the old land-owning nobles, and rose up against them, and established Capitalist society. Through a similar process, bourgeoisie would become unsuitable for the production, and capitalism would create its own opposite in the working class, the proletariat (see Marx and Engels; The Communist Manifesto). This belief that everything has two sides is called dialecticism, and it is what Marxists suggest how the society is pushed forward through conflicts. As Marx and Engels put it, the type of this conflict in the French revolution is “hostile antagonism between bourgeoisie and proletariat”, and the communists everywhere should “support every revolutionary movement against the existing social and political order of things.”

So we can see the clear distinction between Marxism and Liberalism. While in Liberalism individual freedom is the focus, in Marxism, individuals are simply ignored, groups, or rather classes, are the unit of analysis. In the process of industrial revolution, capitalists gradually and consciously took control of the means of production. The revolution is systematically planned by one class to overthrow the control of another class. According to Marx, “Capitalism must violently succumb to its internal contradictions.” Inspired by Marxist view of social development, many political and social revolutions took place in the 20th century, however, attempts to redistribute wealth repeatedly led to “the redistribution of poverty”. Then is the “information revolution” a revolution in the sense of Marxism?

The Marxist philosophical method is “dialectical materialism”. Its premise is that the history of society is the inexorable “history of class struggle”. According to this premise, a class can only rule when it can best represent the economically productive forces of society, when it becomes obsolete, it should be destroyed and replaced. In Contribution to the Critique of Plitical Economy, Marx writes: “what is called historical evolution depends in general on the fact that the latest form regards earlier ones as stages in the development of itself”. This has been very powerful to explain the transition from the feudalism to the capitalism, and the transition from the agriculture economy to the industrial economy. However, it is not obvious to identify which are the conflicting classes in the revolution of information. It is not plausible to claim that in the information revolution, the knowledge workers (labor; do not own means of production – computers) are organized to overthrow the power of the owner of the tools (capitalist who own the computers and telecommunication networks). We see new products or services emerging everyday thanks to the development of information technology, we see new companies based on online business models driving old companies out of business, we see significant shift in labor demand for knowledge workers (Autor et al.; 1998, Autor et al., 2003, Bresnahan et al., 2002, among others), so it is fair to say that the society, the economic system, and the culture are experiencing some structural changes, but there is hardly the slightest evidence to suggest antagonism between groups.

Now look at the Marxism economic premise, which is established on the labor theory of value. Marxism supposes that the value of a commodity is determined by the amount of “socially necessary labor time” required for its production, and claims that the bourgeois class has exploited the “surplus value” of the proletariat. If this premise is important in the revolution, we should be able to identify how the “surplus value” is exploited, and how the revolution can solve this problem. Nevertheless, information technology does not change the fundamental relationship between the hiring and the hired (or more broadly, modus operandi). If a worker had been working on an assembly line to earn his wage before, now he is simply working with a computer (ironically, analogous to being confined to an assembly line, his work may have to be done on the network). In the information age, a worker can accumulate knowledge and become owner of the knowledge (means of production), and become his or her own boss or hire other knowledge workers to work for him or her, but the “relations of production” has not been changed at all. In Marx’s society ruled by the proletariat, the coercive state, formerly a weapon of class oppression, would be replaced by a rational structure of economic and social cooperation and integration, and each individual would find true fulfillment. It is very unlikely that these sorts of changes will be observed in the information age.

In summary, in the information age, we can not identify those vital elements of a revolution through Marxist lens (class conflicts, vast changes in “relations of production”, etc.), thus the great social, economic, cultural changes brought about by the information technologies can not be regarded as part of a revolution at all. That said, it is worth mentioning that Marx is concerned about, more than anything else, the effect of the social forces of production on the social relations of production, that is, about the results of the increasing productivity of labor upon the production of value and surplus-value. Robert Solow has an often quoted aphorism: “You can see the computer age everywhere but in the productivity statistics.” (Solow; 1987). Starting from the early nineties, there has been a growing literature on the productivity implications of information technologies and information systems (see, for example, David 1990, Oliner and Sichel 1994, Jorgenson and Stiroh 1995, Bryjolfsson and Hitt 1996, Brynjolfsson and Hitt 2000, Jorgenson 2001, Nordhaus 2002). After more than a decade of debate, it is generally agreed that information technology does have significant contributions to the productivity, and the paradox is merely a result of poorly measured output. Nonetheless, we have not observed any effects of increasing productivity of labor on the production of value and surplus value, so a Marxist would probably argue that there is no such thing as an information revolution yet.

Macroeconomics and Keynesian View

A car mechanic learns his skills best not by working on cars that are functioning well but by getting under the ones that have broken down. The Great Depression, on one hand, put the classical economics under serious challenge, but on the other hand, gives economists the opportunity to take a look inside the otherwise perfectly working engine of economics. If the “invisible hand” is working well, and if the private fulfillment of individual freedom (a.k.a Liberalism) guarantees the optimal allocation of resources and realization of growth, there should not be problems of recessions and depressions. Classical economics’ inability to address some very fundamental issues in the economy drove Keynes to question: “Now ‘in the long run’ this is probably true…But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” Later prominent economists, including Nobel laureates George Akerlof, Joseph Stiglitz, Robert Solow, all made significant contributions toward a more realistic modeling framework of the economy. The departure point of behavioral macroeconomics in the spirit of Keynes’ General Theory from the liberal view of economy is “Asymmetric Infomration”. Akerlof (2002) writes: “Reciprocity, fairness, identity, money illusion, loss aversion, herding, and procrastination help explain the significant departures of real world economies from the competitive, general equilibrium model.” Stiglitz (2002) also examined why the shift from the competitive paradigm to the information paradigm is important and necessary. He argues that: “I have become convinced that the dynamics of change may not be well described by equilibrium models that have long been at the center of economic analysis. Information economics has alerted us to the fact that history matters; there are important hysteresis effects…Dynamics may be better described by evolutionary processes and models , than by equilibrium processes.” In Romer’s (1994) words, this is ”the passing of perfect competition.”

These all undermine the argument of Adam Smith (and his liberal followers) that free markets lead to efficient outcomes. Comparing to Liberal views and Marxist views, this perspective comes with the least politically focus, as Stiglitz (2002) puts it: “Understanding the complex forces that shape our economy is of value in its own right; there is an innate curiosity about how this system works.”

Though not directly studying the “industrial revolution”, this perspective calls for our attention to the behavioral aspects of the economic system and instead of waiting for the market system to solve all the issues for us, it looks for the best institutional arrangements for encouraging the production and use of new knowledge. This perspective advocates that behavioral elements such as asymmetric information and rational expectation models (Mankiw 1990) should be introduced in examining social and economic changes.

Economic growth and income distribution are the key topics in Keynesian perspective. Although this perspective does not give us direct analysis of the industrial revolution (nor, for that matter, of information revolution), information is recognized as a very important element that affects political and economic processes. Since the information revolution changes the accessibility of information and the way information can be used, this perspective is very useful to study the important implications. The literature inspired by Robert Solow’s productivity paradox discussed in the last section is a good example of how economists are pushing forward our understanding of the impact of information technology on the economy.

Sociological and Cultural View of Capitalism

Max Weber, from a perspective of a sociologist, takes a totally different approach to understand social changes. To Weber, ideas, especially the meanings we put onto things and the role of changes of ideas matter most to understand the society. In understanding the industrial revolution, he suggests that social and economic revolutions come after radical change of ideas. According to Weber, the Protestant ethic was a force behind an unplanned and uncoordinated mass action that led to the development of capitalism. In The Protestant Ethic and the Spirit of Capitalism, he defines “spirit of capitalism” as the ideas and habits that favor the rational pursuit of economic gains. As he wrote in his essays: “in order that a manner of life well adapted to the peculiarities of the capitalism… could come to dominate others, it had to originate somewhere, and not in isolated individuals alone, but as a way of life common to the whole groups of man.” Ultimately, the spirit of capitalism is to attribute moral significance to entrepreneurial activities and endow intrinsic dignity to the entrepreneur who has committed to it. Weber’s essay can be interpreted as his criticisms to Marx. While Marxism postulates that social forces (improvements in productivity) drive human institutions, Weber’s theory suggests that a religious movement (human institution) fostered capitalism (social change). Weber’s view of class is also different from that of Marx’s, while Marx saw class as related to the means of production, Weber saw class based on power, wealth and prestige. To use Weber’s theory to study the information revolution, we have to look for the changes in ideas, ethics, etc. and examine how these changes aggregately enabled the revolution.

Polanyi (1957) also took a sociological approach to examine capitalism. He argues that the development of the modern state went hand in hand with the development of modern economies. The creation of a market society was in fact made possible only by a series of parliamentary decisions based on a very specific proto-“free market” conception of political economy. This is directly in contradiction with Liberalism’s (especially Hayek, who was also an economist from Vienna and published papers and books around the same period of time) describing capitalism with self-regulating markets of the economies. According to Polanyi, self-regulating markets can not survive because their “starkly utopian nature” gave rise to a spontaneous counter movement, and self-regulating markets were not consistent with a sustainable society. In studying the information revolution, an approached based on Polanyi’s analysis would suggest that the economic system is congruent to the social system to support the revolution. For example, the globalization of production, distribution and consumption begs for a corresponding social system to make it possible. Without open and internationally recognized social norms, the information revolution would be impossible.

Similar to the sociological theories of capitalism, cultural theories of capitalism look for an answer beyond the confinement of politics and economics. Sahlins, who defined “culture” as “meaningful orders of persons and things” (Sahlins 1976), focused on demonstrating the power that culture has to shape people’s perceptions and actions. He argued that cultural meanings affect choices that might otherwise be regarded as “rational”, and in general, a person’s position in the social structure conditions his or her economic activity. With this perspective, a researcher may focus on the cultural environment to study the inception of the information revolution. For example, the following issues will be relevant: the erosion of censorship, the democratization of information, the improved image and elitism of knowledge workers, greater isolation at workplace (thus the need to find a virtual world), and so on.

In summary, the sociological and cultural views of capitalism examine the question on the society or the culture level. The various forces and institutions in the society or the cultural norms are attributed to the social changes.


Corporatism is a form of class collaboration devised as an alternative to class conflict. It criticizes the way that Liberalism and Marxism treat the state as a dependent variable (Stepan 1978, p17). As Stepan puts it, “corporatism refers to a particular set of policies and institutional arrangements for structuring interest representation, …, so as to discourage the expression of ‘narrow’ class-based, conflictual demands.” Unlike pluralism, in which groups compete for the control of the state, in corporatism, unelected bodies take a critical role in the decision-making process. Different from individualism, Corporatism denies the individual’s reasons and interests, and aims at the rational organization of an efficient society. Taking a corporatist perspective, both industrial revolution and information revolution can be regarded as the result of planned collaboration among the different social groups.

Institutionalism and New Institutionalism

Institutions are social structures and social mechanisms of social order and interaction, governing the behavior of individuals. North (1990) defines them as “rules of the game in society or, more formally, are the humanly devised constraints that shape human interaction.” It is believed that although institutions can be created, the development and functioning of institutions in society are emergent. The nature of institutions is considered to be an artifact of particular time, culture and society, produced by collective human choice, though not necessarily individual intention. Since the formation of the norms depends on the past, history is an important concept. Institutionalism has elements of the sociological and cultural views of social development, but it is broader than them, with a special emphasis in the role of transaction and production costs in institutional development. Similar to corporatism, institutionalism believes that the social change is a result of collective decision making of groups, but unlike corporatism, the direction of the changes is not planned. In Immergut (1998)’s article, she systematically explained the premise of new institutionalism, and concludes: “the several varieties of new institutionalists address a common set of problems from a unified perspective. All are concerned with the difficulties of ascertaining what human actors want when the preferences expressed in politics are so radically affected by the institutional contexts in which these preferences are voiced. “ The new institutionalists do not believe in observed behavior as the basic unit of political analysis. Institutionalist criticism of observed behavior lies on 3 aspects: preference not revealed; aggregation of behaviors problematic; unclear normative standard.

Taking the institutionalist point of view, industrial revolution and information revolution are both realization of social changes shaped by collective organizations and institutions that are path-dependent. In other words, if the social norms were different, the revolutions may be totally different or may not occur at all.


In this paper, I study the implications of various political economy perspectives on the examination of similarities between the industrial revolution and the information revolution. This exercise not only establishes a foundation to better understanding the information revolution, but also maps out the similarities and distinctions across different perspectives. In Table 2, I summarize these similarities and distinctions.

It is probably evident now that different paradigms indeed give us very different views of the same phenomenon. Some theories may suggest that social changes are planned, but some others may not. The level of analysis may vary from an individual to a class. The relationships examined also have diverse focuses. In some cases, revolution seen with one perspective may not be regarded as revolution in another. In the case of sociological view, perspectives following different viewpoints may suggest totally different dynamisms.

Through the journey of examining different perspectives, I confirm the non- archeological nature of this exercise. Indeed, different paradigms enable us researchers to see the world differently.

So what exactly are the similarities between the information revolution and the industrial revolution? The answer, I believe, is “it depends”. Each of the theoretical perspectives provides one aspect of the possible examination of the issue. Each of the theories has been developed in specific historical contexts, and thus bears strong influence from the specific social, economic, cultural, and political environment when it was created. Whether the theory is suitable to be used to examine the issue is thus fundamentally dependent on the specific properties of the issue at hand. Selecting the best theory to draw upon from, though, is less ad hoc than it might seem to be. With a good understanding of the similarities and differences of various perspectives, it can be straightforward to pick the one that meets the needs, or even better, we may have a systematic view of the phenomenon. To obtain a good understanding, we must examine the possible perspectives one by one, and to this end, this paper serves as the first step.




Table 2: Paradigms Contrasted


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