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Lawrence Lessig has written an important but deeply flawed book on the future of the Internet. The book is important because of who Lessig is (Harvard law professor, celebrated member of the “digiterati,” and adviser to U.S. District Judge Thomas Penfield Jackson) and because of the insights into the Internet that Lessig offers. The book is flawed because Lessig makes some fundamental mistakes about markets and because he does not understand, and so misuses, the concept of spontaneous order.

First, the good stuff: this is an exceptionally readable book, filled with insightful observations. (There are also some minor annoyances, like the constant use of quotation marks around words for no apparent reason.) The book conveys the essentials of the technical areas necessary to its argument in a way that most readers can grasp. Lessig illustrates many of his points with interesting anecdotes. He is a skilled writer and thoughtful analyst of the Internet. He might not be “a James Madison of our time,” as the jacket copy touts (quoting Stewart Brand), but he has certainly written a book that anyone concerned with the Internet will want to read. Indeed, since Lessig is such an important figure in the application of the law to the Internet, we are lucky he has written so well—his ideas would be important even if they were badly written.

Much of Lessig’s analysis is right. The architecture of computer programs does determine the cost of regulating the conduct that occurs using those programs, and the transmission of information is more susceptible to government control than many early Net enthusiasts believed. We ought to worry about these things more than we do, and with any luck, Lessig’s book will prompt a large number of people to do so.

However, the author fails to understand the nature of markets and spontaneous orders. Nowhere is this more evident than in Lessig’s repeated and incorrect use of the phrase “invisible hand.” He claims that the “invisible hand” will produce an Internet built around technology that enables identification of users. Why? Because corporations demand it, he says. Corporate power will allegedly lead to corporate control and must be balanced by government power. For example, Lessig concludes his discussion of privacy by lamenting that “Individuals may want cyberspace to protect their privacy, but what would push cyberspace to build in the necessary architecture? Not the market. The power of commerce is not behind any such change. Here, the invisible hand would really be invisible.”

Lessig just doesn’t get it. Markets don’t work by an invisible hand of corporate control guiding production and consumption decisions. As Adam Smith observed, the outcomes from markets make it appear as if the markets were guided by an invisible hand. The miracle is that there is stuff I want at a price I can afford at the grocery store down the street. That’s amazing—it’s something the immense staff of planners in the Soviet Union never managed, even using the visible hand of state control.

Markets work because they are a means of aggregating local knowledge at very low cost. Markets tell me what I need to know about the opportunity cost of using resources and about the tastes and preferences of those I deal with in the market (how much they will pay for what I am selling, for example.) The reason markets work is not that corporations decide what we will buy (remember “new Coke”?). And it is not because powerful people want them to. Markets work because entrepreneurs spot opportunities to get rich.

In Lessig’s markets, however, there are no entrepreneurs. No one enters the market for computer code or for goods and services to offer consumers privacy and books at a discount. No one enters the market for anonymous communications. No one sets up a Web site based in the Cayman Islands to process anonymous financial transactions. Considering the record of entrepreneurs in reaping rewards from the Internet, his claim is astonishingly erroneous.

Consumers have gone AWOL in Lessig’s world as well. In Lessig’s markets, consumers either have been bought off with corporate loyalty programs or lack “real” choices. They are easily bribed to reveal information about themselves and against their interests by frequent flyer programs and the like. Consumers surrender vital information either without realizing it or for a pittance. According to Lessig, they need protection from the greedy corporations seeking information.

What Lessig fails to see is that information about most of us as individuals is not worth very much. Information about a whole bunch of us, on the other hand, can be worth quite a bit. When entrepreneurs spot opportunities to gather and sell information, a new market is born. In a free market system, the price entrepreneurs pay for individual pieces is irrelevant, so long as people freely agreed to accept the payments.

Like many in academia, and on the left more generally, Lessig is profoundly suspicious of markets. He is willing to concede their ability to produce goods and services, but he doesn’t trust the judgments of individuals about what goods and services to buy. Consumers certainly don’t seem to be buying nearly as much privacy as Lessig thinks they should, for example. But if individuals make systematic mistakes, mistakes that can be understood by Lessig, then we don’t really need markets to coordinate activities—we need Lessig! Perhaps that’s why Judge Jackson wanted his counsel in the Microsoft antitrust case. Unfortunately for “Third Way” statists like Lessig, people around the world have been rejecting planners’ advice across the board.

Despite its insights into the world of computer code and the Internet, the book falls short of its ambitious goals. It does so because the author prefers state control to the spontaneous order of the free market. Nonetheless, the book is important and should be read by those concerned with preserving liberty both in and out of cyberspace.

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