You lost me -- maybe it's been too long since I read Deepness. Transaction costs? Can you spell this out some more?

There’s a bit in there — it’s been years since I read it, myself, and I don’t remember exactly how it goes — about the black market that the Qeng Ho develop after they’ve been incorporated into the Emergent organization, and how even though, according to all the theories, the scale involved should be too small for a market to be effective, somehow (Vinge’s word, IIRC) this is more efficient than the Emergent command economy.

A question market economists were asking in the 30s, and again in the 70s, was: if the free market is so efficient, why do companies exist? Why don’t we just have networks of individual, independent operators making market transactions?

Transaction cost economics is one explanation — that up to a certain scale the costs associated with making the transaction (buyers and sellers finding one another, enforcing contracts after they’ve been made, etc.) can outweigh the efficiency gained from free-market pricing. In most cases it’s cheaper for you and your employer if they to pay you a wage and provide free office supplies than it is for you to buy your own office supplies and negotiate a price for each unit of work output. (Or imagine an assembly line where each worker owns his or her own station and negotiates prices for the partially-finished product with the workers on either side.)

Vinge basically admits that the Emergent organization around Arachna is below that scale, but because he has an ideological point to make about free markets vs. command economies, he waves his hands and uses rubber economics.

Apparently the transaction cost theory’s come under fire in recent years for having insufficient explanatory power, but my economics education isn’t deep enough or up-to-date enough to be familiar with the criticisms.

Although I think the Sloth's points are more or less valid, I think it's worth noting that the same kind of criticism is often leveled at socialists and communists.

Back when the Soviet Union collapsed, a friend of mine noted (paraphrased from memory) that people would now spend eternity arguing over whether true communism was untenable or had never been tried.

That is, one of the most common defenses I see from advocates of a particular political and/or economic system is that their preferred system would indeed produce the greatest good for the greatest number if it were ever implemented properly, and that the problems with the real-world systems that approach that ideal system are due to the differences between the flawed version that was implemented and the ideal one that should have been implemented. If only Stalin and Mao hadn't intervened, we could've reached True Communism; if only the Government would get out of the way, we could reach True Free-Market Capitalism. (The counter-argument tends to be that the proposed system is inherently flawed, and will inevitably lead to the problems that have resulted in real-world attempts at implementation.)

Me, I think if only people would be nicer to each other we could reach True Pacifist-Anarchic Utopia.

Most revolutionaries seem to end up punting on human nature as it exists and demanding a better type of human being. You’ve just skipped a few steps. :)

Also, w.r.t. socialism and communism, I think you’re talking about something roughly comparable to the Sloth’s Course of Action #2. The equivalent of Course of Action #3 would be to say that, appearances to the contrary, the Soviet Union really was the Workers’ Paradise. This has been done, but it doesn’t pay as well as the corresponding anarcho-capitalist argument.

Back when the Soviet Union collapsed, a friend of mine noted (paraphrased from memory) that people would now spend eternity arguing over whether true communism was untenable or had never been tried.

Now? In fact, that argument has been ongoing since 1917. In the US alone, it led to the split of Debs' Socialist Party, for example, and the full-time embrace of anarchism and minority unionism with the IWW. The most dramatic version of the argument was the Russian Civil War itself, with Rosa Luxemberg's murder by the Social Democratic Party's freikorps (later to be integrated into the Nazi Party) during the German revolutionary period coming in a close second.

Early attempts at a capitalist republic under, say, the Medicis, failed as spectacularly given the differing scale of the time. But that hardly proved that Empire was better than Republic in a general sense.