How the Computational Capacity of Economies Explains Income

Cesar A. Hidalgo in the Huffington Post:

Most people think that information and computation are new things when in fact they are as old as the big bang. In the beginning, there was the bit, as my MIT colleague Seth Lloyd likes to say. Only recently, however, we have learned to see the bits embodied in atoms, cells, society and the economy.

But what is information? Colloquially, people think of information as the messages we use to communicate the state of a system. But information, which is not the same as meaning, includes also the order embodied in these systems, not just the messages we use to describe them. Think of the order you destroy when you crash a car. A car crash does not destroy atoms — it destroys the way in which these atoms are arranged. That change in order is technically a change in information.

Computation, on the other hand, is the use of energy to process information. It is the fundamental mechanism by which nature rearranges bits to produce order. Computation is everywhere but in an economic context, we can think of it as a more modern and more accurate interpretation of the ideas of labor advanced originally by Adam Smith and Karl Marx.

Smith and Marx did not know about information or computation, so they described economies using the language of energy that dominated the nineteenth century zeitgeist. The mechanical protagonists of the industrial revolution were machines that transformed heat into motion: engines for pumps, trains and cranes. These machines awed the nineteenth century masses with their power — masses that failed to see that what these machines were doing was increasing their ability to process information.

Processing information is the essence of all economic activities. It is not the privilege of the coder or the writer but what we do when we bake a cake, make a sandwich or manufacture a car. We compute when we take out the trash, do laundry or pair socks. All of these acts involve using energy to produce order — whether we are grouping undesirable objects in a trashcan or using a laundry machine to remove dirt from our shirts. All jobs are acts of computation, and the economy is a collective computer that involves all of us.

More here. [Thanks to Marko Ahtisaari.]