Why Information Grows

* Book: Why Information Grows: The Evolution of Order, from Atoms to Economies. By César Hidalgo. Basic Books, 2015

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Description

"THE question seems basic, but economists have yet to find a comprehensive answer: why and how do economies grow? Additional capital and labour were long considered the main factors. Then the focus shifted to higher productivity and increased human capital, the knowledge embodied in members of society.

César Hidalgo tackles the question in another way. Economies grow, he says, because the information contained in them grows—not just in people’s heads, but also in the social networks that connect everyone and even in the objects that populate the world. What is more, this ever-expanding pool of information did not start with humans, but dates back to the beginning of time. “[W]e are born from it, and it is born from us,” he writes gnostically.

As such sweeping phrases make clear, adding to economic-growth theory is not the only goal motivating Mr Hidalgo, a statistical physicist who teaches at MIT’s Media Lab and is a pioneer in visualisation tools, which extract meaning from piles of data. His aim is nothing less than to lay out a universal theory of information—one that applies to everything, from the lifeless to the living, and to all scales, from atoms to economies.

This may sound foolishly ambitious, but the heart of Mr Hidalgo’s conceit is the way he defines information: it is not facts and the like, but physical order. To make his point, he compares birth with time travel: inside the womb the experience of modern babies is not much different from that of their fetal forebears 100,000 years ago. But outside, the world has changed completely, because matter is arranged differently, thanks to the information which has been accumulated over the intervening time.

Mr Hidalgo first asks how, in a universe that according to the laws of thermo-dynamics moves inexorably towards entropy and randomness, order—and hence information—is born and can grow. In the case of nature, he takes more than one page from the works of Ilya Prigogine and Erwin Schrödinger, two noted scientists, to suggest that order arises from chaos when a physical system is thrown out of kilter." (http://www.economist.com/news/books-and-arts/21659692-physicist-explains-how-order-born-multiplier-effects)

Review

Hazel Henderson:

"This brilliant book, Why Information Grows, clarifies why economists don't understand the processes of economic growth, and why their models underlying finance continue to lead to malinvestment and misallocation of capital and resources. Author Cesar Hidalgo is a Chilean polymath who leads the Macro Connections group at MIT's Media Lab. He dissects the traditional economic approaches to the modeling process of economic growth, from Robert Solow's admission of a gap in understanding productivity to Wassily Leontief's input-output models, from Schumpeter's creative destruction to Ronald Coase's theory of the firm and Paul Romer's approach to human capital. Hidalgo soon transcends the entire economic model, as I did in my own work, and moves to more fundamental physics, thermodynamics, information and decision theory, seeing the basic factors of production as I did: matter, energy and information - with information as the key to how human societies use energy and resources to evolve.

Hidalgo starts with planet Earth as a "pocket" of evolving information, sheltered from entropy by the daily shower of free photons from the Sun, and how living species developed the technology of photosynthesis to capture and store this energy. These fundamental processes leading to the explosion of life forms and increasing complexity, knowledge and know-how are the basis of human societies and economic development stored in today's multiplicity of ordered systems and structures. This essentially biological and physical view of economic growth demolishes standard economic theory's "factors of production": land, labor and capital. As I pointed out in Politics of the Solar Age (1981), Nobelist chemist Frederick Soddy tried to correct economists in his 1921 paper before Britain's Royal Society that energy was fundamental to all three of these factors and to human social evolution. Using the example of the steam engine, Soddy pointed out that it was driven neither by land, capital, technology or labor but by the coal: "past sunlight stored by plants." (via email, from seeking alpha, august 2015)

Discussion

Shaun Bartone:

"Karatani’s analysis of the four types of exchange is one I largely agree with; but I disagree with his suggestion of how Form C: Capitalist Commodity Exchange, will be superseded. He says it will be superseded by a World Republic, an ever-enlarging and all encompassing United Nations, with all it’s organizations and functions: World Bank, IMF, UN Peacekeeping, World Health Organization, etc. that will take over the functions of the State and Nation, and regulate the commodity exchange economy

But I disagree; I think it will be superseded by the global exchange of information, in a sharing economy that fills the definition of Form D: a Supra-Reciprocal exchange. Karatani said that Form D re-institutes Form A, Reciprocal exchange, at a “higher register”, one that goes beyond household, tribe, band, church.

Information is continuing to grow at exponential rates. Cesar Hidalgo’s explanation of the growth of information (Why Information Grows, 2015) shows that the planet acts like a giant computer that stores and processes information. He says the “hard drive” of the planet is nearly empty. There is so much more space in which information can grow. Furthermore, complex civilizations, like the one we are currently in, are giant computers that can process vast amounts of information, exponentially more than we do already. Hidalgo says that we have barely begun to exploit our potential for processing and growing information.

The growth of information continues exponentially until it exceeds the social processes (institutions) and technological structures (machines) that produced it. The growth of information within a social system is equivalent to the growth of energy within a system. When the energy of a system increases, it shifts the form of the system into a new, more complex state. The attractor (organizational form) of the current social system will shift from money and commodity exchange to information and the sharing exchange. A commodity is scarce, costly to produce, only available at certain places and times. Information cannot function as a commodity because it continuously increases and is ubiquitous, and is therefore abundant, not scarce. The exponential growth of information will disrupt all our current social structures that are based on scarcity and commodity exchange, including Karatani’s Capital-State-Nation." (https://engagedbuddhism.net/2015/08/14/trust-and-the-sharing-exchange-a-buddhist-response-to-kojin-karatanis-modes-of-exchange/)