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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"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)