Energy, Information and Economic Growth

A First Principles approach to Economics and the Wealth of Nations

On my quest to get the bottom of Economics, I start here with an exposition of some ideas on the ‘fundamental particles’ of an Economy. Before we can even think about Microeconomics, Money, Global Trade, GDP etc. we need to know what is it that we’re dealing with. What is the root cause of human wants and needs and how are they fulfilled? What are the most fundamental Economic activities of all? Does Economics apply to plants? What about Animals? Starting my enquiry from first principles then, we need to think about life and that which sustains it. I argue that all Economics starts from here.

Life and the Schrödinger Paradox

It is the most fundamental law of physics that the universe degrades to a state of disordered uniformity. The arrow of time proceeds from less disordered states to more disordered ones - the same way a drop of milk added to a cup of tea loses its initial localised order and the tea takes on a uniform colour. Try as hard as you might, you can never stir the tea and expect the milk to return to its initial drop. There is one exception to this law: life. The problem of organisation (or order) in living systems increasing despite the second law is known as the Schrödinger paradox. Living things avoid decay.

So to answer the simple question “How does the living organism avoid decay?" There is a simple answer: "By eating, drinking, breathing and (in the case of plants) assimilating." Far ahead of his time, Schrodinger also spotted that one more thing was needed to escape the Entropy paradox: "An organism's astonishing gift of concentrating a stream of order on itself and thus escaping the decay into atomic chaos – of drinking orderliness from a suitable environment – seems to be connected with the presence of the aperiodic solids…”. These aperiodic solids turned out to be DNA. DNA performs the function of information processing - the missing piece of the puzzle in resolving the paradox.

The human organism, then, requires the taking in of things that are useful: energy (calories, heat), oxygen (via breathing) and nutrients (water, vitamins, minerals) in order to avoid decay and so ‘break’ the second law of thermodynamics.

What is useful?

I define something as useful if it helps humans avoid decay or, more positively, if it helps sustain life. For now, let’s think only about physical decay (a premature death, for example). But later on we can think perhaps think of this decay in a wider sense encompassing emotional decay, intellectual decay and spiritual decay.

The Fundamental Economic Activities

Getting hold of things that are useful requires human activities. I define here three Fundamental Economic Activities with examples form early human history:

1. Extractive Work extracting something directly from the environment in unrefined form (pick berries)

2. Transformative Work transforming something into a refined form or into energy (nap flint, cook meat, burn wood)

3. Combinatorial Work combining objects to create composite objects (combine a stick with a flint blade to make a spear).

and a fourth, special economic activity:

4. Consumption consuming energy, oxygen, nutrients etc to sustain life.
   

These activities can be strung together into sequences, ending in consumption to provide any and all of the basic needs:

1. Pick up a stick and a piece of flint (1)

2. Nap flint to make blade (2)

3. Combine stick with blade to make a spear (3)

4. Use spear to hunt a deer (2)

5. Butcher deer using a blade (2)

6. Gather firewood (1)

7. Make a fire (2)

8. Cook venison over fire (3)

9. Eat it (4)

Energy

Energy is either stored as matter or it is in motion - I would include heat & light as types of energy in motion here, indeed many physicists would agree. Energy in the form of matter can be useful insofar as it helps us avoid decay. For example a ripe berry is useful (we can eat it), while an unripe berry is not. Energy in motion can be useful (fire for cooking) or not useful (a wildfire). What is it that makes some energy useful (life sustaining) and other energy not useful? 

Order

Order makes energy (both matter and motion) useful.

The berry changes only slightly in going from unripe to ripe, but its usefulness changes dramatically. Both a cooking fire and wildfire are, after all, fire. But one is ordered and useful, while one is disordered and outright dangerous! What life orders is Energy - either energy at rest (ordered molecular structure) or energy in motion (ordered molecular motion).

A set of atoms ordered to form a working car is immensely useful but when those same atoms are rearranged (perhaps following a crash) that order is destroyed and the usefulness along with it. A skilled potter can control the motion of their hands in subtle ways to fashion an object of great practical utility by ordering the atoms in the clay to make a vessel. Meanwhile an unskilled person simply can’t order the motion of their hands to get those same atoms into the right configuration. Order makes things useful, not to say beautiful too - although I would argue that is just another type of useful… more on that another time.

The role of Information Processing

What is it that gives rise to order in the first place? For the potter it’s her ability to imagine the shape of the clay they want to create and then control their application of transformative work to manifest it. This happens because information is processed. What do we mean by that? Well, information processing really has three steps:

1. Locating and capturing information

2. Manipulating it into a desired form (in software/minds)

3. Outputting the data

The potter uses their senses (sight, touch) to capture information about the current shape of the clay. They use their mind to manipulate the clay into its desire form (a vessel). They then output data (nerve signals to move their hands) so that they can manipulate the clay on the potter’s wheel (a tool) to fashion the vessel and manifest it as an object in the real world. Information processing thus directs the transformation of energy from disordered into ordered forms. 

Goods, Services & Tools

Goods are simply useful objects - as opposed to not useful ones - a rock on the bottom of the ocean, say. Goods themselves we can unpack into 3 categories: Consumable (firewood or berries), Durable (clothing) and tools (spear). Tools are a special case and worth a few more remarks. 

Tools make it easier for humans to exert order.

Tools amplify work. They do so by allowing humans to exert larger forces, or more targeted forces than our underlying physiology would naturally permit. An axe allows us to focus and amplify the energy of our swinging arms onto a small surface area on a tree such that we may cut through it. A cooking pot lets us contain a liquid, and withstand the heat from the fire better than our cupped hands would manage. These tools thus augment our abilities to undertake the Three Fundamental Work Activities and extend the possibility of what we can do:

• Axes accelerated the extraction of stored energy (wood) from the environment. 

• Cooking vessels enhanced the refinement of foods via cooking.

• Cordage made it easier to combine objects

There are, of course, also services that are performed. Childcare, hunting, gutting a kill. These are all useful (preventing decay) ways of employing labour time, as opposed to sleeping or sitting idly, watching the clouds pass overhead. Services, by virtue of the passage of time, are always consumable and do not endure beyond the moment of activity.

Any economy, no matter how primitive you conceive it features all four of our primitive activities (Extraction, Transformation, Combination and Consumption). It also features outputs in the shape of both Goods (Consumable, Durable and Tools) and Services.

Sustaining Life with Energy and Information Processing

These, then are the building blocks of Economies - my ‘fundamental particles’. I argue her that it is the quantities and mixes of these four activities and four outputs that determine the sophistication of an Economy, and that the four activities and outputs are themselves shaped by the sophistication of the harnessing of Energy and Information Processing to give it order. Defying Schordinger’s Paradox then requires ordered energy of the right types, in the right quantities. More ordered energy (e.g. food) is good, but to sustain life it is essential that the organism also receives enough ordered energy in the form of heat, or in the form of clean water. Tools make this easier. So do durable goods.

Energy & Information throughout Human History

The second half of this essay is a cursory attempt at a sweeping Economic History of life on Earth through the lens of humankind’s increasing mastery over first Energy, and then Information.

A note on Co-operation

Economic cooperation is a subject far too large to do justice to in this post, but I will give it a limited treatment here insofar as to state that its primary role is to bring to bear more Information Processing, and/or more Energy to work. I will make cursory references to things like currency, trade, corporations and other means of enhancing cooperation, but my focus is on the nuts and bolts of the energy and information which are the substrate of Economic progress. I will return to the subject of cooperation another time.

Pre-Human: Life defies the Paradox

Our story starts with the emergence of life on Earth. Single-celled organisms emerged from the primordial soup and at once set about defying the second law. They processed information in minute quantities for example by sensing in which direction to move and moved slowly in an ordered way via flagella, cilia, or pseudopodia.

Pre-Economic Humans: Hunt & Gather

Basic activities: manpower alone

Consider the simplest and most primitive human society you can imagine. Don’t worry too much about the anthropology here. You might imagine a small extended family of Homo sapiens (or even Neanderthals) living together in a cave wearing primitive clothing. To sustain life, these humans needed to obtain sufficient energy, oxygen (usually a simple task) and nutrients from their environment while sheltering from hostile weather and avoiding predators. These give us the basic needs: Food, water, heat and shelter. 

The fundamental activities are skewed towards extractive ones (hunting, foraging) and consumption is skewed towards subsistence. Ordered motion comes almost exclusively comes from manpower. Tools are few and primitive. Visually, little order is imposed on the environment - there is no farming, no complex structures are constructed.

At this stage in Human Evolution, we can think of human life as being pre-economic.

Early-economic: Farming, Trade and Animal Power

Ordering molecular motion and molecular structure

Fast forward a few thousand years to early Civilisation. We can imagine now a small village - an early agrarian society. People live in simple houses made from mud and straw. Most people are engaged in farming activities. Trade takes place, either in a simple barter economy, or with an early currency, which is largely centred around agriculture produce, but also includes clothing and some basic tools.

These humans are able to meet their basic needs more easily than in our primitive society. People spend more of their time on Transformative and Combinatorial activities. This society has a greater use of tools, and more advanced tool making. 

In terms of energy, this society has become more effective at harnessing the energy of the sun (through farming). It also begins to augment raw human muscle-power with animal power (and perhaps water or wind as well). Ox or horses are used to pull ploughs or to carry heavy loads. Windmills are used to grind grain.

Middle-economic: Artisans and Global Trade

Mastering molecular structure; using objects

Advance into the mid-17th Century with me now and take a look around. The world has advanced significantly. Humans have begun to master the Transformation and Combination of forms. Artisans now supply society with functional creations needed for everyday life. From clothing through to cannons, skilled craftspeople have gained increased control over molecular structure. 

The world is being flooded with useful (and more complex) composite objects from which they are better able to Extract, Transform and Combine. We can characterise this era as the time when people started to get good at making complex things like mechanical clocks or muskets.

There has yet to be a significant breakthrough in energy use, with much the same sources of energy as in our Early-Economic era.

Industrial Revolution

Mastering molecular motion; unlocking stored energy

Move the clock just a hundred years or so and Great Britain is ushering in the Industrial era.

The industrial revolution, triggered by the invention of the Steam Engine in 1712 by Thomas Newcomen and then refined by James Watt with the invention of the  Watt Steam Engine in 1765 unleashed floods of ordered energy into the Economy. For the first time, humans could tap into vast reserves of stored energy - coal - and create ordered molecular motion, which in turn allowed machines to perform Fundamental Activities. 

Molecular structure is now being ordered not by skilled artisans, but increasingly by mass production taking place in the world’s first factories. Taking the textiles industry as an example, the work of thousands of skilled artisans was now being powered by Steam and ordered by machines like the Spinning Jenny (1760s), Arkwright's waterframe (1769), and Crompton's spinning mule (1779). 

Human energy usage explodes. In 100 years from 1750 to 1850 Britain increased its consumption of Coal by 10x from 5.2mn tons to 62.5mn tons annually.

Molecular motion is being mastered and the wave of Economic and social progress this unleashes is unprecedented.

Late Economic

Mastering information; organising the world

Man gained dominion over both molecular motion and molecular structure (Ordered Energy) in the Industrial Revolution. 

Step into the present day and the Information Processing revolution is still underway - we are living through it right now. This revolution began, you could argue in 1947 with the invention of the transistor and really kicked off in the 1990s when Personal Computers became mainstream.

For the first time in our history, man is able to process information beyond the limits of the human mind. We can design aircraft which are aerodynamically unstable and fly-by-wire. We can process information across large Corporations with tens of thousands of employees and show dashboards to senior management. We can forecast weather using advanced simulations running in SuperComputers, gathering data from satellites and thousands of sensors in fields across the globe. We can make video calls across the globe in real-time. Advanced Robots work on production lines…

All of these inventions amount to an increase in our capacity to process information and thus create more order. This revolution promises to be the most profound of them all. Information Processing is the fundamental capability of life itself and the reason that Schrodinger’s Paradox could be defied in the first place.  

As we advance our information processing capabilities we continue to incease our ability to exert order over matter and motion.

Computing Data Centres now consume just a little over 1.0% of total electricity on earth. What capabilities will we have when we 10X this number?

The Wealth of Nations & Economic Growth

Summarising then, fundamental Economic Growth is a result of an increase in at least one of three things:

• The amount of useful ordered molecular motion a society can generate (animal power, fossil fuels, renewable energy sources)

• The amount of useful ordered molecular structure a society can generate (tools, mass production, robotics)

• The amount of useful ordered information a society can generate (language, books, computation)

Advancing Life with Energy and Information in the age of Superabundance

Schrodinger’s Paradox continues to be defied by human life on earth. Humans have almost perfected the art of drinking orderliness from a suitable environment. As our mastery over Energy and Information advances further - and assuming we steer clear of various doomsday scenarios (nuclear holocaust, pandemics, hostile AI) then Economic progress will march on. The advanced information societies - including the one I live in here in the West - have already progressed well beyond the point of subsistence.

Returning to some of my earlier definitions, what does avoiding decay mean in the era of super-abundance? How do we avoid decay, not just physically now that we have enough food and shelter and medicine. How do we avoid decay emotionally, spiritually, intellectually? What do these new needs and wants entail? How do energy and information help us meet them? Or is there a new Economic paradigm and new primitives we need to consider in order to do so?

Are we already seeing the first signs of what that economy looks like? Increased consumption of dopamine-filled escapes from reality in the Metaverse - games, VR, Streaming Services and the like? An increasing want to travel the world and experience new people and places? A desire to extend lifespans, and enhance our biology?

Let’s ponder that, and other questions another time. 

Until then…