Economies are computers embodied in social networks and our world is made of bits. To understand differences in income we need to understand differences in the capacities of economies to compute. Rich and sophisticated economies, like that of Japan, Korea, or Sweden, are sophisticated computers with an enormous ability to transform imagination into reality. Less sophisticated economies, like those of many Sub-Saharan and Latin American countries, are computers that struggle to achieve the processing power needed to make complex things, and hence, struggle to make their economies grow.
In Why Information Grows I show that thinking of economies as computers provides fertile improvements to our theoretical understanding of economies and to the tools we use to anticipate the evolution of economic systems.
On the one hand, I show that the evolution of economies is a natural extension of the evolution of the computation that already exists in the universe in a variety of systems: from simple biological cells to the human brain. For computation to transcend its humble physical and biological origins smaller computers need to come together: cells need to form multicellular organisms and people need to form teams, firms, and network of firms. This division of knowledge—or computation—means that the economy is a computer embodied and embedded in social networks, and hence, that the computational capacities of economies are constrained by social institutions, such as trust. For instance, low-trust familial societies have high transaction costs, and hence, can only form small networks with a limited computational capacity. High trust societies, on the other hand, can form large networks of people, and hence, can act as more powerful computers that can produce complex products.
Using international trade data and data on cultural production I empirically validate the computational economy hypothesis and show that by focusing on the ability of economies to compute we can predict the mix of products that an economy will make in the future, how fast it will grow, and the rate at which our species records cultural information.