Information Is The New Capital

Summary

• Capitalism has reached its fundamental, existential limitation.
• A systemic shift from capital-centric to information-centric is underway.
• Information is the new capital.

Few readers will be unaware that our current era has been widely regarded as the Information Age. The preceding epoch of the Industrial Revolution, marked by the production, distribution and consumption of goods, is regarded to have been superseded by a world increasingly dominated by the creation, collection, storage, collation, processing, distribution and consumption of information. 1970 seems to be a generally agreed upon date for its beginning.

While the transition of the world's motive force from industry to information may be widely accepted, the full implications of that shift for every sphere of human endeavor - economics, finance, society, and politics - is far less widely known. While this is easily the subject of entire books, I am going to present an outline of its key features here.

I believe that this matter goes to the core of everything we are seeing and experiencing in finance and the economy at the present juncture. Information is the heart and substance of the very rapidly emerging and imminent new world. Information is the new capital.

Industrial Revolution, Capital, and Capitalism

Under industrialism, the generation of value added through industrial processes created surplus value (value above and beyond that inherent in the raw material, labor and energies required to produce the product) which was accumulated as capital. The control, distribution, and application of accumulated surplus value capital was of course known as capitalism. Capital could be reapplied to the same process which produced it, or it could be used to enhance and improve such a process, or it could be directed to another process or even an entirely different or new industry entirely. It was a mobile, fungible, transferable and translatable substance. The dynamic and organic properties of that substance made the explosion of transformative and amplifying human activity possible. As more surplus was generated, greater and greater populations could be supported by ever-increasing production. The disposition of ever-more industrial and consumer products produced markets of buyers and sellers to arrive at a price in which goods were exchanged for stored value in units of currency.

One of the problems faced by this system, however, was that it needed to constantly expand. It was not a system that could be maintained in a state of equilibrium. By its own mechanics, it had to constantly grow. When it reached a stage in which no further growth was possible, severe dislocations occurred. These tended to self-correct as capital found new ways to expand into new markets, frequently as a result of new technological developments.

As financial markets for accumulated capital developed, capitalism created mechanisms for amplifying and leveraging capital and charging fees and interest for the lending and borrowing of it. This increased the fluid properties, or liquidity, of capital and allowed it to flow more rapidly to uses which could generate a greater return, staving off the tendency for growth to stagnate, but also accentuating the dislocations that inevitably occurred as a result of this amplification.

With the advent of central banking and fiat money, financial capitalism increasingly sought to postpone and prevent periods of dislocation through increased liquidity. The eventual merger of state power and finance capital led to financialism, the final stage of capitalism.

Financialism

The period of 2000-2020 was the extinguishing phase of the old paradigm based on capital as well as the gestational transitional phase of the new paradigm based on information. That period of time saw the gathering and accentuating of fundamental and unstoppable forces that absolutely mandate a systemic shift away from capital.

The fundamental impulse of financialism is inflation, which we can read as the drive to expand the flow of capital. The fundamental oppositional force is deflation, which we can read as the accelerating tendency towards the degradation of the value of capital. Viewed another way, in relationship to debt, the fundamental unit of capital in financialism, the unit of value produced for every new unit of debt vanishingly decreases. In this sense, deflation is the same thing as the inability to create new value from new debt.

While this list is by no means exhaustive, some of the most important, core fundamental deflationary forces that are requiring a systemic shift include:

• Technology
• Commodification
• Depopulation

Technology

The sprint towards the "technologization" of every aspect of human endeavor is highly deflationary. Fewer and fewer units of labor inputs (human or mechanized) and fewer and fewer units of energy inputs are required to generate greater and greater units of value.

Commodification

There is a general acceleration towards the commodification of all consumer and industrial products, another highly deflationary trend. Only the newest and most advanced technological processes are capable of producing sufficient added value to be economically viable as capital. Even computer chips, the core input to technological innovation, become entirely commodified almost as fast as they are invented.

Depopulation

Population trends are accelerating towards an outright decline of the child-bearing age group and the under-65 consuming age group, while the non-productive, cost-inducing over-65 age group explodes as a percent of overall population. Capitalism cannot grow and perpetuate itself, absent an ever-increasing population of consumers and tips into implosion once the population of non-producers outweighs the producers and consumers.

As a result of these and other related forces, the spread between value-added and surplus value has become ever narrower and the system absolutely requires ever-increasing liquidity in order to support even marginal growth.

These unstoppable secular deflationary trends are absolute anathema to the established Keynesian, monetarist, debt-driven financialist model of capitalism. There is simply no fundamental way for the existing paradigm to perpetuate itself, and systemic shift is the only option.

The Information Age

While it might be a challenge for the economically uninitiated to get a handle on the nature and mechanism of capital, it pales in comparison to the task of understanding the substance and properties of information. One of the best ways to get a primary understanding of the subject is James Gleick's "The Information: A History, A Theory, A Flood". I would go so far as to say it is essential reading. The enormity and the absolute applicability of Information Theory to absolutely everything, particularly that which is at the forefront of our present circumstances, is well-summarized in these excerpts from the Prologue:

People began to name a successor to the Iron Age and the Steam Age... We can see now that information is what our world runs on: the blood and the fuel, the vital principle. It pervades the sciences from top to bottom, transforming every branch of knowledge. Information theory began as a bridge from mathematics to electrical engineering and from there to computing. What English speakers call "computer science" Europeans have known as informatique, informatica, and Informatik. Now even biology has become an information science, a subject of messages, instructions, and code. Genes encapsulate information and enable procedures for reading it in and writing it out. Life spreads by networking. The body itself is an information processor. Memory resides not just in brains but in every cell. No wonder genetics bloomed along with information theory. DNA is the quintessential information molecule, the most advanced message processor at the cellular level-an alphabet and a code, 6 billion bits to form a human being. "What lies at the heart of every living thing is not a fire, not warm breath, not a 'spark of life,' " declares the evolutionary theorist Richard Dawkins. "It is information, words, instructions.… If you want to understand life, don't think about vibrant, throbbing gels and oozes, think about information technology." The cells of an organism are nodes in a richly interwoven communications network, transmitting and receiving, coding and decoding. Evolution itself embodies an ongoing exchange of information between organism and environment...The gene has its cultural analog, too: the meme. In cultural evolution, a meme is a replicator and propagator-an idea, a fashion, a chain letter, or a conspiracy theory. On a bad day, a meme is a virus. Economics is recognizing itself as an information science, now that money itself is completing a developmental arc from matter to bits, stored in computer memory and magnetic strips, world finance coursing through the global nervous system. Even when money seemed to be material treasure, heavy in pockets and ships' holds and bank vaults, it always was information. Coins and notes, shekels and cowries were all just short-lived technologies for tokenizing information about who owns what. And atoms? Matter has its own coinage, and the hardest science of all, physics, seemed to have reached maturity. But physics, too, finds itself sideswiped by a new intellectual model...Particle physicists did not need bits. And then, all at once, they did. Increasingly, the physicists and the information theorists are one and the same. The bit is a fundamental particle of a different sort: not just tiny but abstract-a binary digit, a flip-flop, a yes-or-no. It is insubstantial, yet as scientists finally come to understand information, they wonder whether it may be primary: more fundamental than matter itself. They suggest that the bit is the irreducible kernel and that information forms the very core of existence. Bridging the physics of the twentieth and twenty-first centuries, John Archibald Wheeler, the last surviving collaborator of both Einstein and Bohr, put this manifesto in oracular monosyllables: "It from Bit." Information gives rise to "every it-every particle, every field of force, even the spacetime continuum itself."..."What we call reality," Wheeler wrote coyly, "arises in the last analysis from the posing of yes-no questions." He added: "All things physical are information-theoretic in origin, and this is a participatory universe." The whole universe is thus seen as a computer-a cosmic information-processing machine.

Now, there is a lot to unpack there, and the book does this as well as anything I have read. But once you do the unpacking and assimilate at least the essence of Information Theory, you will be infinitely better positioned to understand everything about our current world and the trajectory of all phenomena including stocks, finance, and economics.

Information Is The New Capital

One key takeaway is that information is infinitely more fundamental than Capital. Capital is the accumulated substance of human transformative effort, which was, for about 300 years, a qualitative leap above the previously dominant organizing principle governing human affairs, which is probably best summarized as authority. But, as you can see from just the few passages quoted above, information originates in the very foundational levels of the universe itself.

Science has generally agreed for quite some time that matter is energy. But if we are interested in an understanding rooted in first principles, we must further enquire into the nature of energy. Currently, the most advanced science tends towards concluding that energy is information.

Humanity is at the juncture of mucking about with the core informational stuff of reality. And, going forward from here, absolutely everything that we do, everything that we produce, everything that we distribute, everything that we think, everything that we value will inexorably be a factor of its properties as information.

The substance of information is the new capital and the new currency of the realm, from which all other forms are derived and to which all other properties are beholden.

The Dawning of a New Era

The implication of the preceding is that a new system based entirely on information is the inevitable way forward.

At BullBear Trading, we have been anticipating an eventual very long-term secular paradigm shift in markets, economics, politics and society since the start of the new long-term bull market wave in 2011. The expectation has been for a phenomenon roughly equivalent in character and significance to that which occurred in the 1929-1949 period, marking a 70-year cycle and functionally equivalent to what Strauss and Howe described as "The Fourth Turning". In the 2017-2018 time frame, I started to project that the shift would come in 2020. In January and February 2020, I told subscribers that there were technical signals which warranted caution for bullishly positioned traders and investors. After the Dow Jones Industrial Average (DJI) printed below its October 2019 low, I told subscribers that the anticipated secular shift was upon us.

The onset of the last shift was marked by the Crash of 1929 and subsequent Great Depression, and the current shift is marked by the coronacrisis. While the past can often inform the present, it's also a reliable truth that historic cycles tend to rhyme rather than repeat. Our current "Fourth Turning" is at least as significant as the prior comparable shift, and more likely of a higher degree in that it involves a systemic shift and not just a secular shift within the context of the same ongoing system. That systemic shift is from a capital-centric system to an information-centric system.

On the one hand, we may say that the secular shift has occurred, in the sense that a "tipping point" has been reached, from which there is a forward momentum that makes any return to the context of the past paradigm impossible. On the other hand, we may also say that the shift is a process that is ongoing and yet to be fully completed and consolidated. Given the accelerating effects of technology, time is unfolding in shorter, compressed intervals, so that what may have required decades is transpiring within months or weeks.

While the 1929-1949 period was transitional in nature, giving birth to a new secular order in the course of a long labor over a protracted period of time, the birth of our currently newborn world was more sudden and akin to a c-section following a long pregnancy, with the infant system violently ripped from history's womb and spanked sharply into its first shrieking breaths by the coronapanic, economic collapse and social destabilization.

In the present context of a shift to an information-centric system, the Central Banks are shepherding the transition from the old paradigm to the new by providing plenty of liquidity for both private industry and government at zero percent interest to fund the transition to a fully automated, robotized, artificial intelligence managed economy with a UBI-supported population. New technologies will be rapidly developed and deployed over the next 10 years to a degree that the world will be almost unrecognizable. A suite of mutually self-reinforcing technologies are propagating a parabolic growth curve. Artificial intelligence and quantum computing are currently being realized as practical realities and will unlock other technologies from new materials to nuclear fusion reactors. The exponential increase in our command over information is placing absolutely transformative technologies immediately on deck for realization.

• 5G Wireless
• Internet of Things (IoT)
• Robotization
• Automation
• AI assistants
• Blockchain applications
• Artificial intelligence
• Quantum computers
• New materials (graphene, etc.)
• Fusion reactors
• Nanotechnology
• Gene editing medicine
• Brain-computer interface (BCI)
• Transhuman augmentation
• Space mining

While to the uninitiated this may seem like hyperbole, it is not. There are plenty of resources from authoritative science and corporate sources that verify that the information-centric, technology revolution is upon us now. Watch this video with Director of IBM Research Dario Gil:

The Future of Quantum Computing with IBM's Dario Gil

This brief video gives a beginning sense of the breakneck pace and awesome scope of robotization, automation, and artificial intelligence management.

What Is Industry 4.0?

The accumulation, control, manipulation, distribution and consumption of Information is the new currency of the realm and the new capital. It is becoming clear that we need to look at our world and our economy and the financial system as a flow of information, not a flow of capital. If we change our perspective in this way, much that does not make sense begins to come into focus.

Nasdaq 100 (NDX), the largest capitalization issues in the Nasdaq, is already well above its January 2020 all-time monthly closing high and still well within its trend channel from 2009 and well above the key bull market support of its 50-month Exponential Moving Average (in blue).

Obviously, this chart is not pricing in an economy that is in a depression from which it is unlikely to recover quickly, a society that is in a state of anarchy with an actual attempt at revolution in progress and a world that is in a de-facto state of asymmetrical, 4th Generation war between its two biggest powers. If these objective facts are not part of the equation, the price of NDX must be reflecting something else. It is reflecting the systemic shift to an information-based socioeconomic order.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[denkrak]

We are all doomed

[43933]

valiant - bad computer.

[43933]

I have been fascinated by your insights in articles past and present - thank you. This one however is a valiant attempt at understanding change, but is badly interpreted. This is not directly the fault of the author, as he can only be as good as the information he uses. And there in lies the problem, his sources are a cadre of the incompetent. I won't explain further as it would take to long, however these explanations are available on the net and unfortunately most will never explore them. Suffice it to say, that Tesla referred to Einstein as an idiot, and he was indeed right. Yes, it all starts that long ago.

[Daniel Reem]

Thank you @BullBear Trading for your thought-provoking article. A well-known saying says that knowledge is power. In your article you have demonstrated rather convincingly that information is power as well. Happy Independence Day (if you are an American)!

[BullBear Trading]

Thanks for your comments and thanks for reading Daniel. I'm in the process of building this out with a series of blog posts, which I think will evolve into a book.

Have a great Independence Day! Celebrate!

[montybrewster]

What a masterful summation of the intersection of the secular shift in markets with the systemic shift to Information! The shift from a capital-based paradigm to an information-based paradigm is a thought provoking concept to contemplate insomuch as we're in the system, therefore, our ability to objectively observe and predict the system's possible futures is near impossible since we are subjectively bound to the system. The Sovereign Individual addresses the dawn of the Information economy/society, but to an unsatisfactory conclusion in my opinion. Perhaps it is my failing, but I remain unconvinced that the use of force to compel adherence to any system will ever be completely phased out of a human society barring our universe being predetermined and computable by some benevolent AI.

In terms of actionable intelligence, based on what I read into your piece it appears that 1) big tech may offer the best long-term (10yr+)potential equity returns, 2) that we should to hedge against potential intermediate-term (5-10yr) inflationary pressure due to monetary and fiscal policy by central banks and 3) that cash may be king in the short-term (1-5 yrs), which includes opportunistic trades, until we gain clarity regarding both the secular and paradigm shifts underway. Is this a fair summary of actions you recommend?

Again, thank you for sharing your thoughts.

[BullBear Trading]

Thanks for your comments and thanks for reading!

[BullBear Trading]

Keep in mind that the process of coming to terms with and arriving at a workable analytical framework for the emerging Information-based economy is in its first inning. The above is barely scratching the surface. Some economists such as Stiglitz have done work in this direction. But he is rabidly anti-capitalist and pro-socialist, so his work is very biased and lacks objectivity. He has an agenda. I am trying to take a phenomenological approach, looking at it as an emergent phenomenon.

I think most analysts are struggling mightily to come to terms with what is going on in the legacy financial system since they are applying methodologies that apply to capital-based systems but not necessarily to the new information-based system. So there is a lot of cognitive dissonance.

[BullBear Trading]

Yes, I think Big Tech is really going to be the ticket. People are freaking out about the concentration of capitalization of over 20% of SPX in the big five tech stocks. They say that guarantees an implosion. I say that would be true if we were in a market-driven, capital-based system, but the fact that it does not matter and will not matter is proof that we have seen a systemic shift. I also think that the real reason why the Fed has now gone nuclear is that it is providing liquidity to speed the transition to technocracy. That includes making sure that there is plenty of liquidity for every tech unicorn out there. There is bound to be a new gold rush into every nook and cranny of the new technocratic infrastructure, including the areas I list in the article. So aside from the Big Cap Techs, there are going to be many opportunities in startups and IPO's. The transformation is going to be blindingly rapid. While the technocratic, information based economy explodes, though, many areas of industrial economy and service economy are going to simply be wiped out. Fast.

[JonSchafferGallop]

Thank you once again for your thoughts. Your posts introduced me to Strauss and Howe's books and generational theory, and also gave me the push to discover Patrick Wood's Technocracy Rising. Now I am going to order Gleick's book, but I am gobbling these books up and will need more to read soon. Do you by chance have a recommended reading list you could share? You are introducing me to many new and fascinating concepts that I might never have found on my own and I would like to continue that. Keep up the great work!

[BullBear Trading]

Thanks very much for your comments and thanks for reading!

[BullBear Trading]

The original Technocracy magazine is very interesting.

www.historyonthenet.com/...

[BullBear Trading]

Right now I am diving into Joseph Stiglitz, but he is rabidly anti-capitalist and pro-socialist and is really an architect of Technocracy. But it is important to understand his work on information economics because it provides much of the framework for the new system.

[Mevo]

The beginning was actually quite interesting. After that, you lost me several times (even if I still pushed to the end).
"deflation, which we can read as the accelerating tendency towards the degradation of the value of capital": I will say that I disagree, but I even think this is definitely wrong. This could probably be true for inflation. But I don't think deflation "degrades the value of capital", quite the opposite.

I believe you may have used the wrong concepts (of inflation and deflation) for what you had in mind. Also, keeping on OPPOSING information and capital seems odd to me. Always making as if information was replacing capital seems quite silly to me.The importance of information, that most growth will be information based, and all you want, sure.

"a new system based entirely on information is the inevitable way forward."
So we will eat information, shelter with information, pay for our morning coffee at starbucks by telling a secret (giving information) ? Oh no, my bad, we won't drink coffee anymore, we'll drink information ;)

[BullBear Trading]

Thanks for your comments and thanks for reading.

[BullBear Trading]

This is just an outline and everyone is just in the early stages of coming to terms with this shift. By necessity it is very condensed, but I do hope to unpack much of what is written above in future articles, as well as expect to revise things as I go. Yes, I am definitely redefining terms, such as inflation and deflation. These are phenomena that are very poorly understood, even in the context of capitalism. On the other hand, I may end up doing better to choose a new lexicon, since terms like inflation and deflation carry so much baggage, leading to confusion.

[BullBear Trading]

We don't eat or drink capital either. Capital and Information are, I think, best considered to be the blood of their respective systems. They are the systemic substance. And yes, they do have substantially different origins and properties. Capital originates from the value produced in material transformative processes. It also originates from intellectual knowledge about such processes. It can be represented as financial instruments but cannot be created by finance. Financialist tools such as debt, stock markets, fiat monetarism etc do not create capital, they merely circulate it and amplify its effects. And provides financialists with the opportunity to "skim" capital from the system.

Information originates from a higher order of abstracted knowledge about material and intellectual processes and interactions. Data about the production, distribution, consumption and disposition of any material or non-material product, process, intellectual property, bit of knowledge, idea, meme, thought, feeling or about the dynamic interaction of all of these (and more) is the substance of the new Information-based economy. Understanding this would involve thoroughly entering into consideration of the processes and complex interactions of creation, collection, storage, collation, processing, distribution and consumption of Information. It's abundantly clear that this is the vital stuff of the new economy, and that it's of another order and a different substance than capital. I'm not the only one saying that. There are many who are working in that same directions, across many disciplines. Glieck's book is a good place to start.

It is challenging because we are now required to reframe everything in the light of a new understanding. We can all be forgiven if we would prefer to keep looking at the world through the same lens that we have. Problem is it is not going to work. Analysts are struggling to make sense out of what is happening now precisely because they cannot come to terms with the shift that I am attempting to describe here.

[JamibleLector]

Fascinating work!

[BullBear Trading]

Thank you sir and thanks for reading.

[jprizzuto]

way to much information in this post.
can you please just stick to trading.
as in- how can i make money over the next few weeks!

[Windy Hill]

@jprizzuto -- Not everybody on SA is a trader. And this is far better than the annoying political s%$* we seem to be getting more and more of here from the Twitterverse!

[jprizzuto]

@Windy Hill - lol, definitely better then the political s%$*

[BullBear Trading]

Actually this information is vital for the trader. If you continue to frame the world through the lens of the old system, using methodologies that applied to capitalist economics and markets that basically no longer exist, then you are bound to have trouble trading! This very understanding has kept me and my members at BullBearTrading long consistently from the bottom.

[Windy Hill]

Actually, intellectual property is the new capital.

[Windy Hill]

Expanding a bit --- "information", meaning content, is important: this includes movies, music, twitter feeds and all the way to consumer purchase histories and heart rates, and IOT sensors reporting real-time health of a machine tool or aircraft engine and most of this is IP. But IP also includes drug patents, proprietary algorithms and other inventions whether patented or "trade secrets." Creating this IP costs money -- human labor and, yes, capital. But re-creating it (producing copies of the original) is very low cost--practically negligible in terms of capital or labor costs. By contrast, human services -- doctors, lawyers, consultants, and the like -- have non-negligible marginal costs: they don't scale. The return for replacing any human service with a zero-marginal-cost AI is very, very, very large.

While it is true that physical goods requiring physical capital for raw materials and having more or less constant marginal cost to reproduce are not going to disappear, their importance in the overall economy is steadily declining. And that's not just because information-based services are growing more rapidly, but also because inventive people are finding ways to substitute information for physical goods. A current example--driven more by necessity, to be sure--is the substitution of "virtual meetings" on Zoom and the like for face-to-face collaboration requiring office space and commuting or business-travel equipment (public and private transportation goods.) And cameras and flashlights? Mostly replaced by a few circuits in your smartphone.

So physical capital will not disappear but will decline, although physical robots will replace labor for jobs requiring physical action. and eventually we'll start building space colonies and terra-forming Mars. Financial capital will be needed--to pay people to create IP. But here the picture gets murky. What if more and more "creative" work --that done by scientists and entertainers and engineers-- is produced by AI? And what if AIs themselves are able to create and "train" other AIs? Who ends up owning all that value?

[BullBear Trading]

Thanks for reading and commenting

[BullBear Trading]

You are looking at "Intellectual Property" as Information Property, but that is not what I am getting at. That's really a subtopic in microeconomics. I'm looking at Value as the underlying property of what an economy does. The entire problem of Economics is a lack of a well-founded theory of Value. What changes over time, throughout history, is the mechanism by which Value is generated. I'll be getting more into the details of that in my next post.