Jakub Growiec, Julia Jabłońska, and Aleksandra Parteka
Introduction
In any conceivable technological process, output is generated through physical action requiring energy. It is a local reduction of entropy, and as such it does not occur by chance but is purposefully initiated. In other words, producing output requires both some physical action and some code, a set of instructions describing and purposefully initiating the action. Therefore, at the highest level of aggregation the two essential and complementary factors of production are physical hardware (“brawn”), performing the action, and disembodied software (“brains”), providing information on what should be done and how
This basic observation has profound consequences. It underscores that the fundamental complementarity between factors of production, derived from first principles of physics, is cross cutting the conventional divide between capital and labor. From the physical perspective, it matters whether it’s energy or information, not if it’s human or machine (Figure 1). For any task at hand, physical capital and human physical labor are fundamentally substitutable inputs, contributing to hardware: they are both means of performing physical action. Analogously, human cognitive work and digital software are also substitutes, making up the software factor: they are alternative sources of instructions for the performed action. It is hardware and software, not capital and labor, that are fundamentally essential and mutually complementary
Based on this observation the current paper develops a new macroeconomic framework for modelling aggregate production and long-run economic growth. We then demonstrate how it squares with historical data for the U.S. in 1968–2019 and what predictions it provides for the future.
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