Economics of knowledge

Linux Fund Visa Card. Photo Credit: Wikimedia Commons

In the last decades there was an effort in Europe to build a society of knowledge in order to move the economy based on the production of physical goods to an economy more based on the production of high added value services. We can think that providing value with knowledge is something new, however, this is as old as mankind. You can remind the old proverb: “Give a fish to a man and he will be able to eat today, teach him to fish and he will be able to eat always”.

This proverb resumes the value of knowledge and a service based economy. Knowledge makes production renewable. It is an additional production factor not considered in classic economy (as capital, workforce and raw materials), because it is considered a characteristic of workforce or something embedded into machinery got with capital. In modern economics, it is included as a production factor under the name of technology. Technology is not any kind of knowledge, it is a kind of knowledge that has industrial application, or in other words, that supports production. People far from economic activity usually think that technology are computers, however, technology is any kind of knowledge known by a group of person, procedures or embedded into machinery that is used for production.

In economics, power is related to the production factors, and it is not related to the managing staff.  Managing staff has power because they have the control of the production factors, especially of capital that can be used to get any of other ones.

An economy of knowledge is an economy where the most important production factor is technology, not as capital goods but as knowledge used to build those capital goods. In an economy of knowledge money is secondary. Money lets to buy capital goods; however, knowledge enables to build them. Going back to the ancient proverb, money enables to get a fish and knowledge enables to fish every day. Money is better used as an investment instead of as expenditure.

The Spanish philosopher Ortega y Gasset thought that money does not provide power. He thought that rich people have not got power due to the money but they have got money due to the power. Money moves from people without power to the people with power in a natural way. This is the way as any economy runs. Money moves from the people without production power to the people with production power. Money moves from the customers to the people who owns the production units and from here it moves towards those people who control the production factors.

Political power gets money when the policies interfere economy. This is common in any society because modern governments have assumed the responsibility to control the evolution of the economy in their societies to avoid what economists known as market faults (those natural and common things that put markets far from a perfect competition market). If it has power on the production, money will move towards political power. From an economic viewpoint, this fact is only acceptable if political power provides value to the system. It is usually done because political power is supporting a stable society that makes more efficient the production system.

A political organization where the force of the political power is used to destroy the productive system in order to attract money that should move towards technology is unacceptable not only from an ethical or economic viewpoint but from a social viewpoint too because technology, as the ancient proverb shows, is the support of a renewable economy or, in modern words, the support of a sustainable economy.


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