Knowledge economics

Knowledge economics is the study of knowledge as a commodity.

Knowledge first came into prominence in economics with the paper written by Friedrich Hayek in 1945 entitled "The Use of knowledge in Society".[1] Though bringing knowledge into prominence, the paper hardly attempted to touch knowledge as a commodity. A true attempt to study knowledge as a commodity was attempted by the economist Fritz Machlup with what was then considered a ground breaking book The Production and Distribution of Knowledge in the US.[2] Machlup would spend most of his life studying knowledge. However, like Hayek, a fellow Austrian School economist, Machlup failed to realize that knowledge is the creator of goods and services.

Knowledge would become mainstream with the introduction of the internet. By 1997 notable works such as "Innovation Strategy for the Knowledge Economy"[3] by Debra Amidon would herald new importance for the knowledge economics, as now scientific attempts are being carried out to understand knowledge. She would make important contributions to the understanding of knowledge as a commodity. Debra Amidon was probably one of the first thinkers to realize that the knowledge base is the most important resource a country has because everything come from knowledge.

Other notable early pioneers where the likes of Dr. Tom Malone of MIT, would be formidable forces in enlightening society about knowledge. But they still missed the key point, though Debra hit it on the nail in 1987, knowledge is a commodity, a tool for identifying all other commodities and creating goods and services.

It was Bhekuzulu Khumalo in his book "The Fundamental Theory of Knowledge", who would analyze knowledge first and foremost as a commodity. Bhekuzulu understood that to ever analyze knowledge as a commodity first knowledge had to be unitized, he came out with a unit of knowledge and called it a knowl. Once unitized one could then attempt to measure knowledge. He would show the theories of the late 1990's about measuring knowledge to be wrong because of starting from the wrong premise. For example, the market based methods of measuring knowledge would start from the premise that the more one earns the more more knowledge they have. What if one is laid off, or fired does it mean suddenly they have no knowledge. Again take the market capitalization scenario, that market cap over and above the assets is equal to knowledge, what if company closes, extreme situation but market prices change everyday does that mean the amount of knowledge a company has changes everyday, and why should it just apply to 'new age companies' what about mining companies, does their knowledge rise and increase with the changing commodity cycle.

Knowledge needed its own units to be understood, from there one can then say how many knowl one has, and Wassily Leontief's techniques could be used to measure knowledge by simple addition.

Khumalo's contribution to knowledge economics would be to introduce a unit, measure knowledge with some accuracy because of the unit of knowledge[4], demonstrate the effects of knowledge on time, a concept first brought out by Machlup, he called it the half life of knowledge, demonstrate the behavior of knowledge in the short and long term as one could look at the behavior of any other commodity in the short and long term, essentially in short term knowledge is logarithmic and in long term exponential, once the behavior of something is known it can be predicted, before it can be predicted we must know how much we have it must be unitized. When it can be predicted and can be managed more effectively than if we do can understand how it behaves.

Understanding knowledge as a commodity allows one to understand that knowledge is a scarce commodity like any other commodity. In a competitive environment new knowledge is needed, this is scarce, old knowledge however can almost be distributed at low cost. New knowledge is very scarce, knowledge is still a commodity and commodities are scarce Given the scarcity of new knowledge how should the firm compete, how should society react given that knowledge is becoming more predictable. Moore's law [5] is an example of the predictability of knowledge.

The key to understanding knowledge economics is that even in 5 000 BC Egypt, it was knowledge that created goods, to farm requires knowledge, to hunt requires knowledge, our life, our existence has always depended on knowledge, the knowledge economy did not just suddenly appear in the 1990's. New knowledge is just not as scarce now as say for Hunter gatherers who had new knowledge coming maybe once every 100 years. The more economically developed a society the less scarce is new knowledge due to competition, the Egyptians, used the Nile the same way for thousands of years, new knowledge was scarce.