“As soon as a creature is born or a new phenomenon is revealed, we become overwhelmed by the compelling urge to measure its growth”.

“When we become able to measure all that we talk about and express it in figures, we then form some knowledge about it. However, our failure to do so renders our knowledge of it scarce and insufficient”.

The significance of knowledge economy has remained blurry due to the lack of precise principles and testable and measurable standards that can determine the value of information and services. Knowledge is not subjected to the laws of nature in matter preservation and is thus rather abstract and difficult to measure. When it comes to knowledge, the whole is greater than the sum of its parts, in the sense that the value of a thing increases with knowledge, not effort. What we need today is a theory that runs similarly to Marx’s labor theory of value and suggests that ‘knowledge is the basis of value’. The new landscape of economy is in dire need of a theory that permits the use of clear-cut statistics capable of answering the following questions: How large is the size of knowledge economy? How large are its elements? How do we assess its performance? Where and how fast does it grow? Does investment in knowledge surpass investment in material capital despite the voices claiming that the description, comprehension and measurement of knowledge can never be complete?

Fritz Machlup was among the first to study the economy in the post-industrial era. Contrary to his peers and predecessors, he challenged the belief that the economy in its current phase was no more than a regular economy under a different name. Hence, he embarked on charting a comprehensive statistical image of the industrial sector and published his study in 1958. His estimates proposed that by 1959, knowledge-producing professions would outshine all other professions in terms of their GDP contribution, which he set at 29%. Although Machlup did not live long enough to complete his study, many after his death adopted his approach.

The US government entrusted Mark Porat with the completion of the mission. His pioneering study appeared in 9 volumes (1967-1977) that included, in addition to the information activity, the industries and professions whose primary role is to produce, process and distribute information that is economically valuable. Hence, he studied the size and the structure of the US information economy in a new and unusual manner.

To measure the size of the information economy, Porat divided the economy into two different, yet non-separable sectors. The first revolved around the transformation of matter and energy from one form into another and the second around the alteration of information from one pattern into another. The latter was called the information economy.

Porat defined information as the data that has been organized and exchanged. As for information activity, he described it as inclusive of all the manpower, machinery, goods and services used and manipulated in the processing and distribution of information.

He later distinguished between the two sectors, listing under the former the industries that generate goods and services and under the latter all information activities added to the production process.

The most significant activities itemized within the first sector are knowledge invention and production, research and development, special information services, information distribution, dimensional services and telecommunications, insurance, data processing and information products like calculators, computers and semiconductors. On the other hand, the second sector includes all information services produced for local consumption by the government and non-information companies.

Porat realized that the first sector’s GDP has jumped from 19.6% in 1958 to 24.8% in 1972, while that of the information sector has increased from 23.1% to 24.4% during the same period.

Porat examined over 440 professions belonging to 220 industries and determined all information tasks therein and their contribution to the GDP, excluding all the jobs that might have a controversial status. He then estimated that they account for 21% of the GDP, meaning that both sectors have contributed by 46% and over 53% to the GDP and the revenues respectively.