Knowledge Economy vs. Physical Economy

When people discuss a knowledge economy they are most often referring to an intangible resource.  This includes things like the information and skill sets a person possesses. It is sometimes difficult to put a monetary value on these kinds of goods because you cannot see them. There is no clear list of ingredients or resources that have gone into giving this person their skills or information they have.

In contrast, a physical economy is one in which they goods are tangible. You can touch, see, hear, and even smell them. A product can be looked at and it can be determined what went into the creation of that product.    It is much easier to assign a value to things in a physical economy.

A knowledge economy can include things such as: the people a business employees and the specific skill sets those employees bring to the table, the information regarding what goes into making their product, or even a service offered. A physical economy could be things like the computers those employees use or the actual product the company makes. These things can wear out over time or become obsolete.

In a knowledge economy information can be shared easily or it can be kept a secret if a company wishes to maintain a competitive advantage or keep the details of a product protected. Oftentimes, the knowledge economy and the physical economy overlap. It takes knowledge to create a physical product. The specifics that go into making Coca-Cola's soft drink are only known to a select few. By keeping that information under-wraps it allows Coke to produce a unique product that is not easily replicated. Without the information that goes into creating a certain product, that product cannot exist.

In a knowledge-based economy the emphasis is put on intellectual property as opposed to goods produced. A good example of a knowledge-based economy would be an auto-repair shop. It wouldn't be difficult for a person to obtain many of the same tools used in repairing cars, but without an intimate understanding of what goes into making a car run or not run, that person can't effectively use those tools. The price of knowledge is based on its value to the customer and when it is sold, the seller still retains possession and can easily sell again, without limit.

In a physical economy there is more concern with a good being produced rather than a service being offered. A physical economy includes everything from the T.V. you buy, to the food at the grocery store, to the clothes you wear. These are all tangible things; you can touch and see them. The price of these items is calculated by simply factoring in the costs of all the physical items that went into making it, along with various other production costs like labor. When you buy an item from the physical economy, it changes hands and the seller no longer controls it.

In all cases though, it takes the knowledge economy and the physical economy working hand-in-hand to accomplish things. Without knowledge of how to make a physical product that product won't exist. Without the physical tools needed for car repair, the mechanic will not be able to use his knowledge to fix the car. All things have been created by someone or a group of people using the information they possess and applying it to the real world.