The world has just entered one of the biggest transitions in history.

That’s the contention of two MIT economists, Eric Brynjolfsson and Andrew McAfee.

In their recent book, The Second Machine Age, they argue that big data, computation, and innovation are changing our economy and institutions with a magnitude greater than almost anything ever seen in history.

We’ve entered the second machine age.

To understand the importance of this new age of data and computation, they offer a comparison to a prior historical time period: the first machine age. The importance of the first machine age can be encapsulated in a graph:

human-social-dev_graph

Take a look. On the x-axis, we have time, from about 8000 BCE to present. On the y-axis is a metric called the “human social development index,” a metric for quantifying “a group’s ability to master its physical and intellectual environment to get things done.” (We’ll set aside the challenges and risks associated with quantifying human progress with a single metric. For more information on this metric, see Why the West Rules—for Now by Ian Morris.).

It’s immediately obvious that in terms of development, nothing really happened for a long, long time. Through history, human development was relatively stagnant. Keep in mind, the time period for this graph includes the invention of writing (around 3000 BCE), the Axial Age (around 500 BCE), the emergence of several major civilizations (the Chinese, the Greeks, the Romans, and several others), and the invention of the printing press (around 1440 CE). Although we think of these other events as extremely “important” in human history, none of them really effected human development. If we simply look at human development — the ability of humans to affect their environment and perform work — none of these events had much of an effect at all. For almost all of human history, human development was stagnant.

Then, something happened. There was a massive, staggering, exponential change.

Human development skyrocketed.

What was the cause?

The steam engine.

The steam engine changed the world

James Watt introduced the first version of the Watt engine around 1775/1776. Prior to its introduction, there had been other engines and devices similar to the Watt engine, but they were largely inefficient. These earlier engine designs only captured and utilized about 1% of the energy from the coal that they burned. The Watt design, however, was a breakout innovation that enabled much greater efficiency. This increase in efficiency enabled more energy to be harnessed as mechanical power.

The rest, as they say, is history.

watt-engine-and-history

Watt’s engine ushered in what Brynjolfsson and McAfee call the “first machine age.”

In this new age, the steam engine (and associated technologies) allowed humans to overcome their physical limitations. New mechanical technology both substituted for, and enhanced human physical abilities. This in turn gave humans more power to directly effect the world around them, leading ultimately to a dramatic rise in wealth and standards of living.

The key point is that the introduction of the Watt engine “bent the curve of human history”. It dramatically changed human development. In fact, if we are to take this chart at face value, the introduction of the steam engine was the most important event in history.

Data and computation will change the world again

Brynjolfsson and McAfee argue that we’ve now entered a second machine age: an age defined by computational technologies instead of mechanical ones. They contend that just as the steam engine transformed our ability to do physical work, computers, digital tech, and AI will transform our ability to do mental work. Just as the first machine age enabled humans to overcome their physical limitations, the second machine age will help humans overcome their mental limitations.

By analogy, Brynjolfsson and McAfee predict that human development is going to experience another dramatic, exponential increase. The curve of history is going to bend. They predict that we have just now entered another profoundly transformative period of history that will be driven by data, computation, software, and other advanced technology.

Computers and other digital advances are doing for mental power … what the steam engine and its descendants did for muscle power.

– Brynjolfsson and McAfee, The Second Machine Age

They argue that progress is driven at least as much by cognitive factors as physical ones. So as we increase cognitive power using computers, software, and data, we are going to create another leap in human progress.

Keep in mind that this isn’t something far off in the future.

The second machine age is here. It has already begun.

Current examples of second machine age technology

The second machine age has already begun.

Take a few recent developments:

Self driving cars

For a few years now, news outlets have written articles about the emergence of self driving cars. Google has been working on a self-driving car for several years (and if you hang out in Silicon Valley for long enough, you might just see one on the road). Besides Google, there are confirmations (and rumors) of several other companies that have self-driving automobiles in development: Apple, Uber, Volvo, BMW, and others.

Perhaps the biggest recent news, is Tesla announced that all Tesla cars being produced now have self-driving hardware. Think about that. “Self driving cars” were a bit of a tech-fantasy just a few years ago. If you mentioned it to someone outside of the tech industry, they scoffed. Today, it’s reality.

AI personal assistants

We also have personal devices with mild forms of intelligence.

Take Siri. Apple’s Siri, though imperfect, has the ability to field questions for you.

There are other tools that exist (or are rumored to be in development) at places like Google, Microsoft, and the other tech giants that will enable better “personal assistant” type functionality.

Watson

There’s also Watson.

Watson is a “question answering computer system” that completed on Jeopardy in 2011. It absolutely crushed its competition – two of the best Jeopardy champions in history. This wasn’t even a fair contest.

These are just a few examples. This is just the beginning.

The “cognification” of everything

Kevin Kelly – former Wired editor and technology writer – has recently argued that we’re going to “cognify everything in your life that is already electrified.” We’ll be adding intelligence to nearly everything. Ultimately, we’re going to live in a world that has intelligence built in.

The business plans of the next 10,000 startups are easy to forecast:
Take X and add AI.

– Kevin Kelly

The Second machine age is here. We now have the tools and technologies to dramatically augment human mental abilities through computation and analytics. We now have the ability to “cognifiy” objects … to build intelligence into them.

Kevin Kelly offers another analogy: in the first machine age, innovators took everyday objects and re-invented them by adding mechanical power and electricity. (For example, Edison re-imagined the candle as the light bulb. He took an everyday object and re-invented it by adding electricity.) Similarly, in this new age, innovators will take everyday objects and add artificial intelligence.

And it’s already happening. Self driving cars, intelligent assistants, websites that know your preferences (and make suggestions). We are “cognifying” everyday objects. We’re now making objects more intelligent through data and computation.

Staggering wealth will be generated in the second machine age

Ok. So what?

Smart toasters. Cars that drive you to work (so you can sleep on your commute). Devices that answer quiz-show questions.

Who cares?

Let’s go back to the graph we saw at the beginning of the post.

watt-engine-and-history

The ultimate conclusion we can draw from this graph is that the introduction of the steam engine radically improved human social development.

But that’s really just a fancy way of saying that the first machine age dramatically improved our standards of living. To simplify even further: the first machine age generated huge amounts of wealth.

Ultimately, the introduction of the engine caused a dramatic increase in productivity. This allowed humanity to produce more goods and services. If we take wealth to be the amount of goods and services available to people, we can say that the first machine age made humans wealthier. In fact, if we’re to infer anything from the above graph, the first machine age made humanity dramatically wealthier.

And it wasn’t just that humans on average became wealthier. Individuals amassed huge fortunes on the basis of these new technologies. The people and organizations that mastered the technologies of the first machine age generated massive amounts of wealth (e.g., Ford, Edison, etc). They generated more wealth by creating new products and services. And at the same time, they captured some of this wealth. So, these technologies not only made humanity materially better off (in general), but it generated tremendous fortunes for individuals (in particular).

The second machine age will be very similar. According to Brynjolfsson and McAfee (and many other people who support their analysis), humanity is going to experience another exponential shift in wealth and human development. We may not be able to fully foresee how this transition will play out, but it is very likely that the dramatic increase in artificial cognitive power (from software, machine learning, etc) will enable a new round of massive wealth generation.

We’re already seeing this. Just look at the tech giants like Apple, Google, Amazon. They’re dominating their industries and generating huge profits because they have already begun to master the technologies of the second machine age. They have mastered data science, software development, machine learning (and several others). And, they’re reaping the rewards.

The second machine age is a tremendous opportunity

So, why should you care?

If you want to change the world, and you also want to generate wealth, this is it. This is one of the greatest eras of wealth generation in history. We’re living in it.

For all of the criticisms of Silicon Valley hype and “change the world” hyperbole, you really will have an opportunity to “change the world.” This age is likely to be every bit as transformative as the first machine age. If you master the skills of this new age, you’ll be able to create and capture tremendous value. Moreover, you might not even need to build a massive corporation to generate and capture wealth. Increasingly, small companies such as Instagram are generating huge value with very small teams.

You were lucky enough to be born at a time where you will be able to change the world … if you’ve mastered the right skill set. You will able to generate (and capture) large amounts of wealth, if you master the skills of this new technological age.