The Paradox of Cheap Compute

In 1961, if you wanted to perform one billion floating-point calculations per second—one gigaflop—you would have needed to spend approximately \$18.7 billion. Today, that same computational power costs about two cents. That's not a typo. The cost of compute has fallen by a factor of nearly one trillion over sixty years.
A floating-point operation is simply a mathematical calculation involving numbers with decimal points—the kind of math that powers everything from spreadsheets to video games to weather simulations. When your computer renders a 3D scene, calculates a mortgage payment, or trains an AI model, it's performing millions or billions of these operations every second. The "FLOP" has become the standard yardstick for measuring computational power, and tracking its cost over time reveals one of the most dramatic price collapses in economic history.
You might expect that as something becomes a trillion times cheaper, we'd use less of it. After all, we don't need as much anymore, right? But that's not what happened. Not even close.
Instead, humanity's consumption of computational power has exploded beyond anything the pioneers of computing could have imagined. We went from a world where only governments and the largest corporations could afford to compute, to a world where the phone in your pocket contains more processing power than all the computers that existed in 1960 combined—and we still want more.
This phenomenon has a name: Jevons' Paradox.
The Coal Question
In 1865, the English economist William Stanley Jevons published The Coal Question, in which he made a counterintuitive observation. As steam engines became more efficient at converting coal to useful work, coal consumption didn't decrease—it increased. Dramatically.
Jevons' reasoning was elegant: when something becomes more efficient, it becomes more economical. When it becomes more economical, people use it for more things. New applications emerge that weren't feasible before. The efficiency gains are swamped by the explosion in demand.
"It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption," Jevons wrote. "The very contrary is the truth."
What Jevons observed about coal in the 19th century applies with uncanny precision to computation in the 20th and 21st centuries. Every order of magnitude drop in the cost of compute has triggered an explosion in what we use it for—from calculating artillery trajectories to streaming video, from running payroll to training artificial intelligence.
Let's trace this paradox through the history of computing.
The Era of Scarcity: 1960s-1970s
The first electronic computers were, quite literally, priceless—not because they were invaluable, but because there was no market for them. ENIAC, completed in 1945, cost about \$400,000 (roughly \$7 million in today's dollars) and consumed 150 kilowatts of power. It was built to calculate artillery firing tables for the U.S. Army, and it remained in military hands.
By the early 1960s, commercial computing had arrived, but it remained extraordinarily expensive. The IBM System/360, announced in 1964, represented IBM's famous "\$5 billion gamble"—the largest privately funded commercial project in history at that time. The smallest System/360 Model 30 rented for \$2,700 to \$20,000 per month; more powerful configurations could cost \$115,000 monthly.
At these prices, computing was rationed. Universities developed time-sharing systems that allowed dozens of users to share a single machine, each getting small slices of processor time. Programmers submitted jobs on punch cards and waited hours—sometimes days—for results. Computing cycles were tracked and allocated like a precious resource.
The machines themselves were monuments to computational scarcity. A computer room required raised floors for cooling ducts, dedicated electrical systems, and climate control. The IBM 7090, the fastest computer of the early 1960s, performed about 100,000 floating-point operations per second and cost millions of dollars. To achieve one gigaflop of performance in 1961, you would have needed to operate roughly 10,000 such machines simultaneously—an impossibility even for governments.
The CDC 6600, designed by Seymour Cray and released in 1964, claimed the title of world's fastest computer with performance of up to 3 megaflops—three million floating-point operations per second. It cost \$9 million, roughly equivalent to \$90 million today. At that price, a single gigaflop of sustained performance would have cost \$3 billion. Only a handful of institutions could afford one: national laboratories, major research universities, and aerospace companies working on space programs and defense contracts.
Yet beneath the surface, miniaturization was beginning its relentless march. The transistor, invented at Bell Labs in 1947, had replaced vacuum tubes. In 1958, Jack Kilby at Texas Instruments and Robert Noyce at Fairchild Semiconductor independently invented the integrated circuit, putting multiple transistors on a single chip. In 1965, Gordon Moore made his famous observation: the number of transistors on an integrated circuit was doubling roughly every two years.
The implications were staggering. If transistor density determined computing power, and density was doubling every two years while costs remained roughly constant, then computing was about to become very, very cheap.
The Microcomputer Revolution: Late 1970s
The microprocessor changed everything. Intel's 4004, released in 1971, put an entire CPU on a single chip. Its successors—the 8008, 8080, and eventually the 8086—brought enough processing power to enable a new category of machine: the personal computer.
In 1977, the trinity of the Apple II, Commodore PET, and TRS-80 brought computing to the home. These machines cost between \$600 and \$1,300—expensive, but within reach of middle-class families. For the first time, ordinary people could own a computer.
The Apple II is a useful marker of the era's economics. Priced at \$1,298 for a base configuration, it offered roughly 0.5 MIPS (million instructions per second). By our gigaflop metric, that works out to roughly \$100 million per GFLOP—still astronomical, but already three orders of magnitude cheaper than the mainframe era.
This first Jevons moment transformed computing. When you had to rent time on a shared mainframe, you used it for serious business: scientific calculations, financial modeling, database management. But when you owned the machine outright, you could use it for anything.
VisiCalc, released in 1979 for the Apple II, demonstrated the power of cheap ownership. Dan Bricklin and Bob Frankston created the first spreadsheet program—a concept that simply didn't exist before. Accountants and business planners who would never have rented mainframe time bought Apple IIs specifically to run VisiCalc. The software created its own demand, and that demand consumed the newly affordable compute.
This pattern—the "killer app" that justifies hardware purchases and consumes available resources—would repeat throughout computing history. Games appeared immediately. Atari and Commodore built empires on entertainment software. Educational programs promised to teach children everything from typing to calculus. Each application justified the purchase of hardware, and each new user created demand for more software.
New applications emerged that no one had anticipated. Hobbyists wrote software for fun. Children learned programming. Bulletin board systems connected users over phone lines, creating the first online communities—the proto-internet. Word processing moved from dedicated Wang machines to general-purpose computers, democratizing document creation.
The machines were also shrinking. The Apple II contained about 14,000 transistors and fit on a desktop. The mainframes it aspired to replace filled rooms. This miniaturization wasn't just about convenience—it was about cost. Smaller meant cheaper to manufacture, cheaper to ship, cheaper to operate.
The IBM PC and the Clone Wars: 1980s
When IBM entered the personal computer market in 1981, it conferred legitimacy on an industry that many had dismissed as a hobbyist toy. The IBM PC wasn't technically superior to its competitors, but it carried the IBM name—and in corporate America, "nobody ever got fired for buying IBM."
More importantly, IBM made a fateful decision: it published the technical specifications of the PC and used off-the-shelf components. This openness, unusual for IBM, enabled an explosion of compatible clones. Compaq, Dell, and dozens of others built machines that ran the same software as the IBM PC, and competition drove prices down relentlessly.
The result was the second Jevons moment. When only IBM made PCs, prices stayed high. When everyone could make PCs, prices collapsed. By the end of the decade, a capable PC could be had for under \$1,000.
The Intel 80386, released in 1985, was the first mass-market 32-bit processor. It could address 4 gigabytes of memory—far more than anyone could afford to install at the time—and ran at up to 33 MHz. By 1990, a 386-based PC cost roughly \$2,000-3,000 and delivered performance that would have cost millions a decade earlier. The cost per GFLOP had fallen to roughly \$1 million.
Corporations responded to falling prices by putting a computer on every desk. In 1980, the concept of "one computer per worker" was absurd. By 1990, it was becoming standard practice in white-collar industries. Personal computing had become business computing.
The software industry exploded to match. Microsoft, founded in 1975, grew from a startup to a behemoth. Desktop publishing, computer-aided design, databases, and networking all found mass markets. Each application consumed the cheaper compute and demanded more.
The Internet Era: 1990s-2000s
The 1990s brought the "megahertz wars" between Intel and AMD. Clock speeds climbed from 25 MHz to 100 MHz to 500 MHz and beyond. Each generation brought not just speed but integration—math coprocessors, cache memory, and eventually multiple cores all moved onto the main processor die.
In 1997, Intel's ASCI Red at Sandia National Laboratories became the first computer to achieve one teraflop—one trillion floating-point operations per second. It cost \$55 million and consumed 850 kilowatts of power. The cost per GFLOP had fallen to roughly \$30,000.
But the real story of the 1990s wasn't the supercomputers—it was the network connecting all the ordinary ones. The World Wide Web, invented by Tim Berners-Lee in 1989, went mainstream in the mid-1990s. Suddenly every connected computer could communicate with every other.
This was the third Jevons moment. The internet didn't just use computing resources—it multiplied the uses for them. Email replaced letters. Websites replaced catalogs. Search engines made information universally accessible. E-commerce created entirely new markets.
Each of these applications consumed compute at both ends of the connection. A web server needed processing power. So did the browser displaying the page. Multiply by millions of users, and the aggregate demand for computing grew exponentially even as the cost per unit plunged.
By 2000, a capable desktop PC cost around \$1,000 and delivered roughly 1 GFLOP of performance. The cost per GFLOP had crossed below \$1,000. The entire computing power of ASCI Red—the world's fastest supercomputer just three years earlier—now cost less than \$100 million in commodity hardware.
By 2010, the cost had fallen to roughly \$1 per GFLOP. Smartphones had arrived, putting general-purpose computers in billions of pockets worldwide. Each one streamed video, played games, ran apps, and synced to cloud services—all consuming compute at unprecedented scales.
GPUs and the AI Explosion: 2010s-Present
While CPUs followed Moore's Law in a measured march, graphics processing units took a different path. GPUs were originally designed for one task: rendering pixels for video games. This required performing the same mathematical operations on thousands of data points simultaneously—massively parallel computation.
In 2007, NVIDIA released CUDA (Compute Unified Device Architecture), which allowed programmers to use GPUs for general-purpose computing. What had been a gaming component became a scientific instrument. Tasks that were computationally intractable on CPUs became feasible on GPUs.
The cost per GFLOP for GPU computation fell to roughly \$48 in 2007. By 2013, it was \$0.12. By 2017, it was \$0.03. Today, it hovers around \$0.02.
This unleashed the fourth—and most dramatic—Jevons moment: artificial intelligence.
Neural networks had existed since the 1950s. The theory was understood. What was missing was compute. Training a neural network requires performing billions or trillions of mathematical operations. At 1990s prices, training a modern large language model would have cost more than the entire GDP of most countries.
But at 2020s prices, it became merely expensive rather than impossible. OpenAI's GPT-3, released in 2020, was trained using approximately 3,640 petaflop-days of compute—roughly the equivalent of running 10,000 high-end GPUs for 14 days straight. By one estimate, the compute for training cost around \$4.6 million.
That sounds like a lot, but consider what that buys: a system that can write essays, answer questions, generate code, and engage in conversation. Just thirty years earlier, the same computation would have cost trillions of dollars—more than the entire world economy.
The AI industry responded to cheap compute exactly as Jevons would have predicted: by consuming vastly more of it. GPT-4 reportedly used 10-100 times more compute than GPT-3. Each generation of models grows larger. Each company trains more models. Each application uses more inference.
Training is only half the story. Every time someone asks ChatGPT a question or generates an image with Midjourney, that's "inference"—running the trained model to produce output. A single trained model might serve millions of users, each query consuming GPU cycles. The aggregate inference compute now exceeds training compute by orders of magnitude.
NVIDIA, the primary supplier of AI training hardware, saw its market capitalization rise from \$150 billion in early 2023 to over \$3 trillion by late 2024. The company couldn't manufacture GPUs fast enough to meet demand. Datacenters expanded. Power grids strained under the load. Microsoft, Google, and Amazon raced to build facilities that consume as much electricity as small cities—all to serve the insatiable demand for AI computation.
The physical infrastructure tells the story. A modern AI datacenter requires megawatts of power and sophisticated cooling systems. Server racks packed with GPUs generate heat densities that would have been unimaginable a decade ago. Companies are exploring nuclear power plants, offshore platforms, and even orbital datacenters to feed the demand.
The cost of compute had fallen by twelve orders of magnitude, and humanity's total spending on compute had never been higher.
The Paradox in Numbers
Let's put some numbers to this paradox:
| Year | Cost per GFLOP | Approximate Global Computing Capacity |
|---|---|---|
| 1961 | \$18,672,000,000 | ~10 GFLOPS (total) |
| 1984 | \$18,750,000 | ~100 GFLOPS |
| 1997 | \$30,000 | ~100 TFLOPS |
| 2007 | \$48 | ~1 PFLOPS |
| 2017 | \$0.03 | ~1 EFLOPS |
| 2023 | \$0.02 | ~10+ EFLOPS |
The cost fell by a factor of nearly one trillion. The total capacity grew by a factor of at least one trillion. We didn't save any money—we spent it all on more computation.
This is Jevons' Paradox in its purest form. Efficiency gains don't reduce consumption; they enable it. The cheaper compute becomes, the more uses we find for it, until we've consumed every efficiency gain and then some.
Miniaturization: The Engine of the Paradox
Underlying this entire history is miniaturization—the relentless shrinking of transistors that drives both efficiency gains and cost reductions.
In 1971, Intel's 4004 contained 2,300 transistors on a chip fabricated with a 10-micrometer process. Today, Apple's M-series chips contain over 100 billion transistors fabricated at 3 nanometers—more than 3,000 times smaller. Each generation of shrinkage brings more transistors per dollar, more operations per watt, and more capability per cubic centimeter.
This shrinkage is why your smartphone is more powerful than the supercomputers of the 1990s. It's why a \$500 graphics card can train machine learning models that would have required national laboratories thirty years ago. And it's why the economics of computing have followed Jevons' prediction so precisely: smaller transistors mean cheaper computation, and cheaper computation means more computation.
The industry euphemistically calls the end of Moore's Law—the point where further shrinkage becomes physically or economically impractical—"the wall." Various experts have predicted its arrival for decades. Yet the wall keeps receding. New techniques—multi-chip packages, 3D stacking, specialized accelerators—continue to deliver more compute per dollar even as individual transistor shrinkage slows.
What Comes Next?
If history is any guide, the future holds more of the same: continued cost reduction, continued demand growth, and continued surprise at what becomes possible.
Quantum computing looms on the horizon, promising exponential speedups for certain problems. If quantum computers become practical and affordable, they will trigger another Jevons moment. Problems that are currently intractable—drug discovery, materials science, cryptography—will become computable. New applications will emerge. Demand will explode.
Some argue that AI itself represents a new kind of computing, one that produces not calculations but intelligence. If artificial general intelligence arrives, it may consume computational resources at scales we can barely imagine—each AI agent requiring the equivalent of human-brain-level compute, running continuously, at massive scale.
The pattern is remarkably consistent. In 1965, computing was so expensive that only mission-critical calculations justified the cost. In 1985, it was cheap enough for word processing and spreadsheets. In 2005, it was cheap enough for social media and video streaming. In 2025, it's cheap enough to generate human-like text and photorealistic images on demand.
At each stage, we found new uses for the cheaper compute. At each stage, we consumed more total computation than before. At each stage, we spent more money on computing even as the cost per unit plummeted.
This is not a failure of planning or a lack of conservation. It is the predictable outcome of making something useful cheaper. The more valuable computation becomes per dollar, the more dollars we are willing to spend on it.
Jevons would not be surprised. "It is the very economy of its use," he wrote of coal, "which leads to its extensive consumption."
The same is true of compute. We have made it cheap beyond the wildest dreams of the 1960s pioneers, and we have consumed every bit of savings in an insatiable hunger for more.
The paradox endures.
Data sources: AI Impacts, Human Progress, Epoch AI, and historical hardware records.
Further Reading
If you'd like to explore these topics further:
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The Coal Question by William Stanley Jevons — The 1865 original that introduced the paradox. Dense Victorian prose, but historically fascinating.
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The Innovators by Walter Isaacson — A sweeping history of the digital revolution, from Ada Lovelace to the modern internet.
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Hackers: Heroes of the Computer Revolution by Steven Levy — The definitive account of the microcomputer era and the culture that built it.
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The Dream Machine by M. Mitchell Waldrop — The story of J.C.R. Licklider and the vision that became the internet.
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Chip War by Chris Miller — How semiconductors became the world's most critical technology and reshaped geopolitics.





