Includes our conversation during commercial breaks which are not heard in the audio above.
George Gilder is the author of 18 books: Bitcoin & Gold: Information Theory of Money (forthcoming); Knowledge & Power: The Information Theory of Capitalism; Men & Marriage; Wealth & Poverty (new edition 2012); The Spirit of Enterprise; Life After Television, Microcosm, Telecosm, The Silicon Eye, and The Israel Test.
Microcosm and Telecosm both listed among the era's top 10 technology books by VentureBeat in 2012 and Microcosm ranked among the era's top two technology books by Wired. Knowledge & Power was libertarian "book of the year" at FreedomFest 2013. George is a contributor to Forbes, National Review, and the Wall Street Journal.
He is also a venture capitalist (angel) specializing in U.S. technology companies. He wrote and edited the Gilder Technology Report, is number 27 Management Guru in Clayton Christensen's Top 50, and is founder and fellow of the Discovery Institute, and was the most quoted living author by President Ronald Reagan.
His specialties: Long distance running, chiefly trail and hill races, and Nordic skiing.
Why Gilder is Ron’s Mentor
The rest is history. You can read more about this here.
I wrote Mind Over Matter: Why Intellectual Capital is the Chief Source of Wealth, inspired by Gilder, which he included in the bibliography to The Israel Test, and quoted from it in Knowledge & Power (page 145).
We discussed with George some of his books, and his profound speech before the Vatican in 1997, The Soul of Silicon.
Below are some excerpts from these works, most of which were not covered on the show.
Ed and Ron recommend you read anything by Gilder.
Wealth & Poverty, 1981 [updated 2012]
This book grew out of Gilder’s Visible Man book, which was ahead of its time on welfare reform.
Gilder makes the moral case for capitalism, as well as supply-side economics. Ronald Reagan was so impressed with Wealth & Poverty, he gave a copy to each of his Cabinet members.
Gilder went on to become Reagan’s most quoted living author.
Joshua Gilder, George’s cousin, was the main speechwriter on Ronald Reagan’s Moscow State University speech, which we use a clip from to open The Soul of Enterprise show, and discussed in our book, The Soul of Enterprise: Dialogues on Business in the Knowledge Economy.
One of the key insights in Wealth & Poverty: Greed leads, as by an invisible hand, to an ever-expanding welfare state.
Ayn Rand attacked Gilder, in her last speech in 1982, “The Age of Mediocrity.”
George’s response: “Her atheism blinded her to the spiritual dimensions of capitalism.” Indeed.
The Spirit of Enterprise, 1984 [updated 1992]
Entrepreneurs accelerate creative destruction. Economists measure the destruction and doubt the creativity.
“It is the spirit of enterprise—the mysterious workings of creativity and faith—that can surmount all the material scarcities of human life.”
“Entrepreneurship can no more be reduced to a model of money and markets than poetry can be explained by the rules of grammar and vocabulary.”
“Capitalism offers nothing but frustrations and rebuffs to those who wish—because of IQ, birth, credentials—to get without giving, to take without risking, to profit without sacrifice, to be exalted without humbling themselves to understand others and meet their needs.”
The Israel Test, 2009
The Israel test is a moral challenge, and can be summarized by a few questions:
- What is your attitude toward people who excel you in the creation of wealth or in other accomplishment?
- Do you aspire to their excellence, or do you seethe at it?
- Do you admire and celebrate exceptional achievement, or do you impugn it and seek to tear it down?
Israel’s per-capita innovation dwarfs all nations, so much so that American technology could display the emblem: Israel Inside.
Golden Rule of Capitalism: That the good fortune of others is also one’s own. No one can be rich alone.
Envy of excellence leads to perdition, the love of it leads to the light.
What matters in human accomplishment not average performance, but exceptional performance. Charles Murray’s book, Human Accomplishment, documents extraordinary accomplishments have been made by 4,002 people from 800 B.C. to 1950.
The Jewish world population is approximately .3%, yet they comprise 25% of notable accomplishments. Inequality is the answer, not the problem.
The key issue in economics is not aligning incentives with some public good but aligning knowledge with power.
The key force of economic advance is the entrepreneur, who creates new goods, services, business plans and projects.
Proposition: Capitalism is not chiefly an incentive system but an information system.
It lacks a science of disorder and randomness. Until now.
Gilder uses Claude Shannon’s information theory to explain innovation and creativity. Essentially all information is surprise, according to Shannon.
Creativity always takes us by surprise, otherwise we wouldn’t need it, and socialism would work
This is a new way to think about human creativity, not simply invisible hands responding to incentives, but visible hands creating entire new markets.
Information wants a low-entropy carrier to provide demand and predictability for high-entropy signals of supply and surprise.
Gilder’s examples of Low-entropy carriers: rule law, maintenance of order, property rights, reliable regulation, light taxation, transparency, monetary stability, and family life.
Excessive Government regulation creates noise in the channel, distorting the signals of markets, inhibiting learning, growth, discovery, surprise, and thus wealth.
Expansion of wealth happens through learning and discovery through falsifiable experiments.
Knowledge is about the past, entrepreneurship is about the future.
One of the books key insights:
- Wealth = Knowledge
- Growth = Learning
Capitalism is more about ideas than incentives. It’s a “noosphere” (mind-based system) and can revive as quickly as minds and policies can change.
Adam Smith was to assume that the entrepreneur was the tool of the market rather than its creator. This is the original sin of demand-side economics.
“The grander vision of economics fails because it subordinates a higher and more complex level of activity—the creation of value—to a lower level, its measurement and exchange.”
The Soul of Silicon, May 1, 1997
We believe this is the most profound moral defense of capitalism ever written.
Economist Richard Thaler: “Why tie to gold? Why not 1982 Bordeaux?”
In this monograph, Gilder argues Milton Friedman was wrong on monetary policy. Floating currencies have been an utter. Failure.
Steve Forbes says that floating the currency is as senseless as floating the clock. A measuring stick cannot be part of what it measures, which is what makes time a perfect external measurement unit.
Gilder’s main argument is that while time is not money, money is time. The source of the value of money is time:
- As economy grows, only time remains scarce
- Money succeeds not because it measures value but because it obviates the need to perform impossible calculations Value > Price (consumer surplus)
- Money facilitates exchange, making it an information system
- Austrian subjective theory of value functions within objective time
- Money isn’t the content, it’s the carrier of transactions
Gilder replaces the quantitiy theory of money with an information theory of money.
The old monetary equation: Money supply x Velocity = GDP, always held Velocity constant (this made it a theory, otherwise it would be just an identity equation, like accounting).
But velocity is not a constant 1.7, as Friedman assumed—it has varied from 3.1 to 12. Gilder defines velocity as freedom.
He further argues that if Government guarantees investments, mortgages, banks and auto companies to big to fail, then no learning will take place and you’ll destroy wealth.
Bitcoin not a competitor to gold, but a gold inspired standard for the Internet
Outsider trading scandal—the government doesn’t want you to buy anything you know—buy the lottery where no one knows more than you!
When a company goes public, its information goes private:
- Berkshire/GE, private equity, and venture capitalists are all really inside traders
- Venture capitalists have the most valuable money—less than .2%, yet they have seeded companies that comprise some 21% of GDP, 65% of market capitalization, and 17% of jobs created
Speaking of George Gilder, by Frank Gregorsky, 1988
This is an excellent compendium of Gilder’s thinking on a wide-range of topics. Well worth reading.
Thank you, George, for appearing on The Soul of Enterprise, it was an honor and privilege!