When Power Trumps Knowledge, We Lose | Eastern North Carolina Now

    Publisher's note: The author of this post is Mitch Kokai, who is an associate editor for the Carolina Journal, John Hood Publisher.

    RALEIGH     George Gilder doesn't quote the Bard in his latest book, but one could picture him as Hamlet to his reader's Horatio, pointing out: "There are more things in heaven and earth ... than are dreamt of in your philosophy."

    That famous line of Shakespeare's came to mind on several occasions during this reader's journey through Gilder's latest book. More than 30 years after his classic Wealth And Poverty helped provide the intellectual firepower supporting the growth of supply-side economics, Knowledge And Power arrives to challenge fundamental concepts of economic thought.

    Gilder is no supporter of big, intrusive government or central planning, and fans of free markets will find plenty to cheer. But Gilder also takes on well-established notions of economic thought that guide many thinkers on the political right.

    A key observation to which Gilder returns repeatedly is the absence from traditional economic models of an adequate measure of the entrepreneur. "At the heart of capitalistic growth," he writes, "is not the mechanistic homo economicus but conscious, willful, often altruistic, inventive man. Although a marketplace may work mechanically, an economy is in no sense a great machine.

    "The market provides only the perfunctory denouement of a tempestuous drama, dominated by the incalculable creativity of entrepreneurs, making purposeful gifts without predetermined returns, launching enterprise into the always unknown future," Gilder continues. "The market is the conduit, not the content; the low-entropy carrier, not the high-entropy message. Capitalism begins not with exchange but with giving, not with determinist rationality but with creation and surprisal."

    If the references to "entropy" and "surprisal" sound confusing, be prepared to spend much of your reading time wrestling with Gilder's arguments. He urges economic thinkers to adopt the concepts of information theory. And while Gilder devotes significant space to that theory, including a glossary of key terms, this reader realized at the end of the book that both the theory and its application to economic phenomena remain somewhat unclear.

    That's not Gilder's fault. This reader needs to spend more time reviewing key chapters and exploring other texts on information theory before assessing with confidence the merits and demerits of the author's case.

    One consequence of Gilder's presentation of information theory is clear: An overly active government creates too much "noise," defined in Gilder's glossary as "Any influence of the conduit on the content; an undesired disturbance in a communications channel." In other words, too much government chokes off the knowledge that leads to economic growth.

    Take, for instance, items and services government provides at no direct cost. "Perhaps the most obvious rule of public policy is that people will abuse any free good," Gilder writes. "Evoking unbounded demand while choking off supply, free goods and free services destroy information and lead to corrupt decision-making.

    "In the perverse feedback loops of free goods, free health care comes to mean hypochondria and needless illness caused by needless exams and treatments, queues for an ever-expanding political portfolio of mediocre services, and — at the end of the line — euthanasia under government bureaucracy," he adds. "Free drugs lead to widespread addiction to existing medications and an end to medical innovation. Free money, manifested in the zero-interest-rate policy of the Federal Reserve, diverts the wealth of savers to favored governments and crony capitalists while creating shortages for everyone else."

    Similarly shrewd pronouncements abound in Gilder's work — even in his endnotes. Among notes linked to a chapter on "The Fecklessness of Efficiency," Gilder reminds us about the importance of "loss" in a system of profit and loss. "Vital to capitalist profits are falsifiability; the possibility of bankruptcy. The raptorial revels of bankers with government moneys and guarantees are indefensible by any valid theory of capitalism."

    Later, while referencing environmentalists' opposition to fossil fuels, Gilder cites "the first critique of environmentalism to demonstrate that the 'green' movement is the world's chief threat to the environment because it squanders precious land to obviate use of abundant subterranean resources extractable with little or no permanent damage to the environment."

    One of Gilder's greatest contributions involves a rebuttal of popular arguments suggesting that capitalism depends on greed and selfishness. His final chapter asserts at the outset: "Capitalism begins with giving." How so? "It is not the exchange that elicits the goods and generates the increase in their value; it is the initial gift that evokes the desire to reciprocate, and which thus induces exchange."

    "The circle of giving (the profits of the economy) will grow as long as the gifts are consistently valued more by the receivers than by the givers," Gilder adds. "In deciding what new goods to assemble or create, therefore, the givers or investors must be willing to focus on others' needs more than on their own. The difference between the value of an item to the giver and its value to the recipient is the profit. Profit is thus an index of the altruism of an investment."

    The "genius" of capitalism results from the way in which it allows those successful givers to continue making decisions about when, where, and how to give — without government dictates.