Information Economics: George Gilder’s “Life after Capitalism”

We all know economics in the basic sense, don’t we? We all know economics not in the sense that we have all studied it, but that economics deals with the production and consumption of scarce resources, goods, and services. Scarcity is the catchall word for economics—I remember when I was an undergraduate major in economics, the so-called “dismal science” was introduced as “the study of how individuals, institutions, and society choose to deal with the condition of scarcity.”

What underpins this understanding of economics is what George Gilder calls the “materialist superstition.” From the capitalism of Adam Smith and David Ricardo to the socialism of Karl Marx, classical economics to socialist economics rest on the assumed pillar of Newtonian determinism and static materialism. There is also only so much matter to go around, the materialist superstition has us believe, therefore, no amount of incentives and technological innovation can avoid the fact that we will run out of material goods. Therefore, as Marx triumphantly asserted, socialism will be inevitable: the management and redistribution of material goods (scarcity) is inevitable for sustainability.

Not all economists hold to this view of economics. Those heterodox economists who belong to information economics assert that “Economics is not about order and equilibrium, but about creativity, measured in disruption, disorder, economic growth, and surprise.” Sounds a bit dismal at first, until the student of information economics learns that human action is always a surprise and disruptive, and human action is predicated on information more-so than incentives: we act because we have information not because there is an incentive, incentives may be a byproduct of information but information is the first-mover. Whereas materialism is static and flat, information is always growing and appreciating with no signs of diminishing returns due to the continual growth of knowledge over time. This leads to the most important claim in information economics, “wealth is knowledge” or “knowledge is wealth.”

Gilder explains how capitalism, trapped in its own materialist superstition of scarcity, lends itself to the “emergency socialism” of the regulated state that now predominates the twenty-first century. In its infant stages, during the Industrial Revolution, capitalism brought with it great transformation and productivity which produced the enormous material wealth its apologists highlight as evidence for why it’s the best economic system ever developed. But as appreciating productivity has slowed, the demand to share the wealth has risen. Socialism, here, does not mean the workers controlling the means of production but the material wealth of capitalist production being redistributed in a more equitable manner. This necessitates the rise of a managerial bureaucracy to allocate resources staffed by “experts.” “Trust the science!”

But this view of economic reality isn’t reality, Gilder tells us, “Economic growth comes from learning, from the accumulation of knowledge through expertise.” And this should come as a no-brainer. The famous capitalists of the capitalist era were not hands-off speculators but on the ground doers. They got their hands dirty. They figured out how to drill for oil, then drill for oil more efficiently. They figured out how to build efficient networks of communication and transportation. They replaced inefficient working mechanisms with more efficient ones. Those who lacked knowledge became inefficient or weren’t even playing the game and therefore went bankrupt (the ultimate economic test for lack of knowledge). Those who had knowledge and enhanced their knowledge gained advantages and eventually produced dramatic consumer benefits because of knowledge efficiency. Wealth is literally created from knowledge. This too was implied in Milton Friedman who, in Free to Choose, recognized the role of knowledge (“human capital”) as one of the two pillars of economic productivity, growth, and wealth, “the accumulation of human capital—in the formation of increased knowledge and skills and improved health and longevity—has also played an essential role [in economic growth].”

Even though wealth is created from knowledge, this does not mean the possession of knowledge guarantees wealth. There are those who lack creativity or a work ethic; such people may have acquired immense knowledge through various means, but they are unable to apply their knowledge for efficient gains. Hesitancy in the face of risk (most people are risk averse) or the acceptance of a static security instead of embracing the emergent (another form of risk-averse behavior) which cuts off creativity and innovation are among the most obvious examples of how knowledge becomes stultified. Knowledge, though no guarantee for wealth, does have a strong correlation to economic wealth.

But learning never truly ceases. Even if many have their learning hit a wall, others are continuously learning and helping others learn in the process (someone else’s knowledge has spillover effect). Learning grows and accumulates over time, through experiments yielding both failure and success. Knowledge is, therefore, not something that is scarce or diminishing but something that becomes abundant over time. Because knowledge is abundant and grows and grows and grows, economics—defined principally by knowledge, “knowledge is wealth”—is actually about abundancy rather than scarcity. Thus the materialist superstition that has become a drag on contemporary economics is broken.

Gilder provides for the reader a great introduction to the time theory of money, how knowledge is learning/growth curve, and how, once we begin to understand economics through the lens of information, all the usual materialist arguments we here peddled by outdated octogenarian economists and economically illiterate politicians fall apart: globalization has not been bad for the United States; economic growth is not slowing due to scarcity; technological innovation continues to rise with the United States at the center of this continual technological innovation; the U.S. deficit is not unsustainable.

Alongside the busting of many myths propagated on part of the materialist superstition, Gilder also highlights for readers how the information theory of economics is not necessarily new (even if it is only now gaining traction). In fact, when I graduated with my B.A. in economics, César Hidalgo published his seminal reinterpretation of economics Why Information Grows: The Evolution of Order, from Atoms to Economies. Thomas Sowell, a generation earlier in 1980, published his landmark Knowledge and Decisions. And going all the way back to 1945, Hayek’s seminal “The Use of Knowledge in Society” had been published. Sowell summed up the information theory of economics best, “Economic transactions are purchases and sales of knowledge.” Gilder essentially explains why this is what economics is really all about.

When we lack information we retreat into familiarity. This retreat into familiarity is what we now call “socialism” since it brings a sense of comfort and security. However, when we gain new information this allows for opportunity in decision-making which fuels economic growth and productivity (there is no growth and no productivity without action). To discourage the possible creative disruption that comes with knowledge, “we now live under a government that increasingly treats surprise as unacceptable risk, as a violation of the plan, or worst of all, a threat to those in power.” Contemporary regulation isn’t meant so much as to forcibly engineer an egalitarian society but to prevent the free flow and access of knowledge that leads to creative innovations and new paradigms that disrupt the older paradigms that have brought the hum of familiar normality. The calls for regulating new infant industries and the hysteria over AI are just a couple examples of this. As Gilder notes, “Government efforts to guarantee outcomes in the marketplace suppress surprise, block information, inhibit knowledge, and thereby destroy wealth [because wealth comes from knowledge].” The goal of regulatory socialism, for want of a better word, is to moderately redistribute the wealth of the status quo in order to prevent progress into the future for fear of the unknown. It is about an acceptance of the here and now as the best there is predicated on the materialist dogmas that now enslave government policy.

This is, however, a misplaced fear. Once we think about it, civilizational progress comes from the launching into the technological unknown out of which we manage to manifest our ingenuity to build a better society. Only the most misanthropic of modern humans would assert that hunter-gatherer society was better than our agrarian and now post-agrarian/industrial societies. Likewise, the movement away from the rake, hoe, and shovel to complex machinery that emerged from the automobile and energy revolutions of the early 1900s was a positive good; only the most ardent of Neo-luddites (who ironically often write from the comfort of digital publications in an air-conditioned home in the suburbs or city) would argue for a return to hand-tool farming for 12 hours a day. As a species we have always leapt into future with the (limited) knowledge that comes with new discoveries but from those discoveries enhancements to our (limited) knowledge are made and we more effectively and efficiently create new worlds from those prior discoveries and enhancements in our knowledge.

Here it is important to note that George Gilder is a notable futurist. Futurists believe we are living through historical social change and transformation and that this change and transformation will ultimately be a positive good. We can all agree that we are living in a time of intense social change and transformation that seems historic in scope. Not everyone considers this a positive development, though I tend to agree with Gilder that we can shape the ongoing changes and transformation to a positive good but that we must get this techno-digital transformation right if we the benefits of this transformation are to enhance most rather than just a few. Critical pessimists, by contrast, often just like to hear themselves complain without a substantial understanding of what they’re criticizing (they often lack knowledge on what they’re criticizing).

Toward the completion of Life After Capitalism, Gilder finally turns to some of most exciting and innovative technological realities that are in their infant stages like Web3 and the emerging decentralized technologies that will transform the current iteration of the Internet and, as a result, our world. Right now, the primitive infrastructure for a digital and internet economy are being built. Gilder concludes by saying that the science of economics must “escape the snares of determinism, the static sciences of existing expertise, the delusions of commodity money, the materialist superstitions of scarcity. It must embrace surprise and superabundance, it must recognize that creation has a creator and that economics is about knowledge, learning, and fulfilling our own creative role in the world.” To this I wholeheartedly agree.

Life After Capitalism isn’t necessarily about a dismal life “after capitalism.” Gilder wants to free capitalism from its materialist dogmas that have now ironically walled-off the growth of economic knowledge (by causing many to rigidly adhere to these materialist dogmas) and may soon be used to try and prevent the new future we are heading toward. Gilder clearly believes we are heading into a new future; a new social network and arrangement of relationships will emerge precisely because of entrepreneurial innovation, technological change, and economic realignments from the digital revolution we are living through. We can embrace this new opportunity that comes with the knowledge of this emerging reality, or we can retreat into familiarity and, in doing so, demand a more powerful, intrusive, and regulatory state to protect the status-quo from the change and disruption of the emerging future (or end up in an isolative misanthropy). Yet Gilder implies we must be ready for the new world, it is coming; one might go as far as to say it has already arrived! We are already in the early stages of moving beyond the known (and predictable) materialist arrangements we have grown accustomed to over the past century.

When reading Gilder (and other futurist economists and proponents of the information school) one begins to see how antiquated and outdated much of our political discourse is around economics. One also sees how woefully underread many of our leading intellectuals and supposed rising intellectuals are, most of whom share the materialist superstition in economics and are calling for a strong state to enforce social stability or social egalitarianism through economic intervention and redistribution. How often do we still hear the paeans to the bygone world of the New Deal, labor unions, or “Tory socialism”? Thankfully, though, reading Gilder may cleanse the reader of these materialist superstitions that shackle us to a dying corpse, the dying corpse of the materialist superstition that sucks the blood out of a living economy.

What will a reader take away from Gilder’s great new book? Beyond a crash course into the newest and most exciting subfield in economics which may well become the normative understanding of economics in the future (I certainly think so), the reader will learn what many of us who are proponents of information economics ardently adhere: “wealth is knowledge, growth is learning, information is surprise, money is time.” Understanding this is one of the most essential things anyone can do, especially if young or even middle-aged since we are living in the throes of a new economic revolution. With the information economy having supplanted the labor economy, Life After Capitalism is required reading. This is the best book on economics I have read in many years.

Life After Capitalism: The Meaning of Wealth, the Future of the Economy, and the Time Theory of Money
By George Gilder
Washington DC: Regnery, 2023; 256pp

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