George Gilder Writes A Savagely Brilliant Book: The Scandal Of Money

by Ralph Benko, Contributing Author: Tired of struggling economically? Me too.

George Gilder offers an explanation and a solution: restoring monetary integrity. It’s radical and goes far beyond primitive “supply side economics.” The axis of restored prosperity is “entrepreneurial ingenuity,” founded in all the policies which make that possible, and all that such ingenuity in turn makes possible, even for non-entrepreneurs… including equitable prosperity.

I’m not alone in my admiration for this book. Conjoin the praise of Reaganomics' co-architect Dr. Arthur Laffer’s “Thirty-five years ago, George Gilder wrote Wealth and Poverty, the bible of the Reagan Revolution. With The Scandal of Money he may have written the road map to the next big boom” with that of Venture Capitalist-In-Chief Peter Thiel’s “Why do we think governments know how to create money? They don’t. George Gilder … is our best guide to our most fundamental economic problems.”

This conjunction gives some idea of the sweeping breadth and towering scope of George Gilder’s new The Scandal of Money: Why Wall Street Recovers But The Economy Never Does. Bonus: you don’t have to be a PhD economist or a preeminent venture capitalist to understand it.

Gilder wrote this book under the auspices of the American Principles Foundation, whose sister organization I professionally advise. Gilder and I, long-time comrades, are on the same wavelength. Follow along.

The US economy (among not a few others) has been miserable for 16 years.

The now-forgotten Reaganomics blueprint created almost 40 million jobs. Since 2001, the American economy has created only 10 million. Since about 2001 economic growth has averaged half of the historic norm. Some public intellectuals talk of the end of vibrant growth as the “new normal.”

As Gilder decisively shows there’s nothing normal about it. Our Little Dark Age is a result of bad government policy, especially bad monetary policy.

Gilder, a world-respected thought leader in high tech as well as in economic growth theory, furnishes a compelling way to restore job growth and economic mobility. He fuses cutting edge information theory with the oldest and most reliable of monetary policies, the gold standard. In Gilder’s hands you do not have to go in understanding either to come out understanding both.

By undertaking this crucial task so well Gilder proves himself the “man in a million.” As Keynes — the architect of our prevailing economic paradigm, wrote, in The Economic Consequences of the Peace:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.Keynes was writing about inflation. But inflation is not the only symptom of debauching the currency as Gilder trenchantly points out many times."An unexpected deflation of the dollar — appreciating by some 30 to 40 percent between 1996 and 1999 against most currencies and by 57 percent against gold — brought down all heavily indebted in companies and dollar-denominated commodities. … Just as inflation bails out debtors … unexpected deflation punishes debtors, who have to pay back their loans with more-valuable dollars. All prices became questionable.”Keynes, later, in the General Theory of Unemployment, Interest, and Money famously wrote:[T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. … But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.Keynes, a humanitarian extraordinaire, would be horrified that our current madmen in authority are enslaved to his defunct effigy, Neo-Keynesianism. Gilder, in The Scandal of Money, seeks to free us from enslavement by the ideas of defunct economists both left and right. The Scandal of Money is a savagely brilliant, perhaps transformational, work. Whether you are a liberal or a conservative The Scandal of Money must be confronted.

Gilder takes us beyond early supply-side economics, with its emphasis on wedges and incentives. He introduces the implications of information theory for “entrepreneurial ingenuity.”

Gilder offers, to put it bluntly, a savagely elegant, and shocking, new paradigm — founded in a celebration of the possibility of human creativity. In the process Gilder intellectually bulldozes many of the nostrums of academic scribblers of a few years back. Gilder creatively destroys the intellectual hovels in which both Republican and Democratic economic policy makers now reside. He then offers a resounding new direction.

If enough policy makers are listening we can turn things around fast. Gilder shows how a “change of policy can effect massive improvements in days and weeks. In the same way that existing policies suppress growth, a change in policy can bring about an instant and sharp enhancement of all entrepreneurial assets. …” A few highlights:

From Chapter 3, “Friedman and the Enigma of Money.” “[Milton] Friedman… posited that annual velocity is reasonably constant at around 1.7 times per year. … The one thing we know from empirical experience is that velocity is not constant. Not even close.”

From Chapter 5, “The High Cost of Bad Money.” “Obfuscating all economic activity, government money causes inequitable redistribution of wealth. Unlike mere inequality, these arbitrary government favors and privileges … are actually destructive to the morale of capitalism and to the economic growth that fuels the opportunities of the middle class. This result is not surprising or even accidental. The actual purpose of both Keynesianism and monetarism … is to transform money, a measure of wealth, into wealth itself. It is driven by the delusionary dream that the government can create economic wealth for its rulers to spend. But changing the measuring stick has never improved the process of building economic value or anything else that has to work.”

From Chapter 6, “Money in Information Theory.” “The lesson of information theory is that irreversible money cannot be the measure of itself, defined by the values it gauges. It is part of a logical system, and like all such systems it must be based on values outside itself.”

One here is reminded of the 1854 debate between Christian preacher Joseph Frederick Berg with skeptic Joseph Barker. Berg: “My opponent’s reasoning reminds me of the heathen, who, being asked on what the world stood, replied, “On a tortoise.” But on what does the tortoise stand? “On another tortoise.” With Mr. Barker, too, there are tortoises all the way down.” Our current currency — Federal Reserve Notes — without the classical definition by, and convertibility to, a fixed weight of gold are tortoises all the way down.

From Chapter 8, “Where 'Hayeks' Go Wrong.” “The redemptive force of gold is its neutrality in time and thus its orientation toward the future. Hayeks [a posited synthetic currency] would substitute an anachronistic commodity basket for a predictable deflation based on the scarcity of time and abundance of learning.”

From Chapter 9, “The Piketty-Turner Thesis.” “The Turner-Piketty thesis requires power to be centralized, money to be manipulated, and regulations to be expanded. But this approach is the root of the stagnation rather than the remedy for it.”

From Chapter 10, “Hypertrophy of Finance.” “The international currency trading system is the alternative to gold. … The flaws of the float are fundamental. A measuring stick cannot be part of what it measures. Currency trading is deeply embroiled in the world economy and its price system. A metric cannot be more volatile than what it measures. Currencies are drastically more volatile than the economic activity that they gauge. Thus floating currencies defeat the very function of money as a metric.”

From Chapter 11, “Main Street Pushed Aside.” Here Gilder reaches the apotheosis of his argument. “Without the synergistic triad of invention, investment, and distribution — Silicon Valley, Wall Street, and Main Street — the middle class decays. … In the new world of zero interest rates and quantitative ease, money migrates not to opportunity but to bureaucracy, not to creativity but to clout and cozenage, not to new 3-D semiconductors but to sleek Solyndras. Without real interest rates, funds flow to influence and precedence.”

Money is the fulcrum for the world economy’s lever. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Gilder — with Lewis Lehrman (whose eponymous institute I once advised), Steve Forbes, and American Principles Chairman Sean Fieler — long has been a courageous thought leader in the advocacy of the gold standard, “one man in a million.”

The scholarly Keynes, that great paradigm destroyer and maker, may have been drawing upon Copernicus, who sent the Earth hurtling around the Sun, and who wrote, around 1525, On the Minting of Money:
ALTHOUGH THERE ARE COUNTLESS MALADIES that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage. The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.With The Scandal of Money: Why Wall Street Recovers But The Economy Never Does, George Gilder is making a bid creatively to destroy, often savagely yet always eruditely, obsolete paradigms both of the right and the left.

Ideas of defunct economists are the chief cause of our national and personal immiseration. If Gilder succeeds with this book he may enter the pantheon of paradigm shifters with Keynes and Copernicus.

Are our elected officials are reading this transformational book? Reader? Make it happen.

Read The Scandal of Money. Then mail it to your Member of Congress. Educate your Congressperson on how information theory, as embodied in the classical gold standard, offers to take us, as quickly as we take it, from misery to prosperity.
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Ralph Benko is senior advisor, economics, to American Principles in Action's Gold Standard 2012 Initiative, and a contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.

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