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Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World

Knowledge and Power by George Gilder

Review of Knowledge and Power by George Gilder (Regnery Publishing, 2013) 400 pages; $27.95.

We are trained and educated to comprehend the operations of the universe in a materialistic way, where physical and chemical processes are assumed to be the deepest level of knowledge that can be acquired. George Gilder, in his new book Knowledge and Power, disputes that. The universe, he writes, is actually a vast information system of unfathomable limits.

Ever since the rise of information theory in the 1940s, it is becoming increasingly clear that the universe is, in a sense, digital. Information, logic, data, whatever you want to call it, lies even deeper than the material operations that science has so ably discovered and quantified. This deeper informational dimension is dynamic and unpredictable. It is also how systems (biological, institutional, economic etc.) change and grow.

Gilder applies the principles of information theory to help us understand how economies grow. Known mostly for Wealth and Poverty, a book written over 30 years ago (earning him a reputation as "Ronald Reagan's most quoted economist"), Gilder lays out what he calls the sum of all his work: Information, not the management of processes, creates economic growth.

Gilder calls this the "information theory of capitalism" and it turns conventional thinking about free markets and statist economic theories on its head. Most of us think free marketers and statists are from opposite schools when in fact they are "fresh water and salt water" as Gilder calls them.

How so? Both share a vision in common: Markets are mechanical. This leads to an impoverished understanding of the role of the human person in economic expansion albeit to differing degrees. Think of their vision as Newtonian physics applied to economics; an illusion of determinism applied to human actions.

The universe, Gilder argues:

… is not subsiding like a steam engine or any other kind of machine … It is not constantly subsiding into thermal equilibrium. It is an engine of ideas, an information system, like an economy … (T)he universe is not statistical. It is a singularity full of detailed and improbable information. It is a "Super Surprise." … All the information for a random universe is equally applicable to one full of information and creativity.

Information is the unexpected "surprise" that when incorporated into the system creates growth and surplus value – wealth. The mechanistic assumption of many free marketers and most statists blinds one to the "surprise," the indication that new information has entered the system that contributes to its growth and expansion. Without new information, systems perish (Xerox and Kodak for example). When new information enters the economy, revolutionary growth is possible (Oracle, Qualcomm, Apple, Southwest Airlines for example).

The "surprise" depends exclusively on human agency because creativity comes from people, not from systems. It is indicated by the "I never saw that!" moment that defies all prediction and quantitative analysis because those tools only work in closed systems. If a system is closed, it cannot experience the "surprise," that infusion of new information that contributes to its survival and growth.

These insights call us back to the deep well of God-given creativity of the human person, who constantly "surprises" by smashing to pieces what we all thought were fixed, enduring systems and solutions.

Information, according to Gilder, is also highly entropic, another concept borrowed from information theory. This means that complex information cannot be easily contained, although in order for the system to benefit it must eventually be brought in through what he calls simpler, low entropy carriers. Systems, in other words, are both high and low entropy, thereby making stasis (the stability that gives rise to the legions of analysts that ostensibly predict future growth) the kiss of death.

The actor or agent of change that causes economic systems to grow is the entrepreneur, because the entrepreneur lives in the domain of "creativity and surprise," Gilder tells us. Creativity is therefore also a high entropy enterprise (the inflow of new information occurs within creative activity) although it requires low entropy systems in order to incorporate the new information into the system. Think of a phone conversation. The creativity occurs in the speaking, but the cables carrying the words (as digital data) have to work reliably in order for the information to be exchanged over any distance.

Gilder hits this hard. There is no economic growth apart from the entrepreneur because only the entrepreneur brings the new information into the economy.

The vision of dynamic and creative enterprise also has a moral dimension, Gilder argues. Socialism is reactionary in orientation. It assumes fixed systems and quantifiable outputs, all that we need to know is already known, demand precedes supply. Capitalism is by nature giving because the risk it assumes is uncertainty; no real knowledge or assurance exists in a world of "unfathomable complexity that requires constant efforts of initiative, sympathy, discovery, and love." Socialism is deterministic, capitalism altruistic.

Knowledge and Power is a challenging read but easily one of the most creative and penetrating examinations of how wealth is created in a very long time. Its brilliance is framing human creativity outside of materialist conceptions of the human person. It makes the moral dimension of entrepreneurship more visible and thus easier to justify in this age of decreasing confidence in the virtues of business and wealth creation.

Gilder's book will prove to be a gamechanger and maybe even a classic. The ideas are so new yet so compelling that they simply cannot be ignored. Keep a dictionary nearby and use the glossary provided in the back. It will change not only the way you think about economics, but how you see the world.

Rev. Johannes L. Jacobse is founder of the American Orthodox Institute and pastor of St. Peter Orthodox Church, both located in Naples, Fla.