Knowledge and Power: The Information Theory of Capitalism

Summary Thoughts1. One of the few books that attempts to link non-linearity and information/chaos theory to today’s markets/economies2. Using economic history and market practitioners, Gilder effectively crushes the perceived wisdoms of broken sources3. Juxtaposed vs government intervention, a refreshing reminder of the role of the capitalistic entrepreneur in AmericaContent Highlights1. “Most human beings understand that their life is full of surprises.” (pg 1) #intro chapter – The Need for a New Economics2. “We are almost entirely incapable of predicting the future. Yet economics purports to be strangely exempt from this fact” (pg 1)3. “It is an economics of surprise that distributes power as it extends knowledge” (pg 5) #truth about innovation and evolution4. “All information is surprise; only surprise qualifies as information. This is the fundamental axiom of information theory” (pg 15)5. “From Adam Smith’s days to ours, economics has focused on the nature of economic order” (pg 16) promising #certainty?6. “Interest rates are critical for information-theory economic analysis because they are an index of real economic conditions” (pg 24)7. “Profits differentiate between the normally predictable yield of commodities and the unexpected returns of creativity” (pg 25)8. #EntropyEconomics (Chapter 4) = one of the best named chapters of the last 3 yrs #study9. “economists everywhere have counseled governments… to attend everything except what matters most: innovation” (pg 27)10. “The most important feature of an information economy… is the overthrow, not the attainment, of equilibrium” (pg 30) #nonlinear11. “Entropy is a measure of surprise, disorder, randomness… its opposites are predictability, order, tyranny…” (pg 34)12. “Republicans… both Bushes through McCain… all cherish the illusion that leading economists possess vital wisdom” (pg 38) #joke13. “Believing that a weaker Dollar is just the thing to spur a sluggish economy… they miss the devaluation of all the assets” (pg 38)14. “George Romney capitulated to these forces” (pg 38) and being advised by Glenn Hubbard, ultimately Mitt did too #BigMiss15. “Wealth actually springs from the expansion of information and learning” (pg 46) #capitalism #freedom #liberty16. “Smith’s vision of the entrepreneur as a tool of the market… rather than its creator constitutes the original sin” (pg 47) #AdamSmith17. The Light Dawns (chapter 7 concludes that Smith, Keynes, Hayek, and Samuelson have all been proven wrong) (pg 63) #true18. “Looking for disequilibria to reconcile into equilibrium, economists suppress multifarious complexities” (pg 71) #yep19. “Savings reflect the profitability – the upside entropy – in an economy” (pg 72) excess cash flows born out of positive info surprise20. “The entrepreneur is the savior of the system because he capitalizes himself” (pg 77) #evolution21. Fallacies of Entropy and Order (chapter 9) (pg 79)22. “Most of the history of economics revolves around the issues of how order and equilibrium can be maintained” (pg 85) #Krugman23. “None of these economists of equilibrium was comfortable with a dynamic economics” (pg 85) #Growth #Change #Surprise24. “Order is not spontaneous, but it is a necessary condition for all the surprises of freedom and opportunity” (pg 87)25. “Everyone thinks he knows what information is… information is change in what we know” (pg 101) great quote26. “They had no heads. The frenzy was all they had… the urge was all they felt” –Tom Wolfe (pg 104) #behavioral econ27. On Austin Goolsbee: “chairman of the President’s council of economic advisors exhibited as little understanding…” (pg 114)28. “… much of the profession is empirically bankrupt because it is no longer taught economic history” –Charles Kindleberger (pg 115)29. “The successful executive pursues not efficiency but effectiveness” –Peter Drucker (pg 126)30. “The goal of financial reform should be to end this divorce between knowledge and power” (pg 132) secular #theme of book31. “Unlike an inexorable, Newtonian “great machine”, the economy is not a closed system” (pg 133) don’t tell #Keynesians that32. “High entropy regulation destroys the environment that it seeks to enhance” (pg 150) #BigGovernmentIntervention #Fed33. “If a science has an adjective, it probably isn’t a science” –Richard Feynman (pg 159), Ivy League “economics” is no science34. “Pursue opportunities is the counsel of the capitalist” (pg 161) #bingo35. “It has become a virtual casino” –Bob Wilmers (CEO of M&T Bank) (pg 168)36. “Paulson/Bernanke in constant conversation with unhealthy institutions; wouldn’t talk to leaders of healthy banks” –Allison (pg 170)37. “In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns” –John Allison (pg 175)38. “wealth is only valuable if combined with information” (pg 178) #perspective39. “America’s leading entrepreneurs, with some exception, display discipline and self control, hard work and austerity” (pg 183)40. “Greed is an appetite for unneeded and unearned wealth and power” (pg 184) beauty quote about #politicians41. “All progress comes from the creative minority” (pg 192) otherwise why would society glorify their stories?42. “Taleb, in all likelihood, deems you a turkey” (pg 197) in Chapter 18, The Black Swans of Investment, criticizing Taleb43. “I believe, however, that the fool of randomness is Taleb” (pg 200) #aggressive!44. “21st century intellectuals have looked to information theory for a solution” (pg 201) maybe, sort of, but hardly consensus45. “Great books, great ideas, and great thinkers” (pg 207) on Mark Skousen’s Freedom Fest annual conference46. “No one in your company knows less about your business than your see eff oh” –Peter Drucker (pg 218) CEOs need vision47. “Stockman ended up capitulating to his critics” (pg 219) appropriately critical of David Stockman’s “CFO” myopia48. “0% interest rate policy of the Federal Reserve diverts the wealth of savers to governments, crony capitalists, etc” (pg 224)49. “History tells us that the threat to prosperity is not debt but socialism” (pg 225) great focus pt quote50. “Just as the post war recovery of the 1950s confounded Paul Samuelson’s gloomy predictions” (pg 234) #Keynesian failures51. “fragmented, the academic sciences are turning to politics, panics, and cartels to preserve their old privileges” (pg 270)52. “Most of the courses they took were either self-evident or wrong, ideological, or tautological, twisted, or trivial” (pg 270)53. “Now an abstruse and occasionally revealing discipline has emerged called quantum information theory” (pg 271)54. “Governed by entropy (measuring freedom of choice), it is a science of human liberty” (pg 271)55. “Just as the bureaucrat needs arbitrary power, the capitalist needs capital” (pg 275) #excellent conclusionThis is a thought leader’s book. With so many people whining about not having a “solution” to Washington’s economic policies, ask yourself if we’re asking the right leaders for new ideas. This book is the antichrist of broken western-academic-economic-policy group-think.KM

Here's the 5 words less review. You will learn something new.Here's the 50 words or less review. Some will love the message. Some will not. If you don't learn something new and valuable -- something "high entropic" -- ask for your money back, or alternatively, take a long look at yourself in the mirror and ask why you did not notice any change in your knowledge (entropy).This 500 words or more "review" is just for fun. Do yourself a favor. Breathe in Breathe out. Move on.There are so many great reviews you can read posted by others that describe what the content with great insightfulness. I read all of them before I bought the book. My "surprise" - that's a key term you will become familiar with if you read this book -- was that I learned a lot more than the reviews promised. Now that I have read it, this "surprise" comes as no surprise. Pun intended. The "surprise" in Knowledge and Power is that it is takes one basic principle from information theory - the concept of "entropy" - and uses it to challenge a wide range of topics.I make this promise without equivocation. As a low entropy "conduit" (Read the book.), Knowledge and Power will deliver more high entropy (Read the book.) "Information" for your brain to process than any other book you will purchase this year.Let me make sure you don't misjudge my overall position on Guilder's book. I am a big George Guilder fan. I read Wealth and Poverty, Microcosm, and Telecom. They taught me a lot.Guilders weapon of choice is "words." That's his conduit, channel, or medium. (Read the book.)It will make you think about what you think you know and what you do now know. It will make you think about HOW you think you know what you think you know ... or don't know. Enough already.The point is that you will receive an enormous amount of new bits and bytes --- or "entropy." Entropy is what actually gets through any communication channel so you are able to detect a "noticeable difference" in what you know now versus before. That is how information theory measures "the value of information." If you see notice no difference before and after, there is no "entropy." (Read the book.)The main "new" thing I learned is that this book is self-referential. I haven' had that experience since 1979, when I first tried to read Gödel', Escher, Bach. I never did complete reading GEB, but I think I got its "entropy." There are only incomplete closed systems. Every living system must be "open;" it must have mechanisms to incorporate new information - "surprises" (Read the book.) -- from outside itself to make it "true." It must be falsifiable to be valid. (Read the book.)Guilder assumes the role of a current day David who not only slays one Goliath, but reloads his magic slingshot with Claude Shannon's metaphorical pebble - that information is the surprise that wins the battle - and he hurls it at another 100 or so "progressive" thinkers in economics and beyond, including almost all the natural sciences (physics, chemistry, biology, etc.) and philosophical Philistine "champions" from all ilks and Ages. You get to decide if he hit his target dead center. That's the beauty of this book. It makes you think about what you think you know.As you read Knowledge and Power, you slowly realize that the book is "aware" of itself. It incorporates the same relationships underlying it key concepts -- "knowledge" and "power," the key propositions and axioms that the book presents. Knowledge and Power is both the conduit and the message. As you read it, you, too, become more "self-aware" - as a system -- that the book itself is a model of the model it presents (read the book).Kurt Gödel', one of the early contributors to the theory of information that Claude Shannon articulated (read the book), would be proud. Guilder is a present day Kurt Gödel. Gödel proved logically and mathematically that Alfred Lord Whitehead and Bertrand Russell's "self-contained" system of mathematics that they detailed in three enormous tomes ponderously titled Principia Mathamatica, was a flawed system.Gödel's first incompleteness theorem showed that the system in Principia could not be both consistent and complete because he could not prove its key principles without going outside the system. So too, with Guilder. He "proves (read the book) that economic, scientific, and philosophical systems, all, have the same key flaw. They are self-referential. The flaw in a demand-driven economy is the need to incorporate the "surprise" of entrepreneurship and innovation into the system to achieve growth and prevent decay, a type of entropy.Gödel's second incompleteness theorem shows that no formal system can be used to prove its own consistency.For example, the statement "there are no contradictions in the Keynesian economic system" cannot be proven to be true within the Keynesian economic system unless there ARE contradictions in the Keynesian system. If there are contradictions in the Keynesian economic system, it can be proven both true and false. Thus, the Keynesian system is incomplete. That is the main point Gilder makes in Knowledge and Power.Read the book.

Auf der einen Seite hält das Buch nicht 100% was der Titel verspricht, auf der anderen Seite ist es aber ein sehr anregendes Buch, das sehr viele wirtschaftliche, naturwissenschaftliche und informationstechnische Themen behandelt. Der Autor hat ein sehr breites Wissen, seine Schwerpunkte sind Wirtschaft, Finanzmärkte, Venture-Kapital, Startup-Förderung und IT.Nach George Gilder liegt die Stärke des Kapitalismus darin, das nur die erfolgreichen Unternehmen, die Gewinne machen, die Möglichkeit erhalten, weitere Produkte herzustellen. Sie haben ja ihre Nützlichkeit bewiesen, ihre Produkte wurden gekauft. Zur Produktion von Waren und bei der Durchführung von Dienstleistungen ist sehr viel Wissen erforderlich. Ein Unternehmen ist eine Art Experiment, wie und zu welchem Preis waren produziert werden können, die dann von der “demand”-Seite auch nachgefragt werden. Ein Unternehmen muss das Wissen erst erlernen. Der Gewinn, der aus erfolgreichem Wirtschaften entsteht, gibt dem Unternehmen dann die “Power” weiterzumachen. In der heutigen Welt wird die “Power” allerdings durch Eingriffe des Staats beeinträchtigt. Laut Gilder wird damit “Noise” in das System eingeführt und stark geschädigt. Er macht das z. B. besonders beim Insider-Handel mit Aktien deutlich, der verboten wurde. Der Handel mit Aktien sollte eigentlich auf den Informationen beruhen, die man über eine Firma hat und nicht auf Spekulationen. Je weniger Informationen es aber über die Firmen gibt, desto mehr wird das System zum “Kasino-Kapitalismus”. Denn der Aktienkauf beruht nicht mehr auf Fachinformationen, sondern auf dem Zufall. Das ist ein Beispiel dafür, dass eine gut gemeinte Regulierung negative Begleiterscheinungen hat und von “Linken" dann “dem Kapitalismus” als negative Systemeigenschaft vorgeworfen wird.Der Autor benutzt als Analogie die Idee, dass Information eine Überraschung, eine Abweichung vom Regulären ist. Erfolgreiche Firmen bringen Ideen mit einem hohen Überraschungspotential auf den Markt. Also die Information ist für den Markt an sich hoch, nicht das Produkt an sich. Ein Buch mit einem einfachen Satzbau und wenig Wörtern hat einen geringeren Informationsgehalt als ein Buch mit einem großen Wortschatz. Aber den Markt interessiert hier der Gewinn und wie viele Folgeprodukte man evtl. noch verkaufen kann usw. Und diese marktrelevante Information ist es, die höher ist.Diese informationstheoretische Begründung ist aber nur informell. Das ist keine mathematische Argumentation und im strengen Sinn auch keine “The Information Theory of Capitalism”, wie es z. B. mathematisch vorgebildete Wirtschaftswissenschaftler erwarten würden. An manchen Stellen ist die Argumentation auch rein informationstechnisch nicht 100% sauber. Aber ich musste im Laufe des Buches feststellen, dass der Autor über sehr weitreichende Kenntnisse verfügt. Manchmal schlägt er da allerdings Schlachten, die nicht richtig zum Thema gehören, sondern eher in die amerikanische Politik. Andererseits ist alles interessant geschrieben und mich persönlich interessieren Querdenker sehr.Auch wenn ich nicht mit allen Punkten des Autors übereinstimme und es ein paar Mängel gibt, ist das Buch ein Leseerlebnis und ich konnte es nur schwer aus der Hand legen.

I don't feel qualified to be able to criticize Mr. Gilder or this book. I was impressed during the Reagan years with "Wealth & Poverty", which ushered in the 'Supply-side economic revolution", but I wonder if "Entropy Law II" will ever be 'catchy'? The 2nd Law of Thermohydro Dynamics (Entropy) states that: Energy of all kinds will disperse out if it is not hindered from doing so. Also,Entropy Change measures the dispersal of energy, i.e., how much energy is spread out in a particular process, or how widely spread out it becomes at a specific temperature.Mr. Gilder seems to apply Entropy law to the dissemination of information throughout the universe. The freer the medium, the more rapid the dissemination of all information. The more rapid the dispersion of information to individuals, the more creative they become with it. Things or processes get innovated, invented or built. Entrepreneurs can more readily; employ & co-ordinate the other three factors of production (Land, Labor & Capital) into projects and enterprises of production, or services; expanding economies; wealth and prosperity, etc.,thus raising living standards, and employing more people.Regrettably,on the down side, Mr. Gilder seems to have a penchant for verbosity, which I find to be quite annoying, especially when I don't know what he is talking about! Moreover, his expression of important parts of his thesis are fuzzy.Finally, I think that we have all known, that information is fundamental to the 4th agent of production, i.e., Entrepreneurship.Based upon the premise that Entrepreneurial activity is essential to the growth of economies and the prosperity of their peoples, Mr. Gilder uses Entropy Law to demonstrate that a stifling slow entropy (the medium of information dissemination) will frustrate, diminish or arrest, entrepreneurial activity( i.e.,fast entropy) to the detriment of everyone in that society.Entropy and economics are both natural sciences, and observations in the one can be applied to the other.I have probably not done Mr. Gilder justice with my understanding of what he has done in this book. It seems now, that what he was trying to prove, is that entropy and entrepreneurship are "Natural Laws", which should be observed and adhered to religiously. That would mean a 'sea change' for all tyrannies, and most western democracies.If you are a 'control freak', this book could really make you Mad!

The author explores an intelligent perspective of present reality, combines enlightening facts from history with ever so updated views of our information age. One of those books that makes a great difference in your education and understanding of relevant facts, a true gift to contemporary human knowledge.

Great book