(This item originally appeared at Forbes.com on October 6, 2023.)
In 1860, the Pony Express began delivering mail between St. Joseph, Missouri and Sacramento, California. It took about ten days, with riders switching horses every 10-15 miles. It cut communication time by 50%, but it only lasted 18 months, until Western Union opened its transcontinental telegraph in 1861.
Today, this task is performed by fiber-optic cables that carry 4K videos of grandchildren and stupid pet tricks. Comparing today’s Internet backbone to the Pony Express would be interesting, but perhaps not very useful. George Gilder, in his new book Life After Capitalism: The Meaning of Wealth, the Future of the Economy, and the Time Theory of Money, instead compares the Internet of today to the Internet of 2004.
The ability of these glass fibers to carry 4K videos of stupid pet tricks is measured in “Lambda-bit-kilometers.” This is simpler than it sounds. “Lambdas” are wavelengths that can carry information. Think of different radio stations, at different wavelengths. Over time, the amount of information (”bits”) that can be carried by each “lambda” has increased. Also, the distance that this information can be carried without an electronic repeater (analogous to how far you can ride a horse before switching it for another, i.e., “kilometers”), has also increased. The 2004 Internet backbone used state-of-the-art gear from Corvis that transmitted 280 lambdas, each bearing 10 gigabits per second, over 3,000 kilometers. Wow. It was actually an 11,000-times improvement from 1995. But, today’s Internet backbone, using multiple fibers, carries about four million times more data than in 2004.
“Aha,” you might say. “That’s amazing, but information is massless, so you can accomplish things that are impossible in the realm of real-world molecules. Once you get off TikTok, and you just want to drink a beer, then it gets more complicated.” If your beer is imported, it doubtless arrived via container shipping. Let’s say it came from Rotterdam, Germany. The distance between Rotterdam and New Jersey is the same as ever. The ships are great hulks of steel, not really much different than the 1950s. The beer is the same, in the same glass bottle. And yet, as Gilder describes, the cost of loading this beer on ships — in the past, the main cost of shipping — has fallen about 99.8% since containerization was introduced in the 1950s. The real cost of air conditioning, as another example, has fallen an estimated 97% since 1952.
As Gilder ponders these amazing developments, he finds that they paint a very different picture from what you hear from economists. We seem to have not only abundance; but cases of “superabundance,” increases in production not in percent but in orders of magnitude. But, if you listen to economists, this is nowhere to be found. “Scarcity necessitates rationing,” intones the typical introductory paragraph of the typical introductory text on economics. This is a new phenomenon; the early economists, Adam Smith or John Stuart Mill, were amazed at the incredible advances of the early Industrial Revolution. The Wealth of Nations, Smith described, came from their astonishing gains in productivity, with his famous pin factory one example.
This productivity comes about, Gilder argues, from knowledge. In the 1950s, management consultants from Bain described “learning curves” across multiple industries, where costs fell 30% for every doubling of total cumulative output. People learned something along the way. They learned, for example, how to put 280 lambdas on a light pipe. This knowledge is extremely specific. It is not some generalized substance that can be aggregated into economic statistics. There is no “Gross National Knowledge.” The typical tools of today’s economists are useless.
We hear nothing about this knowledge from the university economist, who thinks that economic production comes from a combination of consumer spending + government spending + investment + net exports, the “four critical drivers of America’s economy”. There’s no knowledge, just shopping. Gilder even has a few words for the supply-side economists, who also rarely recognize what is really happening in an economy, and are also somewhat blinkered by their talk about 1% gains in GDP growth annually arising from “incentives.”
In the late nineteenth through the mid-20th century, a lot of talk was about the “evenly rotating economy.” The preferred analogy in those days was steam engines. But steam engines do not change. While economists discussed these unchanging steam engines, in unchanging terms, businessmen built out electric utility networks, radio, and commercial air transport — all innovations that seemed like miracles after thousands of years of horses, candles, and letter writing.
Today, Gilder argues, the “scarcity necessitates rationing” people have taken up the mantle of environmental virtue, with “sustainability” and “ESG” initiatives mostly a cover story for socialistic serfdom. Despite the provocative title, Gilder is — as you probably guessed — an enthusiastic supporter of free enterprise. Rather, he takes aim at the “idea of capitalism,” as it is expressed by academic economists today, and which bears little resemblance to the real world of business. Ideas have consequences, including bad ideas.
This book can be taken as a list of frontiers where potentially gigantic new advances may take place. Gilder’s 1981 book Wealth and Poverty outlined the gigantic untapped potential of lower taxes. It was the most popular expression of an idea that spread around the world, and is still spreading among the more than 30 governments that have adopted “Flat Tax” systems since 2000. Today, Gilder sees monetary policy, instead of tax policy, as the most promising new frontier for economic policy — the place where gigantic gains can be had with very little cost or effort. Following up on his 2016 book The Scandal of Money, Gilder describes how money must convey information — for example, whether a business is profitable or not. To convey information, money itself must be free of “noise.” Today, we have very noisy money, which corrupts all the information that economies run on. Considering the alternatives, Gilder concludes that gold has always served as the “least noisy money” in human history. It has always been good enough. There are no viable alternatives today, not even as a proposal, and certainly no alternatives with centuries of real-world proven experience.
Of course Gilder, the technologist, does not suggest that we actually trade gold coins with each other like market day in medieval France. Gold merely serves as the measure of currency value, just as it did in the 19th century. Probably, we would use digital app-based platforms similar to Kinesis and Lode, the contemporary equivalent of bank transfers enabled by long-distance telegraph, as was used in 1905. I was flattered that Gilder mentioned two of my three books on the gold standard, Gold: The Monetary Polaris (2013), and Gold: The Final Standard (2017) — both of which, thanks to the amazing abundance of the Internet, are available in free .pdf format to readers worldwide.
Life After Capitalism is full of new ideas with great potential to advance the study of economics out of its current stagnant ruts. Among other things, it may help bridge the cultural divide between business innovators and policy wonks. Readers will find new vistas and horizons in every chapter.
