By Ralph Benko
What if the gold standard is not an antique but, rather, a “timeless classic” (as termed in a speech by Bundesbank President Jens Weidmann in September 2012)? High tech guru George Gilder deploys cutting-edge science to show why this is so, based on Shannon information theory. Gilder’s analysis is neither eccentric nor anomalous. The intellectual pedigree of the classical gold standard runs through two of the greatest scientists in history:
Copernicus and Newton. Nicolas Copernicus, in his Essay on the Minting of Money eloquently lays out the scientific foundations of the classical gold standard. (Full disclosure, I served as co-editor of a modern translation, by classicist Gerald Malsbary, published by Laissez Faire Books and recently republished by Cognella as part of a splendid compilation of source documents in classical economics in The Monetary Foundations of the Macroeconomy Volume 1 edited by Thomas Rustici, James Caton, Dima Shamoun, and Ted Shamoun).
Sir Isaac Newton, as Master of the Royal Mint of Great Britain, created what became the modern classical gold standard. This was a fact well known by President Jefferson, as astutely noted by Dr. Judy Shelton in erudite commentary to her definitive edition of Jefferson’s Notes on the Establishment of A Monetary Unit. Under the Newtonian gold standard, with variants, the world economy thrived for almost 200 years.
The gold standard also was one of the few things that both Jefferson, and his arch-rival in Washington’s cabinet, Alexander Hamilton, fully agreed. The gold standard’s intellectual provenance, both in deep scientific history and among the founders of America, really is impeccable.
Copernicus and Newton, of course, are figures from the deep past. Jefferson, slightly more contemporary, was extolled by President Kennedy at a dinner honoring Nobel Prize winners when he greeted them as “the most extraordinary collection of talent, of human knowledge, that has ever been gathered together at the White House, with the possible exception of when Thomas Jefferson dined alone.”
Copernicus and Newton, timeless classics, remain appropriately revered as two of the greatest members of the scientific pantheon. Their discoveries — Heliocentricity, and the Three Laws of Motion — remain central to science. Old does not equal atavistic. Now let’s get modern.
It is less paradoxical than might superficially appear that George Gilder comes forward to exalt the scientific foundations of the classical gold standard. Gilder does so by drawing deeply upon modern Shannon information theory, work foundational to the high tech revolution very much alive and well.
So, a leading high-tech public intellectual attests to the ultra-modernity of the gold standard. Gilder, also known as the living author most quoted by President Reagan, went on to high tech iconic thought leader status as the author of Microcosm, Telecosm, The Silicon Eye, and Knowledge and Power among other highly-regarded works.
Gilder now presents a brilliant monograph, The 21st Century Case for Gold: A New Information Theory of Money. In it he explores at greater depth some of the thoughts he first broached in a key chapter of his influential Knowledge and Power. The 21st Century Case for Gold: A New Information Theory of Money was commissioned by the American Principles Project (whose sister organization I professionally advise). He therein explodes the pernicious myth of the gold standard as an atavism.
In 106 lucid pages, Gilder magisterially demystifies money. A very few choice excerpts:
The economy is not fundamentally an incentive system, it is an information system. Manipulating money cannot create growth, and it distorts the information economic actors need to acquire the learning that alone is wealth-creation.
Growth in wealth stems . . . from the progress of learning. It is accomplished by entrepreneurs conducting falsifiable experiments of enterprise, with the outcomes measurable by reliable money.”
Claude Shannon “resolved that all information is most essentially surprise. Unless messages are unexpected, they do not convey new information.” But “[i]f a carrier is to bear surprising contents, it must itself be unsurprising.” That is what makes it possible to distinguish the signal from the noise.
In economics money is part of the conduit or carrier. If money is to foster learning and knowledge, it cannot itself be surprising. . . . money must be the measure, rather than what is measured.”
Gilder is unusual, but not unique, among tech leaders in his regard for gold. No less than Peter Thiel in an interview observed:
If you really wanted to create an alternate currency, it would have to be gold-based,” he says. “There are enough people who already believe in gold that you could probably get it to the tipping point. Starting completely from scratch is a lot harder to do. I have a lot more thoughts, but I’d say—you probably want to go with gold.”
In the hands of Copernicus, Newton, and Shannon as channeled by Gilder, money becomes simple and intuitive. Gilder gives us the real thing: science. In The 21st Century Case for Gold: A New Information Theory of Money, George Gilder, true to his title, lays out a compelling 21st century case for the gold standard. Gilder reveals anew the gold standard’s deep scientific foundation. Buy a copy on old fashioned paper in better bookstores everywhere or download it and read it.
Delight in a very modern, scientific, demystification of money and discussion of why the classical gold standard repeatedly has proved itself beneficial. With The 21st Century Case for Gold: A New Information Theory of Money George Gilder well may have delivered his next game changer.