This is the second part of a review of George Gilder’s monograph The 21st Century Case for Gold: A New Information Theory of Money. The first part, about the return of a gold standard for money, is at The Stream. You need to read that part before continuing. We return to SAMT in two weeks.
Gilder doesn’t have a discussion about how a gold standard can be implemented. He steers mostly clear of politics and sticks with theory. His monograph’s subtitle is “A New Information Theory of Money”, but perhaps it’s better classed as an intriguing new notion. In it’s current form, the theory is a thin skeleton that badly needs flesh. And a few corrections.
What’s right is his search for a definition of what money is. Time, he says. Time is “irreversible, inexorably scarce, impossible to hoard or steal, distributed with remorseless equality to rich and poor alike. As an index of time, gold imparts the accurate price signals needed for sustained economic growth and expanded opportunity.”
This makes sense when it is considered early humans “had every natural resource we have”, and the only difference between them and us is knowledge, or information purchased by time. While this is true, or true enough, it’s not clear what function of time equals wealth. Whatever this function is, it almost certainly can’t be linear; there must be some threshold effect; wealth must “kick in” only after some bare minimum of human needs are met. And that minimum, given our biology, must be food. It’s only the well-fed who ponder wealth.
Gilder is keen to map time to wealth and wealth to knowledge, or information. It is accepted by everybody that information is a key to the economy. Ideas drive the economy forward—and backward. Information is a value-neutral term. The government, for instance, is continuously presenting the economy with new “information” in the form of regulations, laws, mandates, and so forth.
Gilder’s enthusiasm for this fecund line of thought leads him astray. He says things like Claude Shannon, a prime inventor of information theory, “resolved that all information is basically surprise. Unless messages are unexpected, they do not convey new information.” And “Surprisal—what Shannon called ‘entropy’—is both a measure of freedom and criterion of creativity.”
This is muddled. Shannon did not define information as surprise, a claim Gilder makes several times. Shannon was interested in how information is communicated, not in information per se. Information transmitted via some channel is, by Shannon’s rule, “surprising” to the extent it is improbable. But to be improbable means the fundament of the information must already be known, and that is because all probability is conditional on what is known or assumed.
Consider transmitting English letters (in sentences, say). The letter z is rarer than e, so it is more “surprising” to see a z. The probability of seeing a z, and all the other letters, has a bearing on how to best encode the information so that it arrives at its destination in the most efficient way possible. And we know the alphabet in advance. You cannot transmit an unknown letter, without also including its definition.
To some extent, information transfer is how the economy works, which is plain. But surprise isn’t everything. Information that is known can be more valuable than new information which is surprising. After all, it is already-known information that lets factories produce their goods. Information theory does not, and can not, account for the creation of information, which is by definition infinitely surprising. Much more work needs to be done in figuring how to best encourage the creation of new, good, and true information.
Gilder also says the “second law of thermodynamics ordains that entropy as disorder always increases and cannot be reversed” and that this, somehow, ties to the “time-based entropy of [gold] extraction.” Now it’s true that entropy for closed systems, like the universe as a whole, increases through time, but it is false that everywhere entropy increases. Every new good idea produces new information, as Gilder rightly emphasizes, acts which decrease entropy, or rather, increase order. Entropy in the information-theory sense increases when unpredictability increases. The economy is not a closed, or zero-sum system.
The difficulties multiply because we can’t say we’d unconditionally like to have an predictable economy. A Soviet five-year plan was highly predictable, but produced an economy only New York Times readers would enjoy. So we’re not chasing entropy, high or low, but good information, knowledge. Knowledge is information which is true.
It has always seemed to me entropy happens when the universe is left to itself. Living beings decrease entropy by their very existence.
I’ll contribute to the battle vs entropy by making my bed now.
Ah, “time is money”, as it were. Food is money? Rarity is money? Time passes, food spoils, rarity can be manipulated at one extreme and fleeting on the other.
Maybe rarity, as in gold or Bitcoins, isn’t the best way to go. How about “inherent value”? Gold has inherent value, which provides a lower limit on the spot price, but its rarity has caused the spot price to exceed the inherent value by several orders of magnitude, making the inherent value largely irrelevant. These days, the price of gold appears more heavily manipulated and volatile than the world’s fiat currencies that investors are fretting over.
Information is money? Ummm, no. Information is infrastructure, something purchased with money. This would be going back to a barter system, with all the inherent inadequacies that gave rise to the need for money to begin with.
How about magnesium? It has inherent value, which sets a lower limit on absolute value. It is very common and widely distributed with well-understood costs of production, which sets an upper limit value in the medium and long-term. Historical data shows only brief short-term volatility, with the value dominated by gradual long-term trends, the latter more likely due to trends in the valuation units used for any particular chart.
No need to wait for governmental authorities to base currencies on a magnesium standard; individuals can structure their own ‘monetary system’ through the use of appropriate investments. On the other hand, if (when??) the world’s fiat-based economic systems collapse . . .
@Milton,
There is no inherent economic value to anything. Value exists within an intellect only and is subjective to each intellect. Thus, I buy if and when the perceived value I receive exceeds the perceived value exchanged for it and that only exists for a specified time at a specified place; if I can freely act. Wealth resides within the intellect and only to the extent available by free choice and action. The results of the action are what make wealth visible and tangible. So, the rules are: “Be fruitful and multiply” and “By their fruits ye shall know them”.
Having gold coins all over the place, instead of piling them nice and safe in a bank or two is also a kind of higher entropy state.
Jerry Pournelle points out that there is an almost infinite supply of gold (in seawater) it is the energy to extract it that is costly. This would make energy the ultimate base of the monetary system.
I remember gilder for his shameless hilling of photonics stocks around the turn of the century. the guy is not to be trusted.
that should read “shilling”…and I dont mean english units of money.
Hathaway: your choice of metal would give meaning to the term “money to burn.”
All these ideas are so confused and muddled it is hard to know what to make of them. We already know what wealth is and it’s not information. (Otherwise those own Wikipedia would be the wealthiest people on the planet.) Of course the implication must be that it is a certain kind of information that is important, but since the kind is left undefined, using the term ‘information’ is not just useless but misleading. Even, so this is still wrong. You generate wealth by owning desirable assets that you ‘rent’ to others or by being able to provide services considered of value to others. This has nothing to do with information technology, or even information, unless you’re speculating on Wall Street. But then you are confusing Wealth with gambling techniques. Which is what is going on here.
We have a perfectly good understanding of all these things already thanks to Adam Smith and others.
What I found curious about the linked article was that it presented an insane moral argument against fiat currencies. Governments and Wall Street are evil (or at least very greedy) and therefore fiat currencies are morally wrong, hence gold is morally good. Except I didn’t see the argument for why gold was assumed to be good except for the assumption that it can’t be manipulated by evil people. So fiat currencies are bad but if I go out and purchase a gold bar, and the gold bar simply increases in value as it becomes increasingly valuable, this is a apparently a virtue of this system. I don’t have to innovate, invest, create or build things. I can just sit on my gold bar and become wealthy that way. I was wealthy enough to afford lots of gold bars at the start. As they rapidly appreciate in value (since their supply is limited), I become fabulously wealthy. All for doing nothing. The rich become fabulously rich. Not much of a moral argument if you spend a few moments to dissect it, is it?
cdquarles is right; “Value exists within an intellect only and is subjective to each intellect.”
Each of us has the unique ability to rank our own needs in our own order of priority, which will be unique to us.
Just think about the “value” of a cigarette to a smoker and a non-smoker to see how nonsensical it is to talk about “inherent value”.
All the cigarette has is “Properties”, which we must first perceive before we proceed to either appreciate or disparage.
So it is for Gold, or Magnesium, or any physical commodity.
For this reason, no single commodity is suitable as a basis for defining our “unit of exchange value”.
Will, “So fiat currencies are bad but if I go out and purchase a gold bar, and the gold bar simply increases in value as it becomes increasingly valuable … As they rapidly appreciate in value (since their supply is limited), I become fabulously wealthy.”
I don’t understand this comment. It wasn’t the case when the gold standard existed in the past so why would it be true now? For a further explanation see:
https://mises.org/library/contra-bernanke-gold-standard
Jude Wanniski (http://wanniski.com/) believed gold to be the most efficient means of turning labor into a trading commodity. Barter is inefficient because it’s local. Money transcends distance and time; the qualities of gold make it better than any other commodity. BTW, Wanniski and Arthur Laffer were the architects of the Supply Side movement that helped the Reagan administration end the stagflation of the late 1970s. Unfortunately they never were able to get the gold standard reinstated after Nixon destroyed it a decade earlier in his mistaken response to the oil embargo.
William Briggs makes many intriguing comments on my argument, but he failed to grasp my concept of information theory. My treatment of Shannon springs from my book Knowledge and Power (Regnery, 2012). Google Shannon and “surprise” or “surprisal” and you get 5,800 hits. Extending this concept to economics where probabilities become less bounded and converging it with the algorithmic information theory of Chaitin, Kolmogorov and others, I create an economic theory that can accommodate entrepreneurial creativity and profit as surprise.
Money is not wealth; it is a measure of wealth and like all stable measuring sticks (from the meter to the kilogram) must be rooted in time. I show how gold functions as a measuring stick rooted in time rather than as a source of value in itself. I explain how economic growth (increase in knowledge) stems from Popperian learning, with propositions, such as entrepreneurial ideas, presented in a form that allows refutation (bankruptcy). Government guarantees, for money or businesses, prohibit learning and growth.
Mr Gilder,
Thanks for responding. I hear from a mutual friend that you’ll also be at DDP in LA. I look forward to talking with you about this more.
I’ll take everything you say on money vs. wealth etc. as a given. But I’ll stick by what I say about information theory.
Shannon defined a certain function of probabilities as “surprise”, which isn’t really a measure of astonishment (though people do say this, as you discovered), but a non-decreasing continuous function which increases as probabilities decrease. Average “surprise”, given known probabilities, he defined as (informational) entropy, and there’s lots and lots to say on that, particularly in my field. Certainly it is not obvious that we want more or less order for the sake of more or less order.
Information by itself is not surprising. Information, from a known corpus or dictionary or whatever, transmitted can be rare and therefore “surprising.” Like I said in the example, it’s more “surprising” to see a letter ‘z’ come through a communication channel than the letter ‘e’. But we expect both, because we know in advance of their existence.
But information theory, like I said, cannot account for the creation of new information or knowledge (which by definition is infinitely surprising). Why?
What I said about probabilities is right. All quantified probabilities are quantified given certain fixed premises. We know the letter ‘z’ is rarer than ‘e’ because of premises like “In these texts, the letter ‘z’ appears much more infrequenly than ‘e’.” Probabilities only apply to that which is already known.
We cannot form the probability of “This new idea” because we have no idea what the new idea is. If we knew the new idea, we’d already know it. We might be able to form the probability of “10 new ideas will be formed” given we specifically define what an “idea” is and our past experience of the presence of these “ideas.”
This relates to another thing I said, you cannot use a communications channel to transmit a brand new letter. You can transmit something like “there is a new letter and it has the following characteristics…” where those characteristics are specified using the already known letters. But you cannot transmit the new letter itself using the old communication channel. It has no knowledge of it.
Now randomness as defined Chaitin (and Goedel, Solomonoff and others) means (what I also say) unpredictable or even non-deducible. Axioms to Chaitin (etc.) are “random” because they cannot be deduced from simpler premises. Induction supplies us these truths, which have no other proof except for the evidence due to our senses and the extrapolation due to intellection. Since that kind of knowledge has to be taken on faith, so to speak, and nobody can deduce it, we cannot form the probability of its appearence. And we cannot form the probability of when new axioms will be discovered. The problem is that random is analogical and it is also used when probabilities are known.
We agree that new-and-good—and not just new—ideas are what drive improvements in the economy.
Briggs, “We agree that new-and-good—and not just new—ideas are what drive improvements in the economy.”
It is interesting that you should say this since the following just appeared.
https://mises.org/library/technology-needs-capital-produce-economic-growth
It also explains why I can’t get decent interest rates from my savings.
“William Briggs makes many intriguing comments on my argument, but he failed to grasp my concept of information theory… I create an economic theory that can accommodate entrepreneurial creativity and profit as surprise.”
Any kind of information theory model of economics must be very limited and selective in what is being captured. It seems to put all emphasis on tech company type innovations (a very popular fad these days) while ignoring the vast majority of actual economic activity. Do cafes or restaurants, dry cleaners, construction companies, grocery stores, petrol stations and so on, depend on entrepreneurial creativity? Of course not. Innovation is going to be limited in most areas of the economy for all kinds of reasons. To give innovation major emphasis is again to confuse trading with speculating or to confuse most economic activity with what tech companies do. That doesn’t mean innovation doesn’t play a role, but it’s hardly “the” definition of what is important about the way businesses operate.
“Money is not wealth; it is a measure of wealth and like all stable measuring sticks (from the meter to the kilogram) must be rooted in time.”
This is incorrect. Money is not a measure of wealth. It is foremost a medium of exchange and any other role it has, such as using it as a measure of wealth, is secondary. There is no critical reason why it must be stable over time, and the only explanation offered for why this should be so is to apply a rather dubious analogy. Since money is a medium of exchange there may be advantages for there to be a holding penalty (i.e., inflation) if the medium of exchange is not exchanged. It is exchange, after all, that helps create wealth. Putting money under your bed doesn’t help grow the economy. Investing it does.
@Scotian
“I don’t understand this comment. It wasn’t the case when the gold standard existed in the past so why would it be true now? For a further explanation see:”
Your linked article was not so much an explanation but a random collection of absurd claims asserted without evidence. You claim that people who owned gold were not made wealthy simply by virtue of the fact that they owned gold. How do you know this? The value of gold did increase slowly during the gold standard, but remember global economic activity was vastly less than it is today. On top of that you would have to disentangle two world worlds, The Great Depression, and all the times various nations dropped, re-established or suspended the gold standard during this period. Anyway, the point I’m making is a fairly straightforward one. If gold is defined as money itself, and the economy grows in size, the amount of money available for exchange remains relatively fixed. This must force the value of gold to increase, as it can’t do anything else. (More likely reestablishing a Gold Standard would actually kill economic growth anyway.)
Will, “a random collection of absurd claims asserted without evidence”
I take it you don’t like the Austrian school of economics, but it is not so easily dismissed.
“This must force the value of gold to increase”. By this round about way I assume that you are referring to deflation, that is the decrease in the price of goods purchased by gold. Why do you consider this bad? For example, is it bad that the price of computer memory has decreased? See:
http://www.jcmit.com/mem2015.htm
“More likely reestablishing a Gold Standard would actually kill economic growth anyway.” I don’t think that history is on your side in this. See:
http://www.econlib.org/library/Enc/GoldStandard.html
“I take it you don’t like the Austrian school of economics…”
I don’t dislike it nor do I like it. I have not studied it sufficiently to pass judgement. But people who purport to promote the Austrian school should address criticism of it head on. My observation is that they tend to ignore or pretend that criticism of their school does not exist. In that sense, like global warming nonsense, it seems more like an ideology than a scientific theory. (A lot of these proponents also seem, conveniently, to be precious metal traders.)
We have a very simple economy on an island. Assets include 100 apples and we also have 100 gold coins. Hence the exchange rate for an apple is 1 gold coin. The following year there is an “explosion of information technology” or “surprise” or whatever you want to call it, and now there are 200 apples. (Someone planted more trees and waited around for them to grow.) But there are still only 100 coins. Question for the class: why did the apple grower bother to grow 200 apples when there are only 100 coins available? All the apple grower managed to achieve was cut the value of his produce in half by doing more work. The people who owned the gold coins doubled their purchasing power by sitting on their arses and did nothing.
William, I agree with you on Shannon’s mathematical information theory. I extend it in my book from the pure probabilistic model of his papers to the kind of singularities you describe. My extension is encouraged (though not explicitly authorized) by his comments on the stock market, biology (which does offer an alphabet), and other such phenomena. Chaitin approves of such an extension: see his “Proving Darwin” and its celebration of a “new math of creativity, a post Goedel, post Turing math.” I recognize it is an analogical stretch. But I flatter myself to believe that it affords valuable insights into economics. I look forward to seeing you at DDP.
Will,
“I have not studied it sufficiently to pass judgement.”
“My observation is that they tend to ignore or pretend that criticism of their school does not exist.”
When you have studied it sufficiently, you will see that this is not the case.
“A lot of these proponents also seem, conveniently, to be precious metal traders.” I don’t understand this comment at all. Maybe they are trying to protect themselves from what they see as the inevitable collapse of fiat currency.
Your apple island example doesn’t make sense. If there is only one commodity there is no need for money. You have to add at least one more, say fish. Then you can say that money is used to make the barter between apples and fish more convenient. One person specializes in apples and the other in fish. There is no fixed exchange rate between apples and fish and it will be subject to supply and demand and so the price of each (in gold) will fluctuate as well. Since no one is forced to sell and no one is forced to buy it can be no other way. In this simple island example gold will be a commodity as well. It must be mined and refined. If the apple grower and the fisherman lose confidence in gold it will no longer be used as money. The problems begin when we add an autocrat who uses force to demand a set exchange rate between apples and fish or who fixes prices and wages or worse yet dilutes the gold with copper so as to produce more money for himself. The latter is combined with the demand that the adulterated money is accepted at par. This is a type of fiat money and will lead to inflation which the autocrat tries to control by fixing prices. This attempt to circumvent the law of supply and demand is what leads to economic collapse.
Scotian,
First of all nobody is the ultimate authority in any subject. However, it’s easy enough to spot when someone is ducking questions, being evasive regarding criticism or presenting very one sided arguments. As in the link you provided. Since you claim to be the expert in Austrian Economics may I ask why you missed all these obvious things and posted a link to such a silly article on the subject? Could you actually tell it was a silly article? Because if you could not (you were after all, recommending it), this may hint that your knowledge of economics is far less than mine.
Regarding analogies: the problem with using them on the internet is that the main point being made may go over the head of the reader and often what happens is the reader focuses on some trivial or inconsequential part of the analogy instead. An analogy is of course, a simplification. Trying to change the analogy to work doesn’t help your argument. Adding a second commodity (fish) doesn’t effect the problem I was trying to lead you to by the nose. In fact you recognised the problem (perhaps only partly consciously) by pointing out that for this micro economy to work, new gold coins must be created, otherwise our island economy fails to grow. Or in other words, we must create more money much in the same way that fiat currencies create more money. One of the many reasons why a gold standard is nonsense, is that we don’t have enough gold to represent dollars any more. And if you decide to fix this by making one dollar some tiny fraction of a piece of gold, you don’t just confirm my original criticism. (Gold escalates in price but does nothing productive for the economy). Or you try to fix this by introducing some ratio of gold to each dollar, in which case the government will adjust the ratio when it sees fit, and therefore not solving the problem the introduction of gold was meant to fix.
Unfortunately all you did in your comment was to try to fix the problem I pointed you to — without acknowledging there was a problem to begin with — and then lectured on how your non-solution would bestow all these other benefits. And of course this is exactly what Gold Bugs do. They skip over the part where their non-solution logically fails, and just want to talk about all the benefits that their unworkable solution would avail us, if it in fact worked.
Will,
Your first paragraph is just an unproductive attempt to be insulting and is thus not worthy of response.
In your second paragraph “Adding a second commodity (fish) doesn’t effect the problem I was trying to lead you to by the nose.” Why, I was just following the definition you, yourself, used in a previous comment “Money is not a measure of wealth. It is foremost a medium of exchange and any other role it has, such as using it as a measure of wealth, is secondary.” To be a medium of exchange there must be more than one commodity. As I said, gold can’t be used to buy apples on apple island.
“new gold coins must be created”. This may happen but it is not necessary.
“new gold coins must be created, otherwise our island economy fails to grow.” Economies grow through the accumulation of capital, in this case apples and fish. New gold coins won’t do it. How could they? In the larger economy you have to distinguish between sound money that represents past production and fiat money that sends false signals and causes a destructive boom/bust cycle.
“Or you try to fix this by introducing some ratio of gold to each dollar, in which case the government will adjust the ratio when it sees fit, and therefore not solving the problem the introduction of gold was meant to fix.”
This is not a fix. In a gold standard, dollar is just another word for gold as money, but in one sense we agree: it is difficult to restrain government corruption. Fiat money is the end game of this corruption.
“Gold escalates in price but does nothing productive for the economy”. What do you mean by price in this context? I assumed that you meant deflation before but I’m not so sure now.
Your last paragraph is back to insulting mode again. I’m afraid that if you are unable to debate like a gentleman, we’re through.
Scotian,
If you want to keep the dialog civil, then don’t open with the rhetorical gambit that I will understand your argument once I learn more, especially since I likely know more than you on this topic. (This doesn’t mean I am an expert, but only that you have failed to demonstrate much knowledge of the topic.)
“To be a medium of exchange there must be more than one commodity.”
That is not the point of the analogy. This is not a real economy. It’s the simplest possible example I could offer relating to the issue of money supply. Add one item of exchange or unnecessarily complicate it by adding one million. It doesn’t change the point of the analogy.
“n the larger economy you have to distinguish between sound money that represents past production and fiat money that sends false signals and causes a destructive boom/bust cycle.”
This is a non sequitur. Nobody is disputing the problem. What I am pointing out is your non-solution doesn’t address the problem.
Again you failed to address (possibly understand?) the points I raised. Let’s assume that’s my failure, so let me try this another way by asking a question that is phrased more in economics jargon. Should the money supply ever increase? If so, under what circumstances? What happens if the economy grows and the money supply decreases? If you can provide sensible answers to these questions, you’re on your way to understanding why Gold Bugs talk nonsense. Please note, the fact that I’m being critical of Gold Bugs doesn’t mean I must be some kind of quasi-keynesian who thinks I can spent my way out of debt. E.g., because I don’t see any evidence for a climate crisis it doesn’t follow I deny the Greenhouse Effect.
Will, apparently you can’t so we are through. I only like to debate when there is the possibility of mutual enlightenment. YOS is the best example of a worthy debate partner.
Translation: I’m unable to answer your basic questions about the role of money supply.
Will, all your questions were answered. You just called everything that you didn’t like silly. If you have real interest than a great deal can be found at:
https://mises.org/library/mises-daily
https://mises.org/library/case-100-percent-gold-dollar
https://mises.org/library/case-100-percent-gold-dollar-2
You can download from the last link. It is a short book and will answer all your questions better than I can, that is if you honestly want answers.
Scotian I’ve observed over the years that posting links is a way to brush off a response if the person is unable to respond sensibly. I wasn’t asking for a dissertation, simply a paragraph explaining your view of the matter.
As an aside, when a libertarian or conservative on a blog somewhere raises the topic of “Austrian Economics” they usually don’t know very much about the school or indeed much about economics either. They are usually arguing one single point which is that an increase in money supply = inflation. But the real world is far more complicated than that.
Let me phrase the original question in terms of a hypothetical story. (I tried an analogy and some economics jargon but you weren’t able to grasp the point.)
A successful business owner walks into a bank in order to seek a loan. The banker looks over the business plan, the businesses’s aged trial balance, its overheads, its orders on the books, and its assets. The bank replies, “Well Fred, this all looks great. You’ve got a great little business here and I realise you want to expand… but… I’m afraid those gold miners have been a bit slow this last decade and there is not much money around I can loan you. It’s all been loaned out already. Let’s hope they’ll hit a big load next year, that way the bank will be able to lend you the capital you need.”
What a sensible way to run an economy. 😉
New gold finds are a tiny part (less than 2 %) of total gold available for money, which in turn can be a minuscule portion of money backed by gold. In a pinch, people melt down their gold watches and necklaces.
George is ‘Gilder’ your real name? Just curious. Because Gilder originates from the Middle Dutch word gulden, which means gold.
No, Gilder derives from the English word gilder.
The dutch is guilder.
George
You do know that almost all of English is a composite language, and that all the words have origins in other languages such as the Germanic languages, the Romance languages, etc? Nonetheless, I double checked, and according to the Oxford Dictionary, Gilder derives from Old English gyldan, which derives from German. And it still means ‘gold’.
Will, I’ve observed over the years that writing in an insulting or snarky fashion is a way to brush off a response if the person is unable to respond sensibly.
In your hypothetical story you are correct in one sense, which is a business can not expand without capital. Capital comes from investors who use savings (either in the form of gold or capital goods) from the previous production of other people. If this previous saving does not exist then the economy cannot expand. This is why people and cultures who live hand to mouth do not develope. You need excess production to do that. Your solution and unfortunately the solution of most governments is an attempt to trick the economy using counterfeit money (fool’s gold) which is not based on real savings. In a primitive culture you can see that this will fail immediately. In an advanced culture which is not at the hand to mouth level it will cause a temporary boom in some areas of the economy at the expense of others, followed by the inevitable bust.
The discussion is not complete without a link, so here is a video one. No reading required. 😉
https://m.youtube.com/watch?v=d0nERTFo-Sk
Scotian don’t confuse snark with exasperation at your unwillingness to think critically. You can’t have a constructive conversation with someone whose starting point is the conclusion and then who tries to pick and choose his factoids to fit his conclusion. Most people do this, because people are lazy or have short attention spans. It’s easier to pick a narrative rather than subject a topic to critical analysis.
A business can grow in the story I described, but only at the expense of another business. If you lock your available capital to a fixed amount or, say, peg it to gold (which is nearly doing the same thing), you are going to stop the economy from growing. Well maybe not, but you’re going to put enormous barriers in the way. This doesn’t mean that you can then go off and do the opposite, which is to print money, and think you can get away with that. There are two extreme positions here, and you’re adopting one extreme position to counter the other. It’s like someone who argues we need Fascism to counter Communism or we need to become Fascists because its the only effective means of countering the Communists. Maybe there is something more workable in-between. Notice how you write about ‘my solution’ when I’ve offered no solutions. I’ve just posed questions which you failed to answer, probably through your lack of knowledge of the subject matter. (Unfortunately you need to consult more than blog posts from gold bugs or utube videos to get some basic understanding of the topic.) Regrettably, this gold standard nonsense is to some Conservatives what global warming is to some Progressives.
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Gilder’s thesis resonated with me because it (just barely) begins to apply the idea Antal Fekete taught us in this article. The rest of George’s “unit of account” claim finds full support in Fekete’s other writings on the subject of “constant marginal utility” and especially his review of Carl Menger’s “evolution of money” view (in which the universality of objective facts caused convergence of gold’s subjective value). If, by some chance, George or any of you have not studied this body of work (and it has a learning curve of classical terminology, so beware and do not despair), please make some effort!
Thank you for the references to Fekete, who grasps the identity of information and entropy and the objective value of gold, as opposed to its value in what it buys. I will read him more closely.
The readiness of people to dismiss the idea of money as an objective measure of economic value leads to a fear of what is called deflation. As wealth increases through learning, real prices drop beneficently. If real prices are not dropping, learning is not happening and wealth is not being created. Any objective measure will show it. Abandonment of objective measures is the problem not the solution.
Time is the source of objective measurement. Time is not money, but money is valued in time. Interest is not the time value of money; it is the money value of time.
GG
very interesting article and discussion …
you mention that “A Soviet five-year plan was highly predictable, but produced an economy only New York Times readers would enjoy. So we’re not chasing entropy, high or low, but good information, knowledge. Knowledge is information which is true.”
but what if Soviets will have Watson at that time ? And that we could predict supply and demand ? And what if we could run two parallel systems, one addressing basic needs supply and demand (ie unconditional basic income), and then we have another system which address surplus and its distribution ?
When we have enough for everybody on the planet (so people do not die from hunger anywhere) then we could talk about surplus distribution.
I think we chase entropy – as we want to decrease uncertainty (to stay organised) – but the question is for what purpose and how. Shannon did not talk about information, but about the messages conveying information. And I saw you mentioned Mises here – but as far I remember he told that thing is universal, but we give it a meaning. So its about who send the message and what that message means to different receivers…. And how we decrease uncertainty ? By exchanging messages. So we have system with agents that exchange messages conveying information with purpose to reduce entropy (stay organised) ..
What is good information ? And what is true knowledge ?
Good Information and True Knowledge are becoming good and true only in a relation to agents cognitive states. And if system consist of high number of agents, to reach intersubjective agreement what is good and what is true will take time . Only when meaning is created then information exist. The less time is spend on making intersubjective agreement system is more effective and productive. So sooner agent come to consensus on true and good – less time is spend and more “money” is left to exchange it with environment …..
The scope of modern information theory is broader than Dr. Briggs seems to think. It includes creation of as well as communication of information.
In the creation of information the builder of a model of a physical system creates an optimal decoder of “messages” coming
from the future. Each such “message” is the sequence of outcomes belonging to the future. The code is not error correcting. Thus,
unlike in telecommunications engineering the received information is incomplete.
In full generality, the “entropy” is the unique measure of an inference in the probabilistic logic. The existence and uniqueness of the measure of an inference
in this logic provides a solution to the ancient philosophical problem that is called the “problem of induction.” The problem is of how in a logically
defensible manner to select the inferences that will be made by a model. The solution is to optimize (maximize or minimize) the entropy.
The sole alternative to optimization in selection of the inferences is to select them by the intuitive rules of thumb called “heuristics and biases.”
Heuristics and biases provide a suboptimal and logically flawed solution to the problem.
Time is certainly a precious and unrecoverable resource for everyone. But because it cannot be fungibly traded directly, it cannot be priced. You cannot sell to me some years of your life, nor can I sell you any of mine (and neither of us knows how many we even have).
It terms of economics, it is not time but what is generated (by inputs of time, materials, skill, ingenuity, as well as other resources) and how its use is perceived by the market that creates value. Simple time-arbitrage gedanken make this obvious, e.g.:
– It may take a greater amount of time for someone with poorer mining technology and prospecting skill to extract and purify an ounce of gold from the earth, but the market will price both ounces of gold identically (assuming they have the same carat & quality).
– It may take half a day for a child to make a ‘mudpie’ out of kitchen ingredients and an hour for a skilled chef to bake a meringue pie, but
guess which will get paid for their product.
– Noone gets paid to go sit still for a few hours and do nothing.
Constructing a data structure or minting a bitcoin involves some creation and transfer of ‘information’, but so does blowing an airhorn, or talking aloud in your sleep. It is not just burning time to generate an information unit that is of-value. It is the perceived market utility of it (which can change and is not in anyway intrinsically rooted to anything like the time-interval it took to create it). Laying on my couch for an hour singing out new melodies that my mind-streams is nothing anyone is ever going to pay me for.
Bitcoins have value because of the use that people perceive in them.
BTW, that use will remain higher as long as these e-currencies remain out of the purview of federal governments.