China is Moving Toward the Information Theory of Economics
Erupting in China is a new debate about money and cryptography that leaves our nattering central bankers, treasury manipulators, financial regulators, and even Pentagon war-gamers way behind.
In a study seminar for leading members of the Chinese politburo late last month, Premier Xi Jinping declared that “blockchain will play a key role in the next round of technology innovation and industrial transformation” of China and the world.
Together with previous moves by the Chinese Central Bank to explore blockchain-based currencies, this declaration by Xi suggests a portentous rethink of earlier Chinese bans of cryptocurrencies as possible vessels of capital flight from China.
Chinese companies already lead the world in the number of blockchain-related patents. During my travels in China, where Life After Google has been an award-winning best seller, I have found the new generation of Chinese entrepreneurs entranced by the technology. Most bitcoin “mining” occurs in China and uses amazing application specific integrated circuits from Bitmain corporation manufactured in Taiwan by TSMC.
Thus, Xi’s endorsement for their activities sent a high voltage signal reverberating through the realms of Chinese enterprise like the previous galvanic shock promoting artificial intelligence (AI).
In the US, most of the coverage invokes images of Orwellian surveillance and control by the communist party. But I think it is a radical mistake to interpret the current Communist party of China chiefly through a horror-house lens of Orwellian mirrors.
Communism in China mostly serves as a ritual of legitimacy for the present regime by linking it to Mao’s unification of the country. Marxism has little or nothing to do with Chinese policies toward money, economics, and technology.
The Xi speech provoked a flock of goose droppings about national supremacy in these fields. But blockchain, AI, and information tools combine in an inexorable weave of contributions from around the globe — from Israel to Shenzhen and Silicon Valley.
I want to note that efforts at national supremacy and balkanization through classified secret projects will fall far behind transnational breakthroughs in open source and entrepreneurial ventures.
Countries that try to dominate through government will defeat themselves.
The appropriate strategy is to welcome China to joint or parallel adventures on the frontiers of blockchain and the information theory of economics.
Quantum Computing Joins the Party
Early in November, came a new shock. The eminent Huawei founder/philosopher Ren Zhengfei responded to Xi with a cautionary alarm. He declared that blockchain will be rendered “worthless” by quantum computing.
Since Ren had earlier enlisted his company in the Hyperledger blockchain consortium and launched a blockchain-based cloud service, called software as a service (SaaS). This bold assertion in defiance of Xi detonated widely.
Last month at my COSM conference in Seattle, Michael Kratsios, the chief technology officer of the White House, ignored blockchain and pointed to a Google claim of “quantum supremacy” as evidence of US continuing world leadership in technology.
I actually believe these claims are way overblown. To me, all computing is quantum. Quantum is a form of analog, which always poses the problem of conditioning the inputs and interpreting the outputs in the real world.
As a physics experiment and teaching tool, the so-called “quantum computer” is fruitful since as MIT’s Seth Lloyd has shown, the Universe itself may be studied as a quantum computer. But it has severely limited real-world applications.
At present, the most impressive quantum experiment is not Google’s shuffle of qubits but Pan Jianwei’s 1200 kilometer tour-de-force with entangled photons across satellites.
We’ll see what is most significant. But Vitalik Buterin, the titan of Ethereum, and Andreas Antonopoulos, the leading bitcoin theorist, both offered learned arguments that quantum computing would make no difference for “a decade or more.”
Whenever an expert tells you a technology is a decade away, you can assume that he has no idea whether it will ever happen at all.
All of these views should be fit into the context of the theories of Chen Gong.
Chinese Intellects Weigh in on Money
Chen Gong was touted to me by my friend and guide Ralph Benko as one of the most influential intellectuals in China. His think tank, “Anbound” is perhaps China’s most important. As Benko puts it, “a Chinese combination of Heritage Foundation and Booz, Allen, Hamilton.”
Anbound was a leading advocate of the “Silk Road” and “Belt and Road” initiatives, framed as a kind of Chinese Marshall Plan for the third world. US government experts, needless to say, see them as sinister schemes of world domination.
Let’s compromise and say that foreign aid on all sides tends to conceal self-interested motives. The effects of China’s outreach will depend on the future of relations between China and the US.
Chen is an intriguing figure. Declaring that “papers are the core of the academy, but ideas are the core of policy,” he is a leading exponent of information theory in economics in China. That’s why he pursues many of the themes of this Daily Prophecy.
Commenting on British Central Banker Mark Carney’s view of the dollar in the wake of the 2008 financial crisis, Chen recently wrote in the Brussels Times:
“The “excessive privileges” of the dollar are increasingly incompatible with the current needs of international trade and financial transactions. For this, the world has a real need and reason to get rid of the dollar…
Unlike other forms of ‘international currency’ that are discussed by central banks as alternatives to the US dollar, Anbound believes that the ‘super-sovereign currency’ will prevail.”
By a “super-sovereign currency,” Chen Gong means a currency that transcends international borders, what he calls a “geo-currency,” such as gold. He predicted that the dollar will not be replaced by “digital currency.”
However, Chen concedes: “The status of the dollar might be in a slow decline, but its decline will be a very long process.”
Chen’s view assumes new significance in the light of Premier Xi Jinping’s recent celebration of blockchain and the long preoccupation with gold in China, ever since Mao began his regime by returning China to the gold standard.
The leading Chinese intellectual on money is Zhou Xiaochauun. He was a prime mover in China’s explosive Free Zone movement. For some fourteen years he was the legendary Chairman of the Chinese central bank.
In the wake of the Financial Crisis in 2009, he called for a return to John Maynard Keynes’s Bretton Woods proposal of a “bancor” currency. Independent of the dollar, it would be based on a gold standard.
In my view, the ultimate source of scarcity and value of money as a measuring stick is the passage of time. Time is what remains scarce when all else grows abundant.
In the Information Theory of Economics, money is time and gold is ultimately time.
Takeaway: China is moving toward the information theory. I am making trips to China in December and January to promote my book and its information theory.
Perhaps, information theory will enable us to transcend the increasingly sterile debates between the US and China over economic systems that may well be converging.
Editor, Gilder’s Daily Prophecy