The Man on the Margin Addresses Monetary Theory

From time to time, I publish responses from my readers to my Daily Prophecies.

Answering my presentation of Peter Zeihan’s views on China’s disastrous demography is Mike Kendall, the Man on the Margin pilot of my monetary theory.

According to Zeihan, the cause is the self-genocidal one-child policy. In my view, it stems from the Marxist and green materialism that views people as a burden on the planet.

Says Zeihan, a geopolitical futurist from Austin, author of Dis-United Nations, these policies have put China into “the worst of all possible worlds” demographically.

As soon as 2030, China will have four retirees on pensions for every two taxpayers, for every one child.

The result, he says, will be bust, famine, and failure.

Kendall responds: “China could solve its demographics problem by exchanging state control for individual and political liberty. Women would become the most valuable resource and would flock to China from all over Asia and the world. So, would the best and brightest in a replication of early American history.

In the same way, America could solve its own economic issues by returning to the early American values of stable money, low taxes, and limited government defined by the constitution. That neither China nor the US will turn to the obvious solution makes Zeihan’s book relevant. But it should be understood within the context of what is easily possible.

The world rebuilt from the shattered rubble of WWII upon a foundation of stable money and low taxes. It achieved real prosperity in a decade that propelled the US to the top of the global economic pyramid.”

Time-Prices Reign Supreme

Today, under our perpetually metastasizing government and hypertrophy of finance defined economic system, we couldn’t imagine any economic solution for recovering from WWII other than more money manipulation to make it worse.

“In our current economic morass, we appear hapless to recover from a dip in markets at all-time highs.

I still believe the only chink in your otherwise ironclad and foundational information theory of economics is your reliance on 1980 as the base year for time-price data.”

Under my theory, money is tokenized time. Denoting true prices is not the nominal paper printed by central banks but the number of hours it takes to earn the money to buy something.

My numbers all originate with calculations by the estimable economists Gale Pooley and Marian Tupy, which begin in 1980 because they were first calculated to show that Julian Simon would still massively win his bet with Paul Ehrlich on commodity prices.

Simon wagered that any five commodities Erhlich picked would become more abundant and drop in price in the subsequent decade. Simon decisively won the bet, but Erhlich and other critics wrote it off as the effect of recovery from the inflation of the 1970s.

Pooley and Tupy showed that since the original bet in 1980, the prices of the 50 key commodities for human life had dropped 72% while the population grew 71%. Abundance had grown by 518% during the subsequent period of nearly four decades.

Kendall, though, is concerned with the huge distortion in all prices effected by the end of the gold standard in 1971. Before that event, time prices and official prices were presumably better correlated. The transition — and the role of gold measuring time — needs to be examined closely.

Today’s Prophecy

The gold price cancels both capital accumulation and technological progress. As capital and technique improve the gold deposits become deeper and harder to extract, nullifying the impact of the improvements. Thus, the price of gold seems to reduce to a measure of hours of time to extract an incremental Troy ounce, which has changed little in millennia.

“Correct that distortion,” Kendall wrote, “and you will solidify your information theory of economics as an unassailable determinant economic system. You will be the Adam Smith of this generation — in a hundred years or so.”

That’s my Man on the Margin (the name of his brilliant blog), who I introduced in the “Bitcoin Flaw” chapter of Life After Google. Adam Smith or not — I criticize Smith’s theory of the division of labor in Knowledge&Power — I entirely agree with Kendall on the importance of the gold standard.

In Life After Google, I show that it was essentially created by Isaac Newton in the early 18th century when he was Master of the Mint in Britain and when his alchemy proved that gold was “un-hackable” from inferior metals.

Pooley and Tupy have compiled many time prices that will be useful to developing the information theory in years to come. William Norhaus, the Nobel Laureate from Yale, however, shows in a famous paper described in Knowledge Power that even gold-based prices do not capture all the many thousand-fold gains measured by time-prices as applied to the production of lumens of light.

There is still much intriguing work to be done to sort out the theory of money as time. But it is happening today.

Perhaps we can even gain some interesting support before a hundred years.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

You May Also Be Interested In:

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

And he’s certainly no stranger to the financial newsletter...

View More By George Gilder