The Soul of Enterprise Interview [Part 3]
Today, I’ll be sharing the third part of the transcript of an interview that I did with the hosts of The Soul of Enterprise.
Keep scrolling to read part 3 in this series…
Ron: George, are you familiar with Dierdre McCloskey’s trilogy The Bourgeois Dignity, the bourgeois virtues books?
George: I’ve read various essays by her. What should I read? I don’t want to read some vast work at this point. I’m in the middle of finishing a book.
Ron: No, yeah. Actually, just listen to our show.
George: Is she really good or is …
George: Seems to be pretty good.
Ron: She’s excellent. Like you, she’s a fantastic writer. She wanders but I love her wanderings because they’re all very erudite.
George: Which one should I start with?
Ron: She’s basically saying the reason for the great enrichment, the Industrial Revolution wasn’t … She doesn’t have a materialist explanation. It was because of language. It was because we gave the entrepreneur and the innovators dignity.
It’s a fascinating thesis. We actually had her on the show. I would just have you listen to that so I’ll send you the link because she does a great job explaining it, I think on our show. I would just love your take on it.
George: The entrepreneur’s dignity?
George: How does that relate to language?
Ron: That we changed our language with respect to them because I guess we changed our attitude and we started not calling them parasites and all that. We started giving them dignity.
Yup. It drives people like Matt really nuts because they have all these materialist explanations for the great Industrial Revolution but she falsifies almost all of them. She’s an economics historian.
George: I love that. That’s a terrific writer, doing a great job these days, Matt is. You’ve had him on the show?
Ron: No. We haven’t had him but he debated Dierdre.
Ron: Welcome back, everybody. We’re so honored to have George Gilder with us. George, there are so many things I want to talk to you about. Your book Knowledge and Power. Your book The Israel Test which I just think is brilliant.
I did get a question from one of our devoted listeners who wanted to ask you about inequality. This is a hot topic right now but you point out in your book The Israel Test that the Jewish population, I think these are worldwide figures, represents some three-tenths of 1% of the world’s population but yet they’re 25% of the notable accomplishments. You’d say, “Whatever the inequality of income is, it’s dwarfed by the inequality of contribution.” Do you really think inequality is moral?
George: Yes. I think that there’s a great misunderstanding that afflicts all these analyses of inequality. The assumption is that the wealth that entrepreneurs command is comparable to wages or even salaries. Wealth is a liquid and it’s management is extremely demanding. It is not available in general for capricious or indulgent use.
The fact that Bill Gates Is supposedly worth $85 billion or whatever it is, it’s irrelevant to his lifestyle almost. He spends a smaller proportion of the yield of that fortune than almost anyone else in the world, probably than anybody else in the world. He leads an abstemious life and he manages this fortune. If he stops managing it or abandons it or tries to sell it out, it’ll decline in value possibly faster than he can sell it. You can’t compare the wealth of entrepreneurs to the wealth of the worker. They’re different phenomena.
Now, I believe there is an inequality problem and the problem is that shrinking the investment horizons and government guarantees for all these financial speculations and that the emergence of the biggest industry in the world economy by far, by far the biggest industry by volume is currency trading. It’s the largest industry in the world economy and it’s the most useless. It does not yield a measuring stick or a currency value that are valid or less volatile and variable than the economic activity that it measures.
Wall Street likes volatility. Wall Street in its current organization with all its government ties feeds on volatility. What’s the downside of being protected by the government? Entrepreneurs want dependable currency values with the upside guaranteed by the rule of law. The real inequality, I think, is between those parts of the economy that are really guaranteed by government and thus are not really contributing to economic growth and progress and entrepreneurial activities that create all our wealth but they depend on what I call a low entropy channel, a predictable channel of law and tradition and morality and aspiration is the low entropy channel for creative contributions of capitalism and when you’re manipulating the currency, it can’t be a magic wand that creates growth. Money isn’t a magic wand, it’s a measuring stick.
Ron: Right. As you point out in Knowledge and Power, when Gates did run Microsoft, it was a mast he was tied to and that seems to be the genius of capitalism is it gives the capital to the people who can invest it the best and make it grow, develop that learning through falsifiable experiments.
George: Exactly. That’s the secret of capitalism is it awards to the people who proved that they’re capable of creating wealth and the right to reinvest it. If they start consuming it, then they withdraw from that process and they no longer are really creating wealth but as long as they are engaged in the entrepreneurial process, they get the right to re-invest the money that they make and through this learning process of enterprise.
Ed: George, Ed here again. I want to thank you for that. It was a great explanation. I’m going to take you back. I have a favorite sentence of yours that I’m going to share it with me and get your take on it. It goes back to Wealth and Poverty. It’s this sentence. “Say’s Law is not only refuted, it was implicitly reversed with cause and effect hopelessly confused in the proposition that demand created its own supply. Take and you will be given unto.” Do you think that’s still true today with this inequality debate and are you optimistic or pessimistic about the future, I guess even short and long term?
George: The key thing to understand, this is an economy of mind and economy of mind can change as fast as minds can change. In Knowledge and Power, I give all kinds of examples of countries that have turned around overnight and transformed themselves from hopelessly stagnant and sporadic socialist sloths into amazing, creative ascendancy. When they do it, it happens overnight. The US did it in 1946.
A lot of people don’t really understand what happened and how amazing it was that in 1946, we elected a Republican Congress that all the economics thought there troglodytes and fools. This Republican Congress defied the view of Paul Samuelson and the other economists that, “Unless we continued government spending at this same level that we had during the war, we would return to a great depression of this location and demoralization unprecedented in economics,” Samuelsson said.
Instead, that Republican Congress laid off 150,000 bureaucrats and probably 1,000,000 government workers not including the military and cut government spending by 61% over 2 or 3 years and cut taxes in half, essentially by authorizing a joint return for families. The result was the beginning of what we now look back on as a golden age but it’s worth remembering that it started with a 61% drop in government spending.
Ed: I hope that the current Republican and future Republican Congresses take note of that and take your advice to heart.
We’re up against our last break so thanks to George Gilder. We will have 1 more segment with him after our last word from my employer, Sage.
Matt: All right. Nicely done. All clear.
Ed: Great stuff.
Ron: Yeah. Great stuff. George, what’s your take on behavioral economics?
George: It’s trivial. They’re finding little ways that human beings tend to invest dysfunctionally. They’re trying to model human behavior. They’re trying to create a Homo economicus that incorporates various psychological biases and propensities and thus improve Homo economicus. It’s Homo economicus isn’t even rational now. Before, he was rational function of his environment. Now, he’s an irrational function of his environment. In the end, it’s a rationale for socialism, for having the experts rule.
Ron: Right. Right, yeah. No. I’m reading the book by Peter Foster, Why We Bite the Invisible Hand. He’s really attacking behavioral economics, too. Same thing.
George: Is that right?
Ron: Yeah. It’s very interesting.
George: What’s his name?
Ron: Peter Foster.
George: Oh. Is it a good book?
Ron: It’s a great book. It really is.
George: Somebody really should attack this behavior. It’s not that it’s wrong. It’s just boring. If you ascribe too much significance to the irrationality of the human being in economics, you end up exalting the expert and socialism.
Editor, Gilder’s Daily Prophecy