George Gilder is famous among conservatives. For decades, I have heard positive things about him, primarily for his work in supply-side economics and, more recently, in technology. “The Scandal of Money” is an unsuccessful attempt to combine the two. Criticizing both Left and Right, and most of all Wall Street, Gilder calls for unleashing economic growth through a monetary restructuring—namely, a return to the gold standard, buttressed by Bitcoin.
Maybe we do need a gold standard. But Gilder does a poor job of explaining to the reader why that should be. Now, honestly, I’m not the best person to comment on this book. While I theoretically have a fair bit of economics knowledge, including an economics concentration in a Booth MBA, I don’t really grasp most economic theory. In particular, I know little about monetary theory. But really, the reader’s knowledge shouldn’t matter in a book like this—the author should be clearly able to explain what others think, what he thinks, why for both, and what that implies. Gilder does explain what others think, and to some extent why. It’s what HE thinks that’s incoherent—not because it’s necessarily wrong, but because the reader has almost no idea what he’s saying, other than his basic conclusion, much less why he’s saying it. So yes, it’s possible that a return to the gold standard, buttressed by Bitcoin, is a solution to all our economic problems. But as to why that should be, I’m still in the dark.
From what I can tell, this book is designed to supplement an earlier book in which Gilder created what he views as new theory of economics, relating to information and time being the key drivers of economic success and measurement. Gilder touches on this, but at least in the way he summarizes it here, it makes no sense. Maybe you have to read his earlier book.
This book, short itself, is organized around a series of very short chapters, each of which could stand alone. That itself is a bad sign, of a book not fully tied together and consisting of outlined thoughts thrown down on paper, and that initial perception is borne out by the reading. Each of these chapters reads like a morning’s musings blown up into a short essay. This is not helped by constant citations as experts to unimportant people like Richard Vigilante (who?) and sucking up to Peter Thiel by dragging him in irrelevantly (he, at least, is known, and contributed a blurb quote). The net effect is disorganized.
Within these chapters, Gilder keeps repeating himself. For example, as I return to below, he blames the collapse of telecom companies at the end of the Internet bubble, and by extension the entire bubble collapse, on the stronger dollar causing debt-heavy telecoms to face deflationary pressure (though he does not explain this fully, and that seems like it’d only be true for unhedged cross-border debt). But he repeats this at least four times in separate sections in the book.
Anyway, on to the text of the book. Gilder’s first chapter talks of our economic stagnation and rejects the thesis, most recently advanced by Robert Gordon, that the age of rapid growth and innovation is over, since roughly 1970, for structural reasons. According to Gilder, yes, innovation and productivity have dropped—not for structural reasons, but because innovation has been choked by the government. Not by government regulation, which is a common argument. Rather, it has been choked exclusively by the government taking the United States off the gold standard, in 1971, which resulted in volatility and “chaos in money stultifying the entire economy,” and causing all our economic problems up until today. This is presented in essentially a conclusory fashion—post hoc, ergo propter hoc.
On the face of it, this makes little sense to someone who understands business. Volatility and unpredictability, even if they do result from lack of a gold standard, can’t explain business stagnation and lack of innovation. Uncertainly is the one business constant; businesspeople always face huge uncertainty. Extra uncertainty due to monetary changes isn’t a massive change. Gilder seems to acknowledge this indirectly, and undercuts his thesis, noting that during the 1980s and 1990s “U.S. entrepreneurs fought back, empowered by technology and spurred by tax-rate reductions and deregulation.” So apparently the lack of a gold standard wasn’t fatal after all?
But then, according to Gilder, in the late 1990s the appreciation of the dollar (because of no gold standard) was equivalent to deflation, and that brought down the Internet economy. To show this, he (again) cites the bankruptcy of telecoms resulting from debt becoming more expensive. Leaving aside that makes no sense except for cross-border debts, it should be obvious that those assets went in bankruptcy to new owners, and the Internet economy should have gone on essentially as before, with new equity owners (not to mention that Internet infrastructure is by no means a synonym for the Internet economy, nor was the Internet economy our whole economy). So if it seems like none of this makes sense, you’re on to something.
We’re still on the first chapter. Here also begins constant rambling and lack of clarity. I could pick many examples, but let’s pick one paragraph:
“Dissolved were the maps and metrics across both space and time. The spatial index is the web of exchange rates between currencies that mediate all global trade. This is a horizontal axis, the geographical span of enterprise. Here existing products are replicated across now-globalized space—in Peter Thiel’s trope, from ‘one to n.’ The indices of time are the interest rates that mediate between past and future—the vertical dimension that takes the economy into the future, what Thiel depicts as the vectors from ‘zero to one.’”
What does that mean? I have no idea (though, having read Thiel’s book from which these phrases come, I’m pretty sure it has nothing to do with Thiel’s usage of the terms ascribed to him). What does any of this have to do with the lack of a gold standard creating business chaos and lack of innovation? Beats me.
In the next chapter, Gilder pushes his “information theory of money and capitalism,” which is opaque, but seems to mostly be a conclusion that increases in wealth are created only by increases in knowledge. Mostly, though, he just sounds drunk, rambling about the speed of light, justice and the corruption of elites.
Presumably believing he’s set up a framework for analysis, Gilder turns to attacking Milton Friedman for his opposition to the gold standard and failure to understand how the velocity of money works. I can’t speak to this, because it’s above my pay grade. But the writing again shows flaws. For example, Gilder alleges that velocity must remain constant under standard monetary theory in order for monetarist policies to work, and given that people may voluntarily change velocity, “Why monetary theory disregards this policy has long been an enigma to me.” The very next sentence, beginning the next paragraph, is “Friedman developed a shrewd and plausible answer.” It seems to me that if Friedman, the high priest of monetary theory, offered an answer to the question, it’s very much not being “disregarded.”
Gilder then discusses, in the subsequent chapters:
1) That government control of monetary policy allows government to make stupid and corrupt choices to benefit pet projects and people (undoubtedly true, but a commonplace).
2) Why gold is unique (in essence, because the only real measure of a unit of exchange is time and gold is closely tied to time, in that it requires time to extract it). Non-gold money distorts decision making by unmooring the scarcity of time from the measure of value.
3) Why countries that refuse to participate in floating currencies, such as China, benefit immensely from this (and we should make nice with China).
4) Why Bitcoin is similar to gold in its time basis, and why non-governmental currencies tied to commodity baskets are not equivalent.
5) Attacking the leftist Thomas Piketty and the rightist Lord Adair Turner (who?) as being both slaves to monetary fallacies and slaves to the evil genius George Soros.
6) Attacking the entire finance industry (while only specifically indicting currency trading) as growing hugely while providing no actual value.
7) Rambling about Silicon Valley “unicorns,” venture capital and IPOs with no point I can detect.
8) Attacking big banks as both being clients of the government and profiting off the volatility that harms businesses which actually produce (also undoubtedly true).
9) Attacking insider trading rules (this part actually makes sense).
10) And, finally, returning to a call for the gold standard.
But at the end, the reader knows nothing new, except that George Gilder really likes the gold standard. My conclusion is that Moses should not have left Gilder alone when he went up to Sinai, because when Moses returns, Gilder will still be sitting, entranced, in front of a golden idol of his own making.