Wealth and Poverty: A 2006 Update

George Gilder, Author of Wealth & Poverty

About thirty years ago I began writing Wealth & Poverty. It did have a tremendous impact when it came out, largely because Ronald Reagan actually read it and wrote me letters about it. He gave it to Bob Dole, then the Republican minority leader, and told him to read it. Jack Kemp and Newt Gingrich read it and distributed it in Congress. Later, David Stockman gave it to the entire cabinet of the Reagan administration. Bill Casey promoted it to President Reagan’s speech writers, and that’s why I became the most quoted living author. Wealth & Poverty really did have an amazing impact in those days, because the timing was just right.

But also the time was right, because my purpose was to unify the American Conservative movement, which was then, as now, largely divided between the traditionalists (especially the Christian right) and a libertarian – liberationist wing, and never the twain could meet very well. It was really a divided party, and Wealth & Poverty tried to show that the libertarian freedoms of capitalism could only thrive in a context of Judeo-Christian moral codes and values, that freedom and order are not irreconcilably in conflict. They are, in fact, complimentary. You can’t have freedom without order. Chaos is a miseration of everybody, where life is solitary, poor, brutish and short as Hobbes imagined it.

So this book really focused chiefly on uniting conservatives, but it also reached out to the Left. And that gave it a further edge, because it allowed the Reagan movement to make an appeal that went beyond the Conservative cause, which was a minority even with all the Libertarians and traditionalists combined.

The chief theme that reached out to the Left was a demonstration that low tax rates made possible far greater government spending than high tax rates. And this is demonstrably true. If you will examine, as various studies have done, countries with low tax rates, you will find that they increase their government spending three times as fast as countries with high tax rates. Leftists can’t achieve their spending goals with high tax rates, which impoverish both the public and private sectors.

The reason that countries with low tax rates can increase their government spending three times as fast as countries with high tax rates is that the countries with low tax rates grow six times faster, on average. That is a rough estimate, in accord with a lot of data from the World Bank and updated by the Jude Wanniski group. There’s overwhelming evidence that countries with low tax rates can increase their government spending faster, so I always measure the impact of low rates by increases in government spending. That’s the way you can prove that low tax rates are really effective. They can only allow increased government spending if the private sector is growing still faster, and that’s the secret of their success.

A further key theme of Wealth & Poverty was the morality of capitalism. I contended that ultimately capitalists thrive through serving others. Capitalists must serve others because they can’t coerce others. Their customers have to make a voluntary decision to buy their products. Capitalism necessarily dictates that entrepreneurs are oriented toward the needs of others. Not only do they have to serve others, but they also have to collaborate with others, because their workers can leave. They have to want others to succeed. Unless others succeed, capitalists have no markets for their goods.

Most of all, capitalists have to devoutly desire that the poor succeed because the poor are always the largest untapped market for capitalism. The overwhelming dynamic of capitalism is to expand, to reach out to more and more of the poor. There is a lot of confusion over motives, but I don’t think motives are very significant. The fruits of capitalism include the dramatic, overwhelming reduction of poverty rather than extension of it.

The first person to make a major attack on Wealth & Poverty was Ayn Rand, who was one of my favorite writers. She immediately identified this book as posing a threat to her celebration of selfishness as the foundation of capitalism. Her last speech at the Ford Hall Forum at Harvard attacked Wealth & Poverty as an insidious “socialist” book that celebrated Christian altruism and corrupted the egotism necessary to have a successful economy.

A further theme of my book was “the pursuit of poverty.” In fact, my whole study of wealth began as an exploration of the roots of poverty. In that pursuit, I found overwhelmingly everywhere I looked that family breakdown was the key cause of poverty. The breakdown of the nuclear family, which is the critical instrument of capitalist propagation, is undermined by all the liberationist creeds of the cultural Left. The feminist, sexual-liberation movement was undermining family life, and that destruction of family life was the root of poverty in America; whether it was white or black, the same patterns persisted across society, creating a vicious cycle of inter-generational poverty and contriving a kind of welfare trap where people had to leave their families in order to support them. That point was a general theme of Wealth & Poverty.

What really causes poverty, I discovered, is greed and envy, which leads to the mobilization of government in a war against wealth. Poverty is really caused most profoundly by a belief in a zero-sum world: the good fortune of others comes at your expense. That’s the crucial belief that causes poverty and war and disease and all the afflictions of the world.

This zero-sum envy and resentment toward success explain nearly all the great atrocities of recent history: the Holocaust against Jews in Europe, the attacks on the Ibos in Nigeria, on the Indians in East Africa, on the overseas Chinese in Indonesia and elsewhere, the pogroms in the Soviet Union. All of these persecutions tended to focus on middle men, small businessmen, kulaks, retailers. Thomas Sowell also tells this story and the foundation of it is a belief in zero-sum economies, the zero-sum vision of capitalism.

Wealth & Poverty, with these various arguments, reached out to all the various factions in U. S. conservatism during the 1980’s. Now, a quarter of a century later, the nation faces an even more extreme challenge of unification. It is summed up by the issues of Islamic fundamentalism, terrorism, global envy and resentment toward the U. S. All these phenomena really constitute a new kind of challenge that is directly related to the challenge that I addressed in Wealth & Poverty.

Really, the answer to the threat of war, the general problem of war, is ultimately the spread of capitalism. Capitalism allows you to transcend war by creating wealth rather than capturing wealth. If you believe that the world is essentially infinite in its resources, and that the ultimate resource is the human mind in correspondence with divinity, you can understand that creation is the answer to the zero-sum model. Some people say that democracy, not capitalism, is the critical force in stopping war. But democracy without capitalism is virtually meaningless. It leads to civil war, because no source of power exists outside of government unless you have a capitalist regime. Capitalism creates independent sources of power. That is its great virtue. If you are creating independent sources of power, tyranny can never be exhaustive and overwhelming; there’s always hope for positive change.

Without capitalism, without economic property rights and freedoms, elections in a democracy become life and death battlefields. The group that wins survives, and groups that lose are excluded not only from political power but also from the economy and are pushed into subsistence life if they can indeed survive. Democracy without capitalism is a meaningless and worthless venture.

Some of these realities are exhibited by the contrary experiences of China’s success and Russia’s failure since the end of the Cold War. The key reason that the Russian program of emancipation or perestroika failed is that it started at the center and attempted to liberate all of Russia at once. The result is that it magnified the resistance of all the groups that benefited from the old regime. It attacked all of them at once, which made it desperately difficult to make progress.

The Chinese used the opposite strategy. Rather than a centralized, massive emancipation, they instead created free zones, and this induced an opposite dynamic. All the activity happened in the Free Zones. All of the pressure was for people outside the Free Zones to get into the Free Zones and for the people near the edges of the Free Zones to expand the Free Zones. Therefore, the dynamic in China has steadily expanded freedom and prosperity and not resulted in the paralysis that has afflicted Russia, despite its low tax rates and other beneficial policies.

Now capitalism is expanding all over the world. Quadrillions of dollars of new assets have been created in the world with the success of the Chinese and Indian economies. If you include the increase in human capital in these societies, it is an amazing era of triumph for capitalism. So why are we at war? I believe that Dinesh D’Souza’s new book, published by Doubleday, called The Enemy At Home, helps to explain our current predicament. It begins with a quote from Abraham Lincoln:

Shall we expect some transatlantic military giant to step over the ocean and crush us in a blow? Never! All the armies of Europe, Asia, and Africa combined, with a Bonaparte with a commander, could not by force take a drink from the Ohio, or make a trek on the Blue Ridge, in a trial of a thousand years. If danger ever reaches us, it must spring up among us. It cannot come from abroad. If destruction be our lot, we must ourselves be its authors and finishers. As a nation of free men, we must live through all time or die by suicide.

Lincoln’s words speak to us today, despite all the changes in technology.

In previous books, including Wealth & Poverty and Men & Marriage, I have argued that we might die a demographic death of sexual suicide, that the disruption in family life would result in such a decline of the birth rate that we essentially extinguish ourselves demographically as the Europeans are doing with their radically low birth rates throughout Europe.

D’Souza essentially agrees and adds a further point: the chief victims of this global movement of sexual liberation are poor traditionalist societies everywhere, most prominently Muslims. He thinks the great danger to America today, and the great hostility to America as the Great Satan, comes from a massive cultural campaign being conducted around the world by the American Left, with help from befuddled Conservatives. The campaign comes from Hollywood, the internet, U. S. government and quasi-government bodies, such as Planned Parenthood, ACLU, MoveOn.org, People of the American Way, and from a panoply of UN organizations addressed toward liberating women, making abortion ubiquitous, abolishing patriarchy, making divorce more simple, all under the guise of advancing human rights.

Traditional societies around the world feel that they are beset and afflicted by this cultural war that is emanating from the United States. Its signs are, as Dinesh puts it, for many Muslims, not freedom but atheism and moral depravity that are the leading exports of American civilization. The Left wants to incarcerate parents who use corporal punishment; they want to lock up fathers who uphold patriarchy. They want to persecute opponents of gay liberation. They want to dismantle religious monuments. They want to liberate pornography; they are trying to get the Chinese to open up their internet to pornography, for example, which the Chinese understandably don’t want to do. The Chinese are right – it is an outrage to be assaulted each time you open your e-mail by pornographic messages. The Muslims are right to resist it as well.

What D’Souza maintains is that the key to success against terrorism is to separate the radical extremist Muslims from the traditionalist Muslims. The sympathy that’s now manifest among traditionalist Muslims for the Bin Ladens and the extreme radical Muslims comes from this image of America as a totally secular society that celebrates pornography, family breakdown, divorce, homosexuality, and all of these lifestyles that Hollywood celebrates. Indeed, the essence of Hollywood’s ideology is that human nature is bestial, animalistic, and prone to violence; the only alternative is sexual liberation. That is the religion of Hollywood: sexual liberation. In almost any film, no matter whether it is an independent production or what, the religious assumption is that sexual liberation is redemption. It is shown in the general Hollywood attitude toward sainthood. Hollywood does believe in saints. Larry Flynt is a saint in Hollywood, and so are victims of AIDS, because they actually give their lives for sexual liberation, which is Hollywood’s key religious theme.

One result of propagating a culture of sexual liberation is that most of Africa is suffering from AIDS. Rich people can afford sexual liberation, but poor people cannot. So, when we get the U.S. and the UN promoting sexual liberation in the poor societies of the world, we end up arousing resistance and panic. This is because it is truly and direly threatening to these people. Over the last decade they have expressed rage and resentment toward American cultural values when American capitalism is, in fact, of real value to them.

The Chinese have shown that you can banish porn from the internet if you are determined to do so. Sin exists everywhere, but it can be kept under control. We don’t have porn on billboards. We don’t allow flashers in the park, but we allow flashers in your e-mail. That is just not an acceptable way to run a society, and the revulsion in the traditionalist forces of the Third World is a result of this.

Many people on both the Right and the Left ask me why I support Discovery Institute, and its program on Intelligent Design. This is a controversial program that causes a lot of distress among Liberals and even some Conservatives. To some, Intelligent Design seems to be introducing religious values into science, but I believe a discussion of the value of Intelligent Design is crucial to understanding capitalism and freedom; it is part of the thought process that producedWealth & Poverty.

I concluded in that book that the key source of wealth is creativity. Creativity in general can be defined as Intelligent Design. It is cogitating new things across the world. Yet, across the entire span of economic literature, I found almost nothing about creativity. Indeed, most economists on the Left and the Right created economic models that reduced the entrepreneur to a kind of Opportunity Scout, looking for opportunities in the material world. In these models, the entrepreneur was a mere arbitrageur, seeing differences between prices and different markets, or an assembler of chemical elements and new materials, as Paul Romer imagines him.

In other words, the view of the entrepreneur that was prevalent in economics gave him no properties that could not be performed just as well with computer programs. And yet, I knew something about computers and computer programs, having spent twenty years studying these industries and the information theory that underlies them. The key point of information theory is that information is defined by unexpected bits, by unexpected facts. If what is sent across a channel is predictable, it’s not information. Information is news; it’s measured by its “surprisal.”

Another word for surprisal is entropy, which measures the degree to which bits are unexpected. The key proposition of information theory is, I believe, that it takes a low entropy carrier, whether it is a conduit or a wire or a channel or a process, with no surprises, to bear a high entropy message, or a high entropy economic process. And this in economics translates to creativity. Creativity always comes as a surprise to us. As Albert Hirschmann of Princeton observed, if it wasn’t surprising we wouldn’t need it, and we could plan it, and socialism would work. You wouldn’t need entropy. You wouldn’t need surprises.

Another word for entropy in economics is profit. Profit stems from the surprising results. That’s why in information theory, you need an orderly, reliable, legal property structure in order to accommodate the creativity of entrepreneurship. This cannot be accomplished by computers, which are by definition low entropy carriers. In computers, any surprises are called glitches. The computer is the low entropy carrier for the ideas, the source codes, the semantic contributions of the engineer or the software writer. The computer proves that materialism is completely inadequate to explain the human mind. You can know the location of every molecule and every microchip in a computer, and its behavior, and not have the slightest idea of what the computer is doing or what its function is. In order to understand its function you have to understand its source code, which comes from the programmer. This is the most basic proposition of computer science. It’s the Turing machine.

Alan Turing in some ways really invented the computer and invented computer science. He had the greatest single insight, which was a computer could be made of any material whatsoever: it can be carbon, it can be silicon, it can be Lego blocks, it can be any kind of material. It can be an abacus; it can be a slide-rule. Any material can be used to make a computer, but the ideas come from outside the computer. The reason for this was also proven in the great mathematical insight of the 20th century, which was Goedel’s incompleteness proposition. Kurt Goedel showed that no mathematical system can be complete in itself. They are always based on premises beyond the system. You can’t have a totally consistent mathematical system of any kind or a logical scheme of any kind, without having outside premises that are not proven by the system itself.

Outside premises are another word for mind, and mind is not reducible to brain; it isn’t reducible to the material in a brain. Max Delbruck dramatized this point. He was a Nobel laureate, chemist, physicist, and biologist. His Nobel Prize was in medicine. Delbruck said that the effort of scientists to reduce the mind to a mere brain reminds him of Baron Munchausen’s effort to extract himself from a swamp by pulling on his own hair. The key propositions of materialism are just wrong and that means the universe is hierarchical. Our minds are at one level, and just as the word cannot explain mind, the mind itself alone cannot be explained without reference to premises beyond the mind, and those premises are divine. That’s what God is: premises that we can’t grasp because reductionism doesn’t work; there is a higher level. Goedel believed in his mathematical research that he was proving the existence of God. You can read a lot about Goedel in scientific works without that being mentioned, but that is what he thought he was doing.

If creativity ultimately comes from God, then God obviously exists and the secular American Liberals are wrong. That is why the Muslims are also more correct than most American secularists, in upholding a monotheistic universe. The Muslims are rebelling against the godless, sexual-liberationist campaign that the U. S. is mounting around the world. That’s why I think that Dinesh’s book, The Enemy at Home, is the critical Wealth & Poverty of this era.