Wealth and Poverty

A Review of Wealth and Poverty by George Gilder, ICS, 1993.

Mr. Gilder, presents the argument that entrepreneurialism is the most important component in the equation, entrepreneurialism plus capital plus resources (manpower and materiel) ideally equals wealth. As I read his book, I compared his comments to my experiences among entrepreneurs in silicon valley, particularly with Apple Computer, which I know as well as any outsider can, I guess. It seems to me that Apple fits Mr. Gilder's model perfectly until they arrived at the point of hiring their current CEO. At that point, it seems to me, the entrepreneurial age was over at Apple. It would appear that Apple has succeeded in establishing a standard, and that in their view, their best interest now lies in emphasizing that standard to the extent they can and exploiting it as far as possible for the benefit of the owners.

It also seems to me that this is standard behavior for business. Starting a business is an entrepreneurial experience and the notion of entrepreneurialism fits very well the immature phases of a company's life. But, if that company is so lucky as to establish a standard, or if it is in existence to exploit an existing standard, then some other term is needed to describe this, the middle and old age of business. The entrepreneurial phase is characterized by liberalism and creativity. The middle and old age of a business emphasizes conservatism and exploitation, in order to save jobs. So, my criticism here is that to characterize the entirety of business as entrepreneurialism, is gilding the lily (to coin a pun) in favor of Mr. Gilder's ideal. I think this could only be fair if one concludes that suppliers of standardized goods are part of the government or infrastructure.

The next most important criticism I could make about Mr. Gilder's book responds to his statement that there is such a thing as a free lunch. Mr. Gilder, as do many other conservatives, ridicules the notion of the zero sum game, that suggests that for every rich man there must be poor people since the wealth of the rich can come from nowhere other than the poor. I agree, this characterization is naive. However, I believe, (though I cannot prove) that the world was made from nothing. This notion, if accepted, produces certain implications. We have all heard the phrase, "For every action, there must be an equal and opposite reaction." In a world created from nothing, this law must be comprehensively true. There can be no such thing as a free lunch, so if the above zero sum game is wrong, it must be because some variables have been left out. I would say that the zero sum game is really a simplification of the original equation stated in this article as a summary of Mr. Gilder's book. From this equation it can be seen that the poor aren't the only entity that can be exploited, the environment can be, also. And, in fact, when a business has the appearance of doing nothing but good, that is making all associated with it wealthier, and depriving nobody of fair wages for their work, then you can be assured that the value being retrieved, through the ingenuity of the entrepreneur, is being retrieved from the environment and that profit is, therefore, only borrowing from the future. From this same reality one can also see that the good of the short term is always at odds with the long, and vice-versa.

This may seem a bleak perspective, but what is reasonable, to expect to have God's domain make one wealthy, or to expect to act as a closed system, returning to creation, in a different form, what one has taken? It must be done. There is no place else to send things. So, if one transforms the world, one had better have a care, into what form he transforms. Ideally, to take the model provided by God, the transformation should be an analogy for the transformation we perform on food. If that model were used, there would be precious little manufacturing.

I would also say that Mr. Gilder relies too heavily on altruism in defining a workable family unit. There is a pragmatic bargain here, and recognizing it will explain perfectly well the breakup of the modern family. The male gets, in exchange for his support, warm food, a warm bed, warm pleasantries, and sexual satisfaction. This is a fair bargain and when it is reestablished, the family will once again wax strong.

Mr. Gilder recommends, along with other supply siders, reducing taxes. This attitude alone characterizes conservative economists as inveterate optimists. It should be clear to anyone watching the governments of the West, that taxation increases to the point of diminishing return and then remains there until the government fails, which it will surely do, at some point, all human institutions do. From the experience with the recent luxury tax on yachts, that point has already been reached. The amount of tax is a given, but, perhaps, a simpler one might be hoped for. And, it must be admitted, business continues to do well, even in these confiscatory 50% taxation times. In fact, the long absence of any serious recessions or depressions suggests that the onerous business cycle has in fact been dealt with, to some extent, by the judicious adjustment of interest rates by the Fed. On the other hand, there is the prediction of a new depression in 1999.

Finally, Mr. Gilder recognizes that in business, one either grows or dies. Unfortunately he doesn't recognize that the space into which we grow is fixed and already occupied. Thus, we must make our space, and we can only do it by evicting the original inhabitants. This carries with it certain drawbacks. First, the original inhabitants won't like it and will harbor a grudge and will await an opportunity to get revenge. The second problem is that we must needs transform the environment from which we were created. Any transformation will therefore, necessarily damage us. If we alter the environment, from which we are made, it must necessarily be inimical to our own chances for survival. This is what is meant by the above statement about borrowing from the future.

As a result of these reflections I would characterize Mr. Gilder's book as a very good treatment of the principles of supply side economics, but essentially an optimistic, even propagandistic view of business. I none the less recommend it as an introduction to economic thought. It is, happily, completely free of supply and demand graphs. I guess it should be balanced by a volume by John Kenneth Galbraith, from the number of quotes from that distinguished author in Mr. Gilder's book. Parenthetically, I recently heard Dr. Galbraith give a good review to the works of Robertson Davies. I conclude that, whatever failures of insight may have bedeviled him in the past, Dr. Galbraith demonstrates by his taste in novelists a keen mind. On the other hand, it may be that Dr. Galbraith just likes Davies because they are from the same place.