Knowledge and Power by George Gilder Summary

Knowledge and Power by George Gilder applies information theory to capitalism, arguing that economic growth stems from entrepreneurial knowledge rather than government planning. Gilder presents capitalism as an information system where entrepreneurs generate high-entropy, surprising innovations that create wealth. The book contrasts the creative knowledge of business owners with government regulation, which Gilder views as "noise" that disrupts economic information flow and causes crises like the 2008 financial collapse.

George Gilder is an American economist, investor, and author born in 1939 who co-founded the Discovery Institute. His 1981 bestseller Wealth and Poverty became President Reagan's most-quoted living author and established him as a pioneer of supply-side economics. Gilder wrote Knowledge and Power to present a new economic paradigm moving beyond traditional supply-side models, focusing instead on information theory as the foundation for understanding how capitalism creates wealth.

Knowledge and Power is worth reading for those seeking an unconventional perspective on capitalism and economic policy. The book offers fresh insights into financial crises, entrepreneurship, and government intervention through the lens of information theory. However, reviewers note it's a challenging read that requires patience. It's particularly valuable for fiscal conservatives, business owners, CEOs, and investors interested in understanding how knowledge and innovation drive economic growth.

Knowledge and Power is ideal for entrepreneurs, investors, policymakers, and business leaders seeking to understand modern capitalism through information theory. The book benefits readers interested in supply-side economics, venture capital, and technological innovation's role in economic growth. Fiscal conservatives and those critical of government intervention will find Gilder's arguments compelling, while economists and financial professionals gain unique explanations for market volatility and financial crises through an information-driven framework.

The information theory of capitalism in Knowledge and Power defines economic progress through information entropy and surprise rather than equilibrium. Drawing from Claude Shannon's work, Gilder argues that information equals unexpected, high-entropy innovations created by entrepreneurs. These surprises drive growth when transmitted through low-entropy carriers like stable property rights, sound money, and rule of law. Markets function as information systems coordinating dispersed knowledge, with entrepreneurial disruption generating the profitable surprises that fuel capitalism.

George Gilder argues in Knowledge and Power that entrepreneurs are creators who invest resources without guaranteed returns, generating surprising innovations that meet unexpressed consumer needs. Their wealth reflects superior knowledge and continuous reinvestment rather than greed or privilege. Gilder presents profits as an "altruism index" measuring value created for others, with successful entrepreneurs bound to their enterprises through constant customer service. This contrasts sharply with government bureaucrats who lack skin in the game and accountability.

Knowledge and Power portrays government as a source of "noise" that distorts economic information flows and suppresses entrepreneurial knowledge. George Gilder argues that excessive regulation, taxation, subsidies, and bureaucratic mandates obscure the information entrepreneurs need to allocate resources efficiently. When government intervenes through spending programs or protectionism, it creates rational decisions based on massive ignorance rather than irrational behavior. This information disruption, not market failures, causes economic crises and inefficiency according to Gilder's framework.

In Knowledge and Power, George Gilder argues that capitalism begins with entrepreneurial "giving"—investments made without guaranteed returns that create value before any exchange occurs. This challenges traditional economic models that view markets purely as transactional exchanges. Entrepreneurs commit capital and resources upfront as gifts to potential customers, taking risks based on knowledge and vision rather than certainty. Only after this initial giving succeeds do profitable exchanges emerge, making altruistic risk-taking the foundation of wealth creation rather than self-interested bargaining.

Knowledge and Power explains the 2008 financial crisis through information mismatches and regulatory noise rather than market greed or deregulation. George Gilder argues that government intervention through housing subsidies, monetary manipulation, and regulatory mandates distorted information flows in financial markets. This created rational decisions based on corrupted signals—like inflated housing prices and mispriced risk—leading to systemic failure. The crisis exemplifies how government "noise" disrupts the knowledge-power linkage essential for efficient capital allocation and entrepreneurial decision-making.

High-entropy information in Knowledge and Power refers to surprising, unpredictable innovations that carry genuine economic knowledge and value. Drawing from Claude Shannon's information theory, George Gilder argues that true information is measured by its surprise factor—predictable patterns contain no new knowledge. Entrepreneurs generate high-entropy information through disruptive products, business models, and technologies that couldn't be anticipated by planning or equilibrium models. This entrepreneurial entropy drives economic growth by creating value through genuine novelty and creative destruction.

While Wealth and Poverty established George Gilder as a supply-side economics pioneer during the Reagan administration, Knowledge and Power moves beyond supply-side models to present information theory as capitalism's foundation. Wealth and Poverty focused on traditional supply-side arguments about tax policy and incentives. Knowledge and Power deepens this analysis by framing capitalism as an epistemic system where entrepreneurial knowledge battles government power. Both books champion free markets and criticize government intervention, but Knowledge and Power provides a more sophisticated theoretical framework.

Critics note that Knowledge and Power is a challenging, dense read that requires significant effort and patience from readers. Some reviewers find Gilder's application of information theory to economics unconventional and potentially overstated. The book's strong anti-government stance and portrayal of regulation as purely negative "noise" may oversimplify complex policy tradeoffs. Additionally, Gilder's almost Randian perspective on wealth creators versus government redistributors can come across as ideological rather than balanced. Despite these critiques, reviewers acknowledge the book's creative and penetrating examination of wealth creation.