The Information Theory of Capitalism

All information is surprise; only surprise qualifies as information. Information is the change between what we knew before the transmission and what we know after it.

Entropy is a measure of freedom of choice.

A entrepreneur needs a channel that in these critical respects (free trade, reasonable regulations, sound currencies, modest taxation, reliable protection of property rights) does not drastically change. A channel has to be low-entropic otherwise the signal won’t get transmitted.

A stable channel is the product of political leadership and sacrifice, prudence and forbearance, wisdom and courage. Sometimes it must be defended by military force.

If there is too much noise (acts of God, more powerful competitors) the signal will get lost. Also, if gov’t neglects its duties to keep the channel stable, or worse, tries to help by becoming a transmitter and turning up the power on certain favored signals, the noise can be deafening.

Interest rates are critical for information-theory economic analysis because they are an index of real economic conditions. If the gov’t manipulates them, they will issue false signals, breeding confusion that undermines entrepreneurial activity.

In information theory, it is in principle impossible to differentiate  random noise from a series of unrelated creative surprises. Both are gauged by their entropic or surprisal, and both seem random. Unless you have the code, they both look the same.

Creativity is always surprising. That is why it cannot be planned or demanded by gov’ts or even by customers.

The entrepreneur and his product create the market.

Detached from a capitalist, there is no capital. To create wealth, knowledge and power must be merged.

The low-entropy side of the economy is demand and predictability; the high-entropy side is supply and surprise. Gov’ts and law are on the low-entropic side; they favor and foster rules of order. On the high-entropy side are entrepreneurship and spontaneity, the domains of creativity and surprise.

The power in capitalism must not be mindless.  Unless it is combined with knowledge, more economic power or money is fruitless.  Enterprise involves memory of the past and anticipation of the future, and it is creative.  It is not a simple incentive system of rewards and punishments, of carrots and sticks.  It is an information system, and it is governed less by economic theory as we know it than by information theory. 

When faith dies, so does enterprise.  It is impossible to create a system of collective regulation, insurance, and safety that does not finally deaden the moral source of the willingness to face danger and fight, that does not dampen the spontaneous flow of gifts and experiments, that extends the dimensions of the world and the circles of human sympathy.

The ultimate strength and crucial weakness of both capitalism and democracy are their reliance on individual creation.  But there is no alternative except mediocrity and stagnation.  Demand-based systems can never flourish in a world where events are shaped by millions of human beings, acting unknowably, in fathomless interplay and complexity, in the darkness of time.

Profits are the measure of the high entropy of innovation and invention. Profits thus are the fruits of disequilibrium and disorder, of entropy and freedom.

The low-entropy carriers that conservatives uphold of law, property, family, and morality enable the high-entropy creations of science and entrepreneurship. Order is not spontaneous, information is not perfect; playing fields are not level; property rights and human rights are not automatic. They must be upheld by culture, religion, and politics. But information theory is also a mandate of liberty, enshrining freedom of choice as its deepest law of entropy and creativity.

Source: Knowledge and Power. The Information Theory of Capitalism and How It Is Revolutionizing Our World (2013) by George Gilder.

If some people don’t know if they are going to entrepreneurials or not  how the heck is gov’t going to know when an entrepreneurial is going to appear?

Stating that supply (entrepreneurials) creates the market is like saying the planets revolve around the sun in the middle ages. Gilder completely inverted the economic system.