Some Criticisms of George Gilder’s Knowledge and Power

I’ve been reading (actually listening to) George Gilder’s new book, Knowledge and Power, dealing with what he calls the “information theory of capitalism.” The book is, overall, fantastic. I heartily recommend it to anyone, and believe that Gilder provides both an excellent defense of capitalism as well as an excellent understanding of it. Hopefully soon I will write an overview, because it really is good. However, before I forget, I want to cover some of the places where I think Gilder is wrong. Gilder is an optimist. I like optimists. That’s actually one of the things about my book – it’s an optimistic prepare book. However, Gilder often goes beyond optimism to all-out rose-colored-glasses.
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Babies for Free

Many people think that having a baby is an enormously expensive ordeal. However, one woman found that it costs less to raise a baby in their first year than it does to have a cup of coffee each day. Read her story about how individual frugality and community value merged together to help Naomi raise her baby for next to nothing.

Here’s what she said about toys:

I didn’t buy any toys. Your friends and family will take care of that. And the funny thing is, toys are nice, but what they really want to play with is real stuff, like Tupperware, car keys, books, and the baby wipe container. Why buy toys that will just add clutter? Plus if you are home with your baby, you don’t need so many toys to entertain them because YOU get to play with them!

A simple life, without too much stuff, can be very enjoyable. My daughter certainly isn’t deprived. She’s very happy, always looks cute, enjoys her food, her library books, going outside and playing with Mommy and Daddy. And I can’t even begin to tell you how much we enjoy her. Everyday she does something new and her smiles and laughter lift us up like nothing else. I look forward to spending these years with her discovering the whole world and the One who made it, for about the price of a coffee a day.

Current Metals Price Craziness

Now, in the book, I point out that the point of investing in precious metals is NOT that I think the value will go up – I have no idea whether or not the value of gold and silver will go up or down. The point of investing in precious metals is that it is a permanent asset. You can hand it to your grandchildren. In addition, it’s value is intrinsic, not extrinsic. It doesn’t depend on the reliability or morality of another group to hold its value. An entry in a portfolio is extrinsic value. The numbers in the statement mean that there is value somewhere else. But owning physical gold/silver means that the value is right here. Where I can see it.

Anyway, having said that, owning precious metals has meant that I do take the time to look at the market, and right now it is crazy. The price of gold and silver are below what it costs to mine it. In other words, let’s say I owned a silver mine, and owned all of the equipment to mine silver. I already own it. Done. At the current price of silver (less than $18 according to SLV), it would cost me less money to go to the coin store and buy my silver than it would be to go into my mine and dig it up.

Because of this, some precious metals vendors are beginning to close up shop. Golden Minerals just announced that a href=””>it is suspending production until prices come back up (list of current company press released here).

So, the question is, with physical demand high, and prices too low to allow more supply to come into the market, where will this lead to on the silver front? Higher prices is the obvious answer, but that has not been how it has played out so far. I predict an interesting ride ahead.

Family Wealth…Without the Wealth

I have been reading a great book by James Hughes titled Family Wealth: Keeping it in the Family. The book is about family trusts, but it is really about more than that. It is about reversing the normal way that people look at family assets. One of the core tenets of the book is that the most important assets in a family are the people in the family, not the money. Rather than focusing on developing the money, the most important thing is to develop the people.

Many people, when developing trusts, don’t give the slightest thought to how the money will impact the personal growth and development of the beneficiaries, but only how they can best keep the money going into the future. James Hughes says that this is very backwards, and can actually cause the money to become a burden rather than a blessing, and change a gift of love into an entitlement. Hughes advocates developing a structure of family governance which organizes the whole family as an organization, and the focus of the governance being the betterment of the people in the family, not just increasing the asset value. Hughes looks into the history of a number of families that have been successful in developing a legacy, and shows how their focus on the members of the family, rather than the money, led to the long-term survival of the family’s wealth.

However, while reading the book, I continually get the sense that, while Hughes was writing entirely to people who have money to put into a trust, one could incorporate a number of his suggestions even if you have no money to put in a trust. For starters, Hughes suggests an annual family meeting to discuss family business – i.e. not just chit-chat, but really discussing where people are in their lives, where they are going, how they can better get there, and what the rest of the family can do to help. This is something any family can do, even without a single penny.

Another suggestion Hughes gives is in family philanthropy. Hughes suggests that grandchildren should present philanthropic suggestions to grandparents, so that grandchildren get a sense of what it is like to put together and make such presentations. They can start really young, and you simply adjust the kind of presentation based on the age of the grandchild. The grandparents not only consider the request, but also offer suggestions for improvement to the presenters. When a decision is made, not only is money given, but the whole family participates in whatever philanthropic activity was suggested. As should be evident by now, there is nothing in this that actually requires money. Time is one of the components of this plan, and it can actually be given completely independently of any financial gift. Therefore, grandchildren can present ideas for how the family should spend their time philanthropically to their grandparents, and the whole family can participate in the endeavor once a decision is reached.

It is my contention that if family’s acted more cohesively as Hughes suggests, it can be a model for not just how a family can protect wealth long-term, but also develop wealth from nothing. Like Hughes, I believe that if we develop the people, the money will follow. I also think that even if the money did not follow, developing the people would be a sufficient goal warranting such an exercise. Anyway, I hope you read the book. While it focuses more on money than a MicroSecession view of the world would, I think a lot of the ideas and refocusing on different forms of value available are very consonant with the ideas of MicroSecession.

Investments and the Moral Decay of America

One tragic flaw in modern American society is that there is so little reflection on how different aspects of life relate to one another. We view that science is separate from aesthetics which is separate from theology which is separate from economics which is separate from philosophy and so forth. However, this is not the way the world works. In fact, one of the reasons why so many academics get so many things wrong is because of their unwillingness to include ideas from other fields.
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Gresham’s Law in Action

Gresham’s law, simply stated, says “bad money drives out good.” In prison populations, for instance, cigarettes have often used as a currency among inmates. Well, people want to keep and smoke the good cigarettes, and then they use the bad cigarettes for trade. This is exacerbated when the exchange rate is set by law. If the government demands that two coins are of equal value when they really are not, then the lower-valued coin will be the one in circulation, and the higher-valued one will be removed from circulation by people who know their value.

This is at work today in the United States with the “junk silver” market. Junk silver are coins (half-dollars, quarters, and dimes) minted before 1965, because they are 90% silver. This is less-quality silver than if you were to buy a silver coin (which is 99.9% silver), but it is still silver. Interestingly, you will find almost none of these coins in circulation. It’s not because they are old, but because it is worthwhile to pick out the silver ones from the rest. The melt value of a 1964 quarter is $5. Therefore, a number of people have made the very reasonable exchange of purchasing boxes of circulated quarters. Imagine if there was a change machine, where, if you got our enough change, it would give you a $5 bill instead of one of the quarters. This would be an easy way to make money! Just pump enough dollars in, and your value would go up and up and up!

Therefore, those who know the value of silver have been removing these quarters from circulation. Therefore, the bad money (modern quarters and dimes) have been driving out the good money (silver-based quarters and dimes).