Capitalism begins with giving.George Gilder, Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World
You’ve been told that capitalism is a system based on greed, ruthless selfishness, exploitation, and of disregard for your fellow man.
You’ve been lied to.
In his book Knowledge and Power George Gilder proposes that capitalism, more than any rival economic system, requires entrepreneurs and innovators to be generous, empathetic, and passionately focused on the wants and needs of others. Capitalism begins with giving.
This makes sense once you get down to the essence of what capitalism is. When we strip away terms and definitions like buyers and sellers, employees and employers, etc. we see that capitalism is simply shorthand for a system of voluntary exchanges between two parties in which each party exchanges something that is less valuable to them in order to receive something that is more valuable to them. Both parties give and both benefit.
For example, when you’re hungry you willingly trade $10 for a burger, fries, and a Coke because that meal is more valuable to you than the ten dollar bill in your pocket. And the restaurant would rather have your $10 than the burger, fries, and a Coke they owned until the moment you bought them.
And where did you get that money? From your choice to sell your labor to an employer in exchange for a paycheck. You decided that the wages from that job were more valuable to you than the labor (your time and abilities) and your employer decided that they would rather have your production than the money they paid you for it. Everybody wins.
It’s important to keep this framework in view or you’ll miss the easily overlooked reality that your buying power is directly linked to your supplying power. When wealth (buying power) is obtained through voluntary exchanges, in contrast to the violent and compulsory means used by the State, you are highly incentivized to identify and meet the needs of others in ways that are valuable to them. Your willingness and ability to meet the needs of others will be the ceiling of your earning potential and, therefore, your buying power.
Once you understand this fundamental truth you’ll never use the words “greed” and “business owners” in the same sentence ever again.
You see, the alchemic miracles achieved by entrepreneurs converting raw inputs into marketable goods and services do not occur in a sterile, detached void. The things that are imagined, prototyped, produced, and eventually sold by innovators and entrepreneurs are only viable if they are valued by consumers. To say it another way, nothing has value apart from what buyers are willing to pay (exchange) for it, and goods and services are not profitable for producers unless that perceived value is higher than the aggregate costs of producing them.
“Aha!” you say. “Companies are greedy, no good so-and-sos who prioritize profits over people!” But what are profits if not information? Profits tell the market, i.e. the aggregate body of all producers and consumers, which goods and services are valuable and desired and which are not.
It then follows that entrepreneurs will only have access to the capital that’s been returned to them as profits as long as they’re putting it to use to continue the cycle of blessing others, to borrow religious terminology, with things that they want. If they produce things people don’t want they will be quickly and unceremoniously separated from that capital (wealth) as it flows to producers who are meeting market needs.
There is also an equalizing, democratic element to all of this. While there are obviously some businesses that are able to cater to the desires of the wealthy elite, most products aren’t financially viable if they do not have mass-market appeal. In most cases entrepreneurs are able to generate profits only if the things they produce bring a lot of value to a lot of people. Yes, Apple makes iPhones that are used by celebrities, politicians, and business moguls around the world. But they’re also used by my 10 year old daughter so she can text us when she needs a ride home from a friend’s house. If you put aside the idea of income equality for a moment and instead focus on consumption equality you’ll quickly realize that entrepreneurs within the playing field of capitalism have done more to improve the life of the common man, both in absolute terms and relative to the “wealthy,” than mountains of government programs and agencies.
Which is why, I believe, capitalism is so resented by the State and those who would prefer to put themselves into arbitrary positions of power. Capitalism is unpredictable and defies our impulse to reign it in and attempt to control it, for the “greater good” or any other made-up reason. Gilder says it better than I can:
This process of wealth creation is offensive to levelers and planners because it yields mountains of new wealth in ways that could not possibly be planned. But unpredictability is fundamental to free human enterprise. It defies every econometric model and socialist scheme. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the establishment above them. By definition, innovations cannot be planned. Leading entrepreneurs—from Sam Walton to Mike Milken to Larry Page to Bill Gates— did not ascend a hierarchy; they created a new one. They did not climb to the top of anything. They were pushed to the top by their own success. They did not capture the pinnacle; they became it.George Gilder, Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World