The Scandal of Money: Why Wall Street Recovers but the Economy Never Does - George Gilder (2016)
Chapter 13. A Wrinkle in Time
Time is the coin of your life. It is the only coin you have, and only you can determine how it will be spent. Be careful lest you let other people spend it for you.
Money as time may be a lumpy lemma to swallow. Surely money is many other things, from purchasing medium to standard of value to store of worth. Money specifies irreversible contracts and transactions, bonds and bids, and it transmits signals of conditions far beyond its locality. A friend once asserted to me that everything in the social sciences is either wrong or self-evident. Is money as time an example of both?
Time may seem to be no more a facet of money than air or water is. Is money as time merely a figure of speech or a glib epigram?
I don’t think so, because I don’t think money is merely a functional tool. Like Ayn Rand, who wanted a dollar sign embossed on her coffin, I believe money possesses transcendent significance. Because we use it to prioritize most of our activities, register and endow our accomplishments of learning and invention, and organize the life-sustaining work of our society, money is more than a mere payments system. It expresses a system of the world. That is why I link it to the information theory of Kurt Gödel, Alan Turing, and Claude Shannon.
Each of these thinkers attempted to define his philosophy in utilitarian and determinist mathematics. Addressing pure logic as math, Gödel concluded that even arithmetic cannot constitute a complete and coherent system. All logical schemes have to move beyond self-referential circularity and invoke axioms outside themselves. Turing explored the possibility of a complete and self-sufficient logical machine and found it an impossible dream. His “Turing machine” defined the abstract logical architecture of all computers. But all computers must depend on what Turing called human “oracles” to define their symbols, instructions, and programs and to interpret their output, which as a stream of off-and-on currents or charges is ostensibly meaningless.1 Shannon set out to create a purely mathematical definition of information and ended up providing a logical scheme of communication that depends on human subjectivity and creativity for meaning and purpose.
As a complex expression of logic and information, money represents an obvious frontier for information theory. As a logical scheme, it must have an axiomatic foundation beyond itself. It cannot endure as a trivial tautology in which its value stems from what it buys and is valued by it. That route always ends in a crash or inflationary binge, demanding the crisis-management tools of government institutions.
As a paramount expression of our computational and networked economy, money is an information system. Shannon’s value-neutral definition of information as entropy or surprise liberated thousands of engineers to design computer and network systems—the cybernet fabric of our civilization. They did not concern themselves with the meaning, value, factuality, truth, consistency, or importance of the communication they enabled.
Today, however, the Internet is suffering the effects of these necessary limitations of engineering science. The net has to resort to trusted third parties outside the net to sustain its transactions. The resulting extra costs bar micropayments. Without an anchor in a system of reliable values, Internet offerings gyrate between free hustles and egregious gouges. The net also exhibits an inability to prioritize its activities, certify its claims, price its services, administer its ubiquitous “contracts,” or notarize titles. The Internet offers crowning testimony both of Shannon’s genius and the Gödelian incompleteness of his work.
Now, for the first time since the inception of our information society, we are moving toward what might be termed a new system of the world. At its heart is the development of a new monetary system based on a deeper reality than the minutes of the latest meeting of the eminent governors of the Federal Reserve Board. Bankers, politicians, academics, and bureaucrats alike must stop treating money as a manipulable tool of policy.
Essential to any system of the world, money extends its sway over monarchs and presidents, parliaments and prime ministers, generals and imams, despots and democrats. All must bow to a regime of laws and constraints that subordinate power to knowledge.
As Ludwig von Mises wrote, economics “did more to transform human thinking than any other scientific theory before or since,” because “with good men and strong governments everything was considered feasible. . . . [But with the advent of economic science] now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature.”2 Among the ascendant laws of nature in the new system of the world are the findings of information theory.
These laws intersect with physical and chemical laws and must be compatible with them. But economic laws cannot be reduced to the material domain. Higher in the hierarchies of knowledge and learning than the rules of physical factors and forces,3 money transcends determinism and enables creativity and freedom.
Austrian economists such as Mises have long held that all value is subjective. Their logic remains firm. As Gödel discovered and Shannon implied, even a measure of information depends on outside judgment and interpretation. This subjectivity of value, however, functions in a matrix of objective time. Time is the one economic factor that is irrefutably objective and thus lends objective substance to the subjectively driven movements of money.
Bounding every human activity is the inexorable influence of time. The winged chariot, the grim reaper, the forced march, the Heraclitean stream—all are common tropes in literature as in life. But money is about time in a more direct, far-reaching, integral, metrical, analytical, and dispositive way than any other human instrument.
The alternative to money is barter—direct exchanges of goods, without systems of storage and distribution. Imagine the valuation of bartered items in a primitive economy and you immediately confront the centrality of time. What determines how much of each item for trade is available is the time it takes to produce an incremental unit.
A house takes more time to make than a hammer. So, very roughly considered, a house might be worth many hammers. Intuitively, different time requirements make a horse more valuable than an apple, a pair of shoes more valuable than a coconut. As the common element in all goods and services, time determines the possibilities for exchange. As a barter economy becomes a commercial economy, these common time factors become manifested in money.
The tie between money and time is obvious in the case of loans and savings governed by the “time value of money,” reflected by interest rates. These central capitalist functions still arouse anger and confusion. The French moralist Thomas Piketty sums them up as the exactions of “capital” and the bounties of the “rentier.”4 Dismissing the linkage of time and money as optional and even reprehensible, Piketty follows in the footsteps of philosophers and kings, priests and scholars who for millennia have ruminated restively on the morality and legitimacy of interest payments.
For centuries both the Catholic and the Islamic faiths condemned the exaction of interest as “usury.” Moral human beings were not supposed to be realistic about the time domain of life. The future, present, and past converged in heaven, in a moral universe occupied by high-minded thinkers. Aristocrats everywhere learned to deprecate practical men wielding ledgers and calendars, clocks and actuarial tables. Hitler’s case against the Jews fed on the idea that the yield of finance was somehow meretricious or extortionate, unnatural or treacherous.5 The literary archetypes of lenders and savers are Shylock and Scrooge. A lender was supposed to deny that all that mattered in the transaction was the date of the loan and when he could retrieve the money and loan it out again. Recognizing that money translates to time would make interest payments as obviously legitimate as they are.
The inverse of interest on the bank’s loans is interest paid on savings or deposits, which are loans by customers to a bank or other firm. According to the exponents of zero-interest-rate policy and to Piketty and to the other passionate advocates of reviving economies with inflation, these returns are also optional or arbitrary. Their arguments focus on the “maldistribution” of wealth or the unfairness of debt burdens, particularly when borne by democratic governments. By manipulating money as an instrument of policy, controlling the interest rates that they pay on their own debts, and fostering devaluation of their currencies, governments—and the economists who counsel them—are engaged in a futile and economically destructive war against time.
In physics, the source of the arrow of time is entropy. According to the second law of thermodynamics, the physical processes of the universe convert energy from usable forms into unusable forms, from potential energy at the top of the falls into kinetic energy flowing over the Hoover Dam, into less-available energy down the river to the sea.
Sadi Carnot defined entropy in the nineteenth-century context of steam engines.6 He calculated the flow of heat from hot elements to cooler ones and the impossibility of reversing the process without supplying new energy from outside. Journalists routinely cite their breakfast eggs or the creamer diffusing through their coffee as examples of the irreversibility of entropic processes. Economists and ecologists cite entropy as the reason for the alleged exhaustion of natural resources or the inability of the planet to sustain continued growth of human populations.7
Ludwig Boltzmann was the first to link entropic processes to disorder and thus to information.8 Claude Shannon was the first to link disorder to informative surprise and thus to creativity. Hubert Yockey showed that even in biology it is intrinsically impossible to distinguish a set of random data from the data points of a series of creative surprises.9 Physics today breaks down into a school regarding the universe as randomness ordered only by an infinite multiverse and a school upholding a single universe ordered by creation and creativity.10
As shown by information theory, an entrepreneur launching an invention or new technology that unexpectedly changes our lives, a scholar demonstrating a new theory with a falsifiable proof, or a scientist identifying a new source of energy in defiance of expectations exhibits entropy just as surely and irreversibly as a glacier calving into the Arctic Ocean or an aged building shedding paint and shingles. Like thermodynamic entropy, information entropy conveys disorder, not order. Order and determinism represent the fulfillment of expectations; they are low entropy, while disorder and freedom are high entropy.
Information theory does not espouse chaos or anarchy. Shannon demonstrated that it takes a low-entropy carrier—a predictable channel with no surprises—to bear high-entropy messages full of surprising content. Because a random stream of bits is indistinguishable from a burst of unexpected and surprising creativity, Shannon showed, you do not want an entropic or surprising carrier or a noisy channel. The reason much of the world’s information is migrating toward the electromagnetic spectrum is its low-entropy predictability guaranteed by the speed of light, the inexorable rule of time. Predictable electromagnetic carriers enable the receiver of messages to differentiate them from the carrier at the other end of the line.
The economics of information theory link money with time, the most fundamental and irreversible carrier in the universe. Money is not the content of transactions; it is the carrier. The use of money, however, enables the transmission of high-entropy information. The worldwide webs of glass and light and air that form the low-entropy channels of the Internet bear no more important, or high-entropy, “news” than the worldwide web of price signals.
Ernst Mach’s “principle” in physics holds that unfathomable forces across the entire universe, summed at any particular point, shape the conditions at any given location on earth.11 Mach’s principle also applies to market economics, and even nonmarket economies cannot escape it. Every price is the expression of a worldwide fabric of other prices, conveyed by money, rooted in time. If the roots are torn up by governments—pulling up the carrots to check if they are ripe—the price system will convey false messages and stifle the learning and discovery that constitute all economic growth and progress.
Scientists have long appreciated the critical role of universal units of measurement in economics and industry. Builders of bridges and skyscrapers and electronic systems obtain components from around the globe. In order for these components to work with other components, their users must trust in immutable systems of measurement.
The International System of Units (known by the abbreviation of its French name, “SI”) is built on seven key metrics, each based on a constant of physics: the second of time, the meter of extent, the kilogram of weight, the degree (Kelvin) of absolute temperature, the ampere of electrical current, the mole of molecular mass, and the candela of luminosity. On these foundations of mutual immutability is erected most of the machinery of global trade and commerce.12
These units of measure cannot float, because their constancy enables construction projects, computer designs, food processing gear, networks, refrigerators, fuels, pipelines, research laboratories, microchip capital equipment, industrial sensors, lighting systems, medical instruments, fiber optic cables, prosthetic devices, railroad tracks, storage facilities, hospital equipment, and other complex systems, in industry and government alike, to interconnect and function to keep us alive.
As Richard Vigilante puts it, “When baking a cake, we don’t measure the flour against the sugar or the orange against the vanilla. We don’t say we need two butters of bacon or three apples of orange. No, we use measuring cups and spoons from outside. We use measuring cups precisely because no one thinks the best use of a measuring cup is to bake it into the cake.”13
Throughout most of human history, statesmen and philosophers alike have understood that money has a similar role. In the global economy, the currencies cannot be integrated with the commerce; they must have their roots in an absolute grid of measurement outside the process of exchange. If prices are uncoordinated, they will lead the business astray, and it will not add value to the economy. It will not produce knowledge through testable learning.
The SI metrics confirm that time is fundamental to all immutable and irreversible standards of measure. All but one of the seven key units directly resort to measurements constrained and defined, fixed and framed by physical constants governed by the passage of time. Thus the most fundamental of all the SI metrics is the second, which is determined by the speed of light in a vacuum. The rest of the measurements all essentially derive from this basic time constant of the universe.
The meter, for example, might seem to be a measure of space, but the SI roots it in the distance traveled by light in a vacuum during a tiny fraction of a second (actually the nine gigahertz emissions of the ground state cesium atom). As a measure of absolute temperature, degrees Kelvin are a reflection of frequencies bounded by the passage of seconds. The kilogram is tied to Planck’s quantum constant h, a universal unit used to convert quantum wave functions into joules per second and hence tied to the speed of light. Amperes are governed by electromagnetism rooted in frequencies per second. Candelas are also Hertzian phenomena ruled by cycles per second.
The only exception in the SI table proves the rule. Moles escape a direct reference to time by being calculated by the Avogadro constant. But masses—and energies—as Einstein taught us, are also finally expressions of the speed of light in the lordly latency of seconds.
Money too, the key metric and information bearer in economics, is reliable only to the extent that its value is rooted in time. As the only irreversible element in the universe, with directionality imparted by thermodynamic entropy, time is the purest of reference points for all values.
Contemplating a new system of the world begetting new forms of money, governments and central banks are now feverishly trying to prove the effectiveness of their manipulations, their inflations and devaluations, their asset-buying splurges, and their redistributive potlatches.
These efforts to resist and divert the irreversible flows of time and entropy are sure to fail. Governments and central banks do not even control their own moneys. Quantitative tides of purchasing media are feckless before the choices of citizens who decide when to spend or invest any funds they command. Velocity and frequency trump the spurious time manipulations of the Keynesian regime.
In order to overcome the current economic doldrums afflicting the world, we must return to a regime of real money, anchored not in the caprices of bankers but in the physical constants of the universe.