Flawed Manifesto

Wealth and Poverty, by George Gilder, New York: Basic Books, 1981, 306 pp., $16.95.

You have to give George Gilder credit: he sure knows how to get press. His monumental Wealth and Poverty has been hailed on the editorial page of the Wall Street Journal, damned (in a cover story) in the New Republic, and described in half-page write-ups in both Newsweek and Time, the latter hailing it as "a Bible for supply-siders." Syndicated columnist John Chamberlain agrees, calling it "a seminal book that could be to the Age of Reagan what Stuart Chase's A New Deal and George Soule's The Planned Society were to the Age of Roosevelt" (Freeman, Feb.).

Movers and shakers are reading it, too. David Stockman, perhaps the most well read of those surrounding President Reagan, terms Wealth and Poverty "promethean in its intellectual power and insight." And neoconservative Nathan Glazer calls it "a really remarkable analysis of American social and economic policy that demolishes a host of pieties as to the causes of poverty and the conditions that overcome it." Clearly, Gilder has written a work that cannot be ignored.

Unfortunately, what could have been a masterpiece—a capitalist manifesto setting out once and for all the moral basis of a society based on individual liberty and private property—ends up seriously flawed. Gilder's brilliance in explaining entrepreneurship and making supply-side economics understandable; his mastery of mountains of dry statistics on taxation, spending, income, poverty, race, and employment to explain in lucid prose the dynamics of wealth and poverty—all this turns to mush when it comes to the crucial philosophical underpinnings he so badly wants to shore up.

Gilder's aim is to show that capitalism is based, not on greed but on giving; on altruism, not avarice. In support of this view he describes potlatching (a ceremonial feast of the northwest Indians in which the host gives lavish gifts requiring reciprocation) and other forms of gift giving, pointing out that in most cases people give gifts not without expectation of any return but with no predetermined or guaranteed return. Investment, says Gilder, is a form of gift giving, in which the investor first gives in order to get, but with no guarantee of getting.

But this mere resemblance hardly makes investment into altruism, which is what Gilder wants to call it. And in fact, he wants to have it both ways, calling it altruism when it suits his moral purpose but talking pure self-interest when discussing the need for incentive-restoring tax cuts:

the impact [of marginal taxation] may be greatest, though, on the willingness to initiate risky or time-consuming projects. For these, at least a faint possibility of fabulous windfalls may be needed to call forth the high energies and heroic innovations of pioneering enterprise.

If Gilder had spent as much time rubbing elbows with the entrepreneurs of Silicon Valley, whom he rightly lionizes, as he apparently has with the welfare poor, he would have seen that it is not from benevolence that these people work seven-day weeks for years on end to make their new ventures go. To be sure, they love their work, but they are moved to great lengths by the prospect of taking their enterprises public and becoming overnight millionaires. Nor does the investor in IBM shares seek to give; all he wants is a return on his investment—but what's wrong with that?

Ultimately, what Gilder wants to do is to justify capitalism on the basis of vaguely Judeo-Christian religious principles of faith and mysticism, rather than on the natural-law approach of the Founding Fathers. Repeatedly, he invokes the term faith as a key to understanding capitalism, but he switches unblushingly between two quite different senses of the term. On the one hand, in order to invest, one must be willing to act without perfect knowledge, to take risks; even in accepting money rather than goods in payment for labor one expresses faith or trust in one's fellow man, that others will accept the money in turn. Based on this commonsense observation, Gilder proclaims that "faith in man, faith in the future, faith in the rising returns of giving, faith in the mutual benefits of trade, faith in the providence of God are all essential to successful trade," slipping in the last as if Hindu merchants, for example—who are among the most entrepreneurial traders in Asia and Africa and who no more believe in Gilder's God than does Madalyn Murray O'Hair—did not exist.

Gilder also goes to great lengths to create a straw-man definition of rationality, portraying it very narrowly in terms of planning and control. As did "scientific socialists," Gilder confuses rationality with predictability, avoidance of risk, and central planning, rather than understanding that reason is a process for making sense out of information, a process inherently open-ended and ideally suited to operating under conditions of uncertainty. To concede rationality to one's opponents is to surrender before the battle. But that's what Gilder has done.

And in its place? The source of new ideas is not reason, he says, but chance, which is "the foundation of change and the vessel of the divine." And how does one plug into this source of inspiration? "As a person's mind merges with the living consciousness that is the ulterior stuff of the cosmos, he reaches new truths, glimpses the new ideas…by which intellectual progress occurs." This picture of human thinking and creativity plays right into the hands of Gilder's paternalistic adversaries, who share his view—though more on the basis of behaviorism and environmental determinism—that ultimately individuals are impotent, merely passive participants in nature's impersonal events.

That the book degenerates into such mush is tragic, because when Gilder confines himself to economics he is brilliant, and in sociology he is at least original and provocative. He presents one of the finest explanations of supply-side economics yet penned, tracing it to its Austrian roots in Say's Law (supply creates its own demand) and making these often-abstruse ideas come alive.

Like Ayn Rand and Joseph Schumpeter, Gilder truly understands and appreciates the entrepreneur's heroic nature and central role in economic growth and progress. No one who reads Gilder's chapter on entrepreneurship could ever again be taken in by the static-economy fallacies of John Kenneth Galbraith:

Nearly all of what Galbraith says about the nature of modern technology conflicts with our recent experience of it. While the professor chatted with Bob McNamara and Walter Murphy about the doings at Ford and GM, imagining himself to be right at the futuristic center of things in the "new industrial state," a real industrial revolution was, in fact, massively erupting behind his back. It happened in hundreds of smaller communities, led by men whom he had never met or heard of, and some of whom, stepping from university laboratories and scientific laboratories, had probably never even heard of him. These were the boffins, the callow geniuses of the semiconductor and microprocessor revolution, turning the world's most common matter, the substance of sand, into an incomparable resource of mind: a silicon chip the size of a fly, with computing powers thousands of times greater than a million monks adding and subtracting for millenia—an infinitesimal marvel that extends the reach of the human brain incomparably further than oil, steel, and machines had multiplied man's muscle in the industrial age.

These entrepreneurs—and those venture capitalists who backed them—are truly heroes and deserve every penny they have made, regardless of whether they were in it for greed or for giving.

There is much, much more of value in the book than can possibly be covered in a brief review. Gilder masterfully digests and explains the results of countless scholarly studies over the past decade or two, studies which document the failures of liberal icons such as affirmative action, progressive taxation, welfare, and CETA jobs. For a short-course in what nonliberal intellectuals have been up to since the '50s, Gilder's book is hard to beat.

One more subject must be mentioned, if only because Gilder is under merciless attack for it from feminists, and that is his discussion of the role of family structure in poverty. Briefly, Gilder argues that, by offering a welfare mother more in benefits than an unskilled lower-class man can possibly earn, the welfare state has destroyed lower-class nuclear families, leading to generations of children who grow up without a male role model and the achievement-oriented socializing that comes from living in a work-oriented household. Gilder expounded this thesis at length in an earlier book, Visible Man, based on two years of living in poverty neighborhoods, getting to know such people first-hand. In presenting this quite plausible thesis, however, he makes a number of rather sweeping statements about male and female roles, reflecting his own very old-fashioned notions about such things. One can dismiss the generalizations as—at the very least—unsupported, without rejecting what seem to be very important insights into the realities of welfare communities in America today.

In short, this is an important book, one that is well worth reading. At its best, it is brilliant. Its flaws, however, prevent it from being the kind of manifesto that capitalism urgently needs. For that we must await another book and, sadly, another author.

Robert Poole is the editor of REASON.