Book Review: The Scandal of Money by George Gilder

gilder

Seraphic Secret invited our good friend Jake Novak to review George Gilder’s important new book.

Imagine you’re a carpenter who naturally relies on a good hammer to get your work done. But after years of reliable service, that hammer starts to act strangely. Sometimes it pushes the nail into the wood, and sometimes it doesn’t. Come to think of it, now your ruler isn’t measuring things the same way it used to either. Without consistent and safe tools, doing your work has become impossible.

That’s pretty much what’s happening to money in the Western world according to George Gilder’s provocative and insightful new book, The Scandal of Money: Why Wall Street Recovers but the Economy Never Does.

Gilder’s name should be familiar to Seraphic Secret readers because of the starring role he plays in the great Prager University video: “The Israel Test.” (He wrote a book of the same name). And I think this new book reveals a profound reason for Gilder’s pro-Israel beliefs that I will explain later.

In this book, Gilder argues that money is essentially a tool. When it’s functioning properly, it tells everyone what is truly valuable and what isn’t. Honestly functioning money is thus essential especially for innovators and entrepreneurs who need an accurate measure of what the market and society truly deem valuable and what they don’t. Money itself is not of real value, but it tells us what is.

Here’s the problem Gilder explains brilliantly: because of endless central bank manipulations and a wild currency trading market, money itself is no longer a reliable tool. For all of Donald Trump’s railing about the Chinese devaluing their currency, Gilder points out that the Federal Reserve here in the U.S. is guilty of much more monetary manipulation than Beijing any day of the week. By essentially zeroing out interest rates for years now, the true value of our debts and investments is a mystery and that kind of uncertainty breeds stagnation and unjust income inequality. More government isn’t the solution to the widening gap between the rich and poor, it’s the reason for it.

Gilder expands on this notion by explaining how damaging it is when government spending props up duds like Solyndra, while truly valuable coal and natural gas companies often struggle to find adequate funding. Money is like a powerful ocean current when it flows one way or another. When the government uses the astrophysical power of the $250 billion it takes in every month in federal taxes alone, it pulls just about all of the private investment community with it. Thus, money flows into the government’s favored areas of overpriced housing and green energy investments. It sends it away from manufacturing and agriculture. Private corporations didn’t stop spending on domestic auto production first, the government did. Ford, GM, and Chrysler simply followed the money.

Our one saving grace, the tech sector, has been more immune to this trend then other industries. But Gilder warns that Silicon Valley is also starting to fall under the weight of non-functioning money. And innovation in tech is already proceeding at a slower pace than just a few years ago.

And Gilder explains the one government act that played the biggest role in ending America’s steady post-war expansion and created most of our enduring economic woes, but you’ll have to read the book to find that out.

The book also has a sharp lesson for both liberal and conservative politicians who are both fundamentally confused about what money really is and what it does. Liberal politicians and bureaucrats believe humans are like lab rats who will do whatever you want in return for a minimum monetary “reward.” But if that were true, welfare would make its recipients truly happy and every stimulus plan would work. Conservatives in government seem to believe that profit is the only real motive for businesses of all sizes, but if that were the case, only the most profitable businesses would survive and small businesses would only be interested in existing long enough to sell themselves to larger companies. “Shovel ready” wasn’t ready not because the government didn’t spend enough on the stimulus, but because sheer profit isn’t enough to make someone want to get into the very volatile and physically demanding road repair business.

For conservatives with a truly religious background, Gilder — a devout Catholic — provides probably the most satisfying explanation for economic growth and wealth. He correctly points out that human beings don’t do anything for the sake of money or profit, but we achieve what we achieve based on what inspires and motivates our souls. Steve Jobs could have made billions more than he did in his lifetime, but he devoted his passions to a computer revolution that he also believed would cause societal improvements. Jobs was no saint, but he was inspired to do what he did for reasons other than sitting atop a mound of money.  People who both hate and admire billionaires need to remember that.

That brings me back to Gilder and Israel. Anyone who’s had an opportunity to view Israel’s economic miracle up close knows that profits are hardly the prime motivator for most of Israel’s top companies. Just about every lucrative Israeli enterprise and innovation on the private market today was born out of a vital need for the nation’s survival. This is true for the military, agricultural, and of course pharma breakthroughs that all are essential to saving and improving Israeli and all human lives. For someone like Gilder who speaks so accurately about true human motivations, Israel must be the best living example proving everything he believes about economics.

Jake Novak is supervising producer and editorial columnist for CNBC. Prior to joining CNBC, Novak co-created and oversaw the “Varney and Company” program on FOX Business Network along with anchor Stuart Varney. He also spent seven years at CNN, producing financial news programs including launching the successful “In the Money” show with anchor Jack Cafferty. Novak has a bachelor’s degree in political science from Columbia University and a masters degree from Northwestern’s Medill School of Journalism.

 

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4 Comments

  1. Barry
    Posted April 16, 2016 at 11:01 pm | Permalink

    If Wall Street recovers from a crash, there is no reason why the rest of us cannot do well during the course of that recovery. Philosophically speaking, when Ronald Reagan described the trickle down theory, he was on to something, but it would have been better had he called it a ripple effect. As in, tossing a stone into a pool of water and following the waves. Or, simply identifying with those ahead of you on the scale and casting yourself in a similar mode. It works.

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  2. eyawitz
    Posted April 12, 2016 at 4:40 am | Permalink

    I highly recommend Gilder’s “Sexual Suicide” (renamed as “Men and Marriage”) from the early ’70s (he must be at least in his early 70s by now) which predicted the huge mess that Western society has gotten into as a result of feminism and “sexual liberation”.

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  3. pkoning
    Posted April 11, 2016 at 9:57 am | Permalink

    I’m afraid the real problem is a bit bigger than what Gilder suggests (at least judging from the review — I haven’t read the book). The actual problem is that both real money and Constitutional government have been abolished over a century ago. The USA hasn’t had real money since 1913, and the rest of the world either fell into that swamp even earlier, or did so soon after. So, to use the hammer analogy, the Jekyll Island conspiracy handed us all toolboxes filled with styrofoam hammers. It’s no wonder our houses look so shabby.
    As for Solyndra and the like, that’s just a completely trivial and minuscule fraction of the actual problem, namely that nearly everything the Federal government does (and thus spends our money on) is a blatant violation of Article 1, Section 8 of the U.S. Constitution.

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  4. Michael Kennedy
    Posted April 11, 2016 at 9:43 am | Permalink

    I’ve read several of Gilder’s books over the years. I just read a book called “The New Case for Gold” by a guy named James Rickards, who has a similar take on what has been happening to money. His next book, actually written in 2011, is “Currency Wars” and is next on my list. What is so interesting about Rickards’ book that I just finished is his opinion about China.

    “Donald Trump’s railing about the Chinese devaluing their currency, ”

    Rickards points out that China is buying up gold by thousands of tons until they have equal stores to the US. Gilder will go on top of my pile. A lot of Rickards book sounds like Trump.

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