Businesses can succeed in two ways. They can improve upon the stock of existing goods and services, or they can offer something new and different. The second course creates more value but faces more obstacles, as Henry Ford is said to have put it: "If I had listened to my customers, I would have built a faster horse." Steve Jobs said something similar decades later: "It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them."
Individuals like Ford and Jobs are key figures in the economic paradigm that George Gilder lays out in "Knowledge and Power." He calls for an "information theory of capitalism" in which the economy is driven by a dynamic marketplace, with information widely (and freely) distributed. The most important feature of such an economy, Mr. Gilder writes, is the overthrow of "equilibrium," and the most important actors are inventors and entrepreneurs whose breakthrough ideas are responsible for "everything useful or interesting" in commercial life.
"Knowledge and Power" draws on Mr. Gilder's varied professional career. The author of 15 books, including "Wealth and Poverty" (1981) and "Microcosm" (1989), Mr. Gilder has been a speechwriter for Nelson Rockefeller and George Romney (Mitt's father), a technology writer, and a venture-capital adviser and investor. During the late 1990s tech bubble, his weekly report on technology created what became known as the "Gilder effect," an immediate spike in the price of his recommended stocks.
A potent mix of visionary and techno-libertarian, Mr. Gilder is, as one might expect, sharply critical of government spending and regulation, believing that they harm the environment that entrepreneurs need to translate their ideas into products and services. But his views don't fit easily into a single category. He agrees with Occupy Wall Street that corporations should not be allowed to engage in unlimited political spending, which he says fosters crony capitalism (though he supports unlimited spending by individuals).
He is critical of Adam Smith for seeing the entrepreneur as a "tool of market" when in fact, in Mr. Gilder's view, entrepreneurs and their products "create the market." Smith's vision, he says, "constitutes the original sin" of demand-side (or Keynesian) economics—by undervaluing the customer-seeking, product-developing, job-creating engines of the economy (the supply side). The prevalence these days of venture capitalists who invest in social-networking sites like Twitter TWTR -2.71% and frivolous games like Angry Birds is, Mr. Gilder says, "an ominous sign for the future of U.S. world leadership."
While entrepreneurs get star billing in "Knowledge and Power," relatively few are highlighted. Instead, Mr. Gilder features individuals who have achieved breakthroughs in science and technology—people like Claude Shannon, Kurt Gödel and Alan Turing, who "created the architecture of ideas and systems underlying and informing digital computers, fiber optic networks, wireless communications, and the global Internet." "Knowledge and Power" bristles with explanations of their work and of others like them while also digging into computer theory, genetics, and the effects of entropy and other aspects of physics. Nonscientists may find this material tough going.
The journey is ultimately worthwhile, however, thanks to the freshness of Mr. Gilder's heterodox judgments. In a chapter titled "The Outsider Trading Scandal," he documents the ways in which U.S. securities law—by prohibiting the release of materially significant information unless it is made universally available—has reduced the amount of information that is available to market participants. "This well-meaning rule," writes Mr. Gilder, "is supposed to create a level playing field," but a level playing field, he notes, "means no information, since information is inherently unleveling." What's needed is the release of more inside information from companies. Such information is the "only force that makes any long-term difference in stock performance."
Among the beneficiaries of the information lockdown, according to Mr. Gilder, are venture capitalists and private-equity investors. "Knowledge and Power" explores Mitt Romney's experience at Bain & Co., where Mr. Gilder was invited to speak in the early 1980s and learn about the firm's views of the economy. "Romney could build value for his investors because he combined the financial power of Bain with an intimate knowledge of all the companies in his portfolio. . . . [H]e exploited the legality of insider knowledge for owners and aspiring owners."
Aspiring owners shouldn't look to "Knowledge and Power" for practical advice on starting a company, but Mr. Gilder's case for the central role of entrepreneurship might boost their morale. Certainly his argument could not be more timely. Census Bureau data show that startups were responsible for nearly all new job creation from 1996 to 2009. Yet entrepreneurship itself (as measured by new business formation) has been stagnant for about two decades. Thus the important question for America's future may well be, as Mr. Gilder says, "how we treat our entrepreneurs." He persuasively shows that creating a more supportive climate for entrepreneurs—by clearing away burdensome regulations and freeing information from its current imprisonment—will result in a more prosperous and vigorous society, creating not only more jobs but more Jobs.
Mr. Rees, president of Geonomica in McLean, Va., is a senior fellow in the Center for Global Business and Government at Dartmouth's Tuck School of Business.