Wealth is Knowledge

The stock-market carnage came fast and furious, wrecking GameStop-like memes and get-rich-quick crypto schemes and cracking SPACs. The ringleader, Robinhood, fueled by stimulus checks, is a good proxy for the excess. Its stock is down almost 80% from its August peak. It is a fine time to ask: What is wealth? Is it Justin Bieber dropping $1.3 million on a Bored Ape Yacht Club nonfungible token? Ha! More important, how do you keep wealth?

How to create lasting wealth is surprisingly simple: Do more with less. Always has been true, always will. The Industrial Revolution resulted from applying knowledge to replace messy horses with steam power, lowering both the cost of comfortable clothing and global shipping. Computers, with information embedded in cheap silicon, still aren’t done displacing librarians, secretaries, doctors and more. These productivity gains are the engines of progress, much to the chagrin of degrowth, sustainability-soaked, divvy-up-pieces-of-the-pie anticapitalists.

Here’s a paradox. If you didn’t sleep through Econ 101, you were taught about supply and demand curves and that when prices drop, supply needs to come down to reach equilibrium. Yet in today’s digital economy, when costs go down, we actually get more supply, as with silicon chips, data storage and bandwidth.

I asked the author and economist George Gilder about wealth creation. “Wealth is most essentially knowledge,” Mr. Gilder says. “Let’s face it, the caveman had access to all the materials we have today. Therefore, economic growth is learning, manifested in ‘learning curves’ of collapsing costs driven by markets.” Yet these learning curves get waved away by economists. Mr. Gilder says information, not materials, drives growth: “Crash a car and all its value disappears, though every molecule remains.”