George: I wanted to interview you but I guess I'm not going…

George: I wanted to interview you but I guess I'm not going to be able to do this in public.
One of those things about Bitcoin that I'm writing about a lot is Bitcoin is an innovation in information theory, it's a new security model but it's also a new accounting model. It's triple entry bookkeeping. I'd like to have a better understanding of just what that means as an advance, in accounting theory. You don't just have to [asset 00:01:19] in the liability. You also have to have to process of verification and integration of the transaction with all previous transactions. That's a triple entry is the idea. I don't know whether it's a confusing concept or whether it actually has a contribution to make to accounting.
Ron: Go ahead, Matt. Sorry.
Matt: Sorry, we were getting started right now guys.
Ed: Okay.
Ron: Okay.
Ronald Reagan: Like a chrysalis, we're emerging from the economy of the Industrial Revolution, an economy confined to and limited by the Earth's physical resources, into the economy in mind in which there are no bounds on human imagination and the freedom to create is the most precious natural resource.
Ron: Welcome to The Soul of Enterprise: Business in the Knowledge Economy sponsored by Sage, supporting small and medium sized businesses by creating greater freedom for them to succeed. I'm Ron Baker along with my good friend, VeraSage Institute colleague and co-host, Ed Kless. Ed, today, we are so honored. We have my all-time mentor on the line for the entire show, George Gilder. George, thank you so much for appearing on The Soul of Enterprise.
George: Oh, The Soul of Enterprise is just what I'm about. I'm delighted to be here.
Ron: This show is basically inspired by your work. I have to tell you, back in 1981, my father, who's a barber. In fact, he was born 2 years before you so you're roughly the same age, he read your Playboy interview in 1981. He took me out to lunch and said, "You need to read this guy's book. This guy wrote this incredible book. Everybody's raving about it. Reagan passed it around in his Cabinet. He said, you know, apparently he read 200 books that are cited in his bibliography."
I pooh-poohed it, George. I said, "Ah, come on, Dad! There's a lot of crackpot economists, a lot of people right." For some reason that I can't explain. I think it ties into your book Men and Marriage and the Faith of Fathers, my dad persisted. He went out and he bought me the book. He threw it at me. He said, "Read this." I did and I did it in one sitting. It turned my world upside down. That's how I learned about you. I owe it all to my dad.
George: Thank you so much, Ron. Thanks guys for taking this knowledge and power concept another step forward now in knowledge and power which is an outgrowth of Wealth and Poverty, the book that Reagan read and made me Reagan's most quoted living author.
It took me another 25 years or more from 1980 to … Gosh! To 2013 to really figure out that economics is best expressed as information theory and capitalist economy is not chiefly an incentive system but an information system.
This is a hard thing to swallow because all economics is based on incentives. Incentives are obviously important but the fundamental concept at the center of economics is called Homo economicus, human being is chiefly a function of the forces around them, a function of outside conditions and forces. Information theory says the human being is not a mere function. He's a creator in the image of his creator. That is, he's created in the image of his creator. The key property of creation is surprise. If it's truly new, the measure that's novelty is it's surprise or it's unexpectedness. That is the crucial principle of capitalism, that it's an information system, bringing new creations into the world.
Ron: George, you've been saying that, I know it's some Princeton professor, you quote Albert Hirschman who said creativity should always take us by surprise." You've added to that: "Otherwise, planning would work and socialism would work." I don't want to live in a world that's planned.
Let me ask you. A lot of economists, a lot of supply side economists or libertarian or right leaning, people like Steven Landsburg. Steven Landsburg has a great line: "People respond to incentives. The rest is a commentary."
What I love about Knowledge and Power, your latest book, is you say, "Incentives are like greed. They're ubiquitous." You can't blame and airplane crash on gravity and you can't blame anything on greed because you can't blame change on a constant. You've flushed out this theory of the creativity and creative destruction of capitalism or entrepreneurship with information theory. Can you explain information theory, Claude Shannon and his concept of that?
George: After writing Wealth and Poverty, I went to Silicon Valley and wrote a newsletter on the semiconductor industry, the microchip industry. Underlying all this semiconductor industry and computer systems that evolved from semiconductors a…