WEBVTT NOTE Fiat Money and Negative Alertness 1 00:00:00.000 --> 00:00:08.800 It's a great honor for me to present my paper at the Austrian Scholar Conference in Mises Institute. 2 00:00:09.600 --> 00:00:18.560 And also I would like to thank Professor Salerno for his acceptance of my paper. 3 00:00:20.000 --> 00:00:28.400 My paper is Fiat Money and Negative Alertness. And I would like to start my report to this point. 4 00:00:28.400 --> 00:00:34.400 I need to describe my position about this difficult situation. 5 00:00:34.400 --> 00:00:44.400 We need to understand that we have many differences between entrepreneurship alertness in the system of sound money and unsound money. 6 00:00:44.400 --> 00:00:48.400 And we need to investigate these subsequences. 7 00:00:48.400 --> 00:00:54.400 Of course, if we have pure gold standard and we have free market economy, 8 00:00:54.400 --> 00:01:00.400 Entrepreneurship alertness is only one source of total results. 9 00:01:00.400 --> 00:01:08.400 We understand that capitalistic development and economic growth is a result of entrepreneurship activity. 10 00:01:08.400 --> 00:01:14.400 And essential of this entrepreneurship activity is alertness. 11 00:01:14.400 --> 00:01:22.400 Great works of Israel Kirzner describes this perfect vision, essential vision of economic process. 12 00:01:22.400 --> 00:01:30.640 and we need to analyze these differences. Of course in this book, I mean book 13 00:01:30.640 --> 00:01:36.960 Competition and Entrepreneurship, we can see investigation of entrepreneurship 14 00:01:36.960 --> 00:01:43.760 activity without fiat money. It's not influence of entrepreneur, we have pure 15 00:01:43.760 --> 00:01:49.600 situation without money institutions, but of course we have entrepreneurship 16 00:01:49.600 --> 00:01:56.600 and entrepreneurship activity not only in the system of pure gold standard and free market. 17 00:01:56.600 --> 00:02:02.600 Of course, we have many entrepreneurship activity also in solid economy. 18 00:02:02.600 --> 00:02:14.600 When we have USSR, we know that we have no official economy and of course we have entrepreneurship activity. 19 00:02:14.600 --> 00:02:18.600 It's not legal, but we had this situation. 20 00:02:18.600 --> 00:02:22.640 And I would like to describe this problem. 21 00:02:22.640 --> 00:02:27.200 But the foundation of my investigation 22 00:02:27.200 --> 00:02:32.200 will be brilliant analysis of history 23 00:02:33.160 --> 00:02:38.160 of money and devolution of this medium of exchange. 24 00:02:38.760 --> 00:02:42.640 Of course, 20th century was a century 25 00:02:42.640 --> 00:02:47.520 of progressive interventionism in the monetary sphere. 26 00:02:47.520 --> 00:02:52.000 It's not only Federal Reserve, it's not only New Deal, 27 00:02:52.000 --> 00:02:54.520 it's not only abolishing of gold standard. 28 00:02:54.520 --> 00:02:59.280 Of course, we can find roots of this tendency 29 00:03:00.260 --> 00:03:04.320 in earlier centuries, especially in 17th centuries 30 00:03:04.320 --> 00:03:09.320 when was founded First Central Bank in England in 1694, 31 00:03:13.700 --> 00:03:16.760 was founded this First Central Bank. 32 00:03:16.760 --> 00:03:21.760 But this increasing of government role in economy, 33 00:03:23.000 --> 00:03:26.200 especially in monetary system, 34 00:03:27.120 --> 00:03:32.120 had consequences with quality of money. 35 00:03:33.720 --> 00:03:38.720 We saw about progression theorem at the last day, 36 00:03:38.960 --> 00:03:41.020 at the earlier day. 37 00:03:41.020 --> 00:03:46.020 And this progression theorem describes to us 38 00:03:46.020 --> 00:03:50.500 How money decreases quality in the 20th century. 39 00:03:50.500 --> 00:03:56.140 But the key question is how we can understand economic growth. 40 00:03:56.140 --> 00:03:59.300 We had economic growth in the 20th century, 41 00:03:59.300 --> 00:04:02.540 but we have devolution of monetary system. 42 00:04:02.540 --> 00:04:05.180 We understand that the monetary is the basis, 43 00:04:05.180 --> 00:04:07.300 is a foundation of free society, 44 00:04:07.300 --> 00:04:10.180 is a foundation, good foundation for economic growth. 45 00:04:10.180 --> 00:04:15.340 But why we have economic growth? 46 00:04:15.340 --> 00:04:17.940 in spite of this interventionism. 47 00:04:17.940 --> 00:04:21.820 I think that we need analyze not only total results, 48 00:04:21.820 --> 00:04:25.740 not only empirical, but we need to analyze 49 00:04:26.940 --> 00:04:29.220 foundation of this empirical. 50 00:04:29.220 --> 00:04:34.220 And Kirzner's works can provide this vision. 51 00:04:34.980 --> 00:04:36.980 Alertness, entrepreneurship alertness, 52 00:04:36.980 --> 00:04:40.260 it's one of the source of economic growth in 20th century. 53 00:04:40.260 --> 00:04:42.140 Of course, it's not only one source. 54 00:04:42.140 --> 00:04:44.740 We need also capital accumulation, 55 00:04:44.740 --> 00:04:53.460 So we need productivity, but in my presentation, I would like to concentrate only on this factor. 56 00:04:53.460 --> 00:05:01.560 And we know that the great treatise of economics, Human Action by Ludwig von Mises and Man 57 00:05:01.560 --> 00:05:09.600 Economy and State by Murray Rothbard is a brilliant interpretation of our knowledge 58 00:05:09.600 --> 00:05:12.980 in economic theory. 59 00:05:12.980 --> 00:05:16.260 But we need to bridge in these two parts of theory. 60 00:05:16.260 --> 00:05:23.260 We have a priori and deductive catallactics or economics of free society and we need to 61 00:05:23.260 --> 00:05:28.140 bridge in these two parts of union theory. 62 00:05:28.140 --> 00:05:37.140 Usually we investigate money and investigate entrepreneurship. 63 00:05:37.140 --> 00:05:39.780 It's two most important parts. 64 00:05:39.780 --> 00:05:48.020 But of course fiat money influences to alertness, and we will have not only positive result 65 00:05:48.020 --> 00:05:51.100 of this, we will have negative alertness. 66 00:05:51.100 --> 00:05:53.040 And I would describe this. 67 00:05:53.040 --> 00:05:59.740 This interrelationship between two fields of our theory is money theory and entrepreneurship 68 00:05:59.740 --> 00:06:00.740 theory. 69 00:06:00.740 --> 00:06:07.920 And we will analyze this interrelationship between our institution in monetary system 70 00:06:07.920 --> 00:06:10.480 and Entrepreneurship Activity. 71 00:06:12.640 --> 00:06:13.520 What is alertness? 72 00:06:13.520 --> 00:06:18.520 Of course, it's not a strong definition of this notion 73 00:06:18.640 --> 00:06:23.640 because Israel Kirzner liked to describe this situation 74 00:06:24.440 --> 00:06:28.760 in many books, but I think that we will right decision 75 00:06:28.760 --> 00:06:31.640 if we describe alertness as ability, 76 00:06:31.640 --> 00:06:35.520 it's ability of the man, of person, not as a system. 77 00:06:35.520 --> 00:06:40.420 and its ability to find profitable projects. 78 00:06:40.420 --> 00:06:41.660 Why we can find it? 79 00:06:41.660 --> 00:06:46.660 Because in the market process, we can't see equilibrium. 80 00:06:47.660 --> 00:06:52.620 If we have equilibrium like in mainstream microeconomics, 81 00:06:52.620 --> 00:06:55.900 we can't explain, we can't understand 82 00:06:55.900 --> 00:06:58.700 the source of profitable projects. 83 00:06:58.700 --> 00:07:01.420 We can't find projects with profit 84 00:07:01.420 --> 00:07:04.940 in the system of equilibrium with perfect knowledge. 85 00:07:04.940 --> 00:07:19.940 and as a foundation of this process we have imperfect exchange and of course entrepreneurship activity is the ability to find new disperse knowledge. 86 00:07:19.940 --> 00:07:38.940 Of course, in this picture we can see two people, and these people don't know how to realize goals. 87 00:07:38.940 --> 00:07:46.940 People at the left of this picture want to go A, and another people want another, 88 00:07:46.940 --> 00:07:54.940 But they don't understand how to realize their plans. 89 00:07:54.940 --> 00:08:07.220 Of course, this person A and B can get profit if we find an entrepreneur. 90 00:08:07.220 --> 00:08:11.540 Of course, you know perfect investigation work 91 00:08:11.540 --> 00:08:16.080 or work by Jesus Roberto de Sota about socialism, 92 00:08:16.080 --> 00:08:19.700 economic calculation and entrepreneurship activity. 93 00:08:19.700 --> 00:08:24.420 And this book consists this abstract scheme. 94 00:08:24.420 --> 00:08:29.420 My case two is the case with entrepreneur. 95 00:08:29.860 --> 00:08:33.380 This lamp is a symbol of alertness. 96 00:08:33.380 --> 00:08:38.380 the symbol of ability to find new disperse knowledge. 97 00:08:38.820 --> 00:08:43.820 Of course, at the earlier, we can find this. 98 00:08:46.220 --> 00:08:48.820 We have situation with blindness. 99 00:08:48.820 --> 00:08:52.900 This person can't realize his plans. 100 00:08:52.900 --> 00:08:57.900 But in this picture, we have only a profitable result. 101 00:08:58.700 --> 00:09:01.840 Profitable not only for entrepreneur, 102 00:09:01.840 --> 00:09:06.480 but for person at the left and person of the right. 103 00:09:06.480 --> 00:09:10.440 I would like to give you example 104 00:09:10.440 --> 00:09:15.440 and this example have relation with my motherland 105 00:09:16.880 --> 00:09:20.840 and maybe you something know about this people. 106 00:09:21.880 --> 00:09:26.880 Of course, you know something about Russian Bailey 107 00:09:26.880 --> 00:09:30.020 and the last of 19th century, 108 00:09:30.020 --> 00:09:34.120 Only few people in United States, in Europe, 109 00:09:34.120 --> 00:09:36.900 know something about Russian Bailey. 110 00:09:36.900 --> 00:09:41.900 And it's look like this situation. 111 00:09:43.320 --> 00:09:48.320 People in the Western countries won't show, 112 00:09:50.100 --> 00:09:53.720 but they can't find the good means 113 00:09:53.720 --> 00:09:56.180 for realization these plans. 114 00:09:56.180 --> 00:10:00.220 Of course, at the right of this picture, 115 00:10:00.220 --> 00:10:02.480 you can see spectators. 116 00:10:02.480 --> 00:10:05.360 These spectators want to see Russian Bailey, 117 00:10:05.360 --> 00:10:07.560 but at the left of this picture, 118 00:10:07.560 --> 00:10:11.500 you can see photo of our great Russian Bailey dancer, 119 00:10:11.500 --> 00:10:12.340 Anna Pavlova. 120 00:10:13.700 --> 00:10:18.700 And of course, we need to provide this information 121 00:10:20.060 --> 00:10:22.600 about great project. 122 00:10:22.600 --> 00:10:25.480 and Sergei Diaghilev, Monsieur Diaghilev, 123 00:10:25.480 --> 00:10:28.600 was a great entrepreneur in this fair. 124 00:10:29.640 --> 00:10:34.440 He provide Russian Bailey in the Western countries 125 00:10:34.440 --> 00:10:36.880 and of course, as a result of it, 126 00:10:36.880 --> 00:10:40.680 we have profit for Russian Bailey dancer, 127 00:10:40.680 --> 00:10:44.680 profit for entrepreneur and profit for spectators. 128 00:10:44.680 --> 00:10:47.720 It's only positive alertness, positive. 129 00:10:47.720 --> 00:10:51.800 And we need to analyze differences, feel the difference. 130 00:10:51.800 --> 00:10:53.840 This is a system of sound money. 131 00:10:53.840 --> 00:10:58.840 It look like finding, looking, a profitable project. 132 00:10:59.200 --> 00:11:01.920 Blue ball is a profitable project, 133 00:11:02.920 --> 00:11:06.120 but another ball is unprofitable. 134 00:11:06.120 --> 00:11:10.200 It look like find it good potatoes. 135 00:11:11.600 --> 00:11:15.000 Of course, if you have experience in this place, 136 00:11:15.000 --> 00:11:19.760 you have successful in this project. 137 00:11:19.760 --> 00:11:24.480 and a good entrepreneur can find this, this yes, 138 00:11:24.480 --> 00:11:28.480 not this, I feel it, I feel, 139 00:11:28.480 --> 00:11:33.000 I realize my alertness maybe, not blindness. 140 00:11:33.000 --> 00:11:35.780 Blindness is a result of government intervention 141 00:11:35.780 --> 00:11:39.800 but not a result of entrepreneurship creativity 142 00:11:39.800 --> 00:11:44.520 and as a result we have six profitable investment from six. 143 00:11:44.520 --> 00:11:48.460 Of course I can't explain now 144 00:11:48.460 --> 00:12:08.460 pure entrepreneurship errors, of course we will have these errors in this type, on all types of systems, not only in sound money, but we don't have a second part, we don't have credit expansion, and we need to analyze differences on sound money, look at this picture, 145 00:12:08.460 --> 00:12:16.460 Entrepreneur 1 and 2 try to find profitable projects, but they create mistakes. 146 00:12:16.460 --> 00:12:23.460 It's mistakes, not usually mistakes, not a result of these individual errors. 147 00:12:23.460 --> 00:12:29.460 It's a result of system. Information signal gets him information. 148 00:12:29.460 --> 00:12:34.460 It's not right information about resources, about money, about capital, 149 00:12:34.460 --> 00:12:39.780 capital, and then create many malinvestment. 150 00:12:39.780 --> 00:12:42.700 Malinvestment is a result not of sound money, 151 00:12:42.700 --> 00:12:44.340 but of course, unsound. 152 00:12:44.340 --> 00:12:48.100 And what we can see at this picture, 153 00:12:48.100 --> 00:12:55.460 we can see first many profitable project can't realized. 154 00:12:55.460 --> 00:12:59.020 Many unprofitable project will be realized. 155 00:12:59.020 --> 00:13:02.420 It's a result of credit expansion. 156 00:13:02.420 --> 00:13:03.980 It's a result of mistakes. 157 00:13:03.980 --> 00:13:06.140 It's not mistakes of entrepreneurs. 158 00:13:06.140 --> 00:13:10.940 It's mistakes of unsound money, great unsound money. 159 00:13:10.940 --> 00:13:14.620 And I think we need to define this special case 160 00:13:14.620 --> 00:13:15.940 of alertness. 161 00:13:15.940 --> 00:13:18.340 It's not alertness at opposite blindness, 162 00:13:18.340 --> 00:13:23.340 but I can explain it how negative alertness. 163 00:13:23.820 --> 00:13:28.820 Negative as a result, total result in economic growth. 164 00:13:28.980 --> 00:13:31.060 It's result only negative. 165 00:13:31.060 --> 00:13:33.300 But we need to understand. 166 00:13:33.300 --> 00:13:36.380 It's not result of individual entrepreneur. 167 00:13:36.380 --> 00:13:38.340 It's not his problem. 168 00:13:38.340 --> 00:13:43.080 Many entrepreneurs say to you, I'm very smart. 169 00:13:43.080 --> 00:13:47.260 I can't understand profitable or unprofitable. 170 00:13:47.260 --> 00:13:50.260 We don't care about it. 171 00:13:50.260 --> 00:13:55.260 But they don't calculate and don't make right decision 172 00:13:56.060 --> 00:13:59.420 not because they are stupid. 173 00:13:59.420 --> 00:14:01.780 It's a result not of his mind. 174 00:14:01.780 --> 00:14:04.280 is a result of a system. 175 00:14:04.280 --> 00:14:09.280 And key question of my report is, 176 00:14:09.420 --> 00:14:14.420 is fiat money create alertness, create new profit? 177 00:14:16.900 --> 00:14:21.700 That if we have system with fixed money, 178 00:14:21.700 --> 00:14:26.700 we can't realize our profitable exchange 179 00:14:27.340 --> 00:14:31.100 because in the fixed currency market, 180 00:14:31.100 --> 00:14:34.480 we don't have the volatile. 181 00:14:34.480 --> 00:14:38.500 Volatile, more volatile market will be 182 00:14:38.500 --> 00:14:41.000 a result of unsound money. 183 00:14:41.000 --> 00:14:44.180 If we have no fixed currency, 184 00:14:44.180 --> 00:14:47.320 speculators and another person 185 00:14:47.320 --> 00:14:49.760 can realize profitable exchange. 186 00:14:49.760 --> 00:14:51.020 But is it good? 187 00:14:51.020 --> 00:14:55.320 Is it good for speculators if we know that speculators 188 00:14:55.320 --> 00:14:58.500 and entrepreneurship is good for economy? 189 00:14:58.500 --> 00:15:03.180 Why we don't want flexible currency? 190 00:15:03.180 --> 00:15:05.680 Yes, we would like fixed currency 191 00:15:05.680 --> 00:15:10.680 because good money creates good economic growth. 192 00:15:11.580 --> 00:15:12.780 We need to analyze. 193 00:15:12.780 --> 00:15:14.940 Let me give you one example. 194 00:15:14.940 --> 00:15:16.540 We have three situations. 195 00:15:16.540 --> 00:15:19.500 Situation A, it's a gold standard. 196 00:15:19.500 --> 00:15:24.500 Situation B, fiat money, and third, socialist money. 197 00:15:24.500 --> 00:15:47.500 and if we analyze these three situations, we can see that in the gold standard we can't make malinvestment, it's only positive results, we will see only positive results in the system of gold standard, it's a plus 20. 198 00:15:47.500 --> 00:16:12.800 Zero 199 00:16:12.800 --> 00:16:15.840 make decision about situation B. 200 00:16:15.840 --> 00:16:20.760 Our opportunity cost is plus 10. 201 00:16:20.760 --> 00:16:25.760 We see total result of situation B, it's plus 10. 202 00:16:26.480 --> 00:16:30.280 And total result of situation A, plus 20. 203 00:16:30.280 --> 00:16:34.360 And opportunity cost of our alertness 204 00:16:34.360 --> 00:16:38.440 in system of fiat money is plus 10. 205 00:16:38.440 --> 00:16:41.680 In situation three, we can't analyze entrepreneur. 206 00:16:41.680 --> 00:16:46.480 We don't have entrepreneur, but we have only malinvestment. 207 00:16:46.480 --> 00:16:48.960 Total result, minus 10. 208 00:16:50.560 --> 00:16:55.000 And of course, we need to analyze not only empirical. 209 00:16:55.000 --> 00:16:59.840 I said about it in the start of my presentation. 210 00:16:59.840 --> 00:17:01.520 Blue line, it's a total profit. 211 00:17:01.520 --> 00:17:04.240 It's what we see. 212 00:17:04.240 --> 00:17:09.240 But Bastiat key idea is that we need to analyze unseen. 213 00:17:09.240 --> 00:17:13.820 Unseen, unseen, this is alertness. 214 00:17:13.820 --> 00:17:15.800 We can't see what is this. 215 00:17:15.800 --> 00:17:19.280 It's not material, it's not objectivism. 216 00:17:20.200 --> 00:17:22.360 It's something in mind, but what is this? 217 00:17:22.360 --> 00:17:24.000 Or not in mind. 218 00:17:24.000 --> 00:17:26.780 We need to analyze this special case, 219 00:17:26.780 --> 00:17:28.480 special case of alertness. 220 00:17:28.480 --> 00:17:31.120 Kirzner described, perfect described, 221 00:17:32.560 --> 00:17:35.160 positive alertness, positive resultat, 222 00:17:35.160 --> 00:17:37.640 positive result of this situation. 223 00:17:37.640 --> 00:17:42.640 but we need to apply, we need to analyze another result of this. 224 00:17:45.460 --> 00:17:48.700 If we don't have fiat money, 225 00:17:48.700 --> 00:17:51.860 we don't have opportunity cost of fiat money. 226 00:17:51.860 --> 00:17:56.400 We don't have negative alertness. 227 00:17:56.400 --> 00:17:58.440 Negative alertness, it's a blindless, 228 00:17:58.440 --> 00:18:00.420 for realization, good project. 229 00:18:00.420 --> 00:18:03.260 It's essential of malinvestment 230 00:18:03.260 --> 00:18:05.380 and we need to analyze this situation. 231 00:18:05.380 --> 00:18:35.380 and resume, fiat money creates negative alertness, opportunity cost of it is malinvestment, malinvestment is a source or reason of business cycle and we need to split, split definition alertness, Kirzner definition, to positive and negative and we will see essential, not only total result, not only economic growth, economic growth is a result of many factors and I think that we need 232 00:18:35.380 --> 00:18:41.700 We need new investigation in the field between capital-based macroeconomics and Austrian 233 00:18:41.700 --> 00:18:44.900 macroeconomics and entrepreneurship theory. 234 00:18:44.900 --> 00:18:53.960 And we saw at the last lecture and yesterday, I think, brilliant report, brilliant presentation 235 00:18:53.960 --> 00:18:55.040 about this. 236 00:18:55.040 --> 00:19:00.900 I hope that this fruitful tradition will continue in this century. 237 00:19:00.900 --> 00:19:01.900 Thank you for your attention. 238 00:19:01.900 --> 00:19:03.900 Thank you very much.