It's a great honor for me to present my paper at the Austrian Scholar Conference in Mises Institute.
And also I would like to thank Professor Salerno for his acceptance of my paper.
My paper is Fiat Money and Negative Alertness. And I would like to start my report to this point.
I need to describe my position about this difficult situation.
We need to understand that we have many differences between entrepreneurship alertness in the system of sound money and unsound money.
And we need to investigate these subsequences.
Of course, if we have pure gold standard and we have free market economy,
Entrepreneurship alertness is only one source of total results.
We understand that capitalistic development and economic growth is a result of entrepreneurship activity.
And essential of this entrepreneurship activity is alertness.
Great works of Israel Kirzner describes this perfect vision, essential vision of economic process.
and we need to analyze these differences. Of course in this book, I mean book
Competition and Entrepreneurship, we can see investigation of entrepreneurship
activity without fiat money. It's not influence of entrepreneur, we have pure
situation without money institutions, but of course we have entrepreneurship
and entrepreneurship activity not only in the system of pure gold standard and free market.
Of course, we have many entrepreneurship activity also in solid economy.
When we have USSR, we know that we have no official economy and of course we have entrepreneurship activity.
It's not legal, but we had this situation.
And I would like to describe this problem.
But the foundation of my investigation
will be brilliant analysis of history
of money and devolution of this medium of exchange.
Of course, 20th century was a century
of progressive interventionism in the monetary sphere.
It's not only Federal Reserve, it's not only New Deal,
it's not only abolishing of gold standard.
Of course, we can find roots of this tendency
in earlier centuries, especially in 17th centuries
when was founded First Central Bank in England in 1694,
was founded this First Central Bank.
But this increasing of government role in economy,
especially in monetary system,
had consequences with quality of money.
We saw about progression theorem at the last day,
at the earlier day.
And this progression theorem describes to us
How money decreases quality in the 20th century.
But the key question is how we can understand economic growth.
We had economic growth in the 20th century,
but we have devolution of monetary system.
We understand that the monetary is the basis,
is a foundation of free society,
is a foundation, good foundation for economic growth.
But why we have economic growth?
in spite of this interventionism.
I think that we need analyze not only total results,
not only empirical, but we need to analyze
foundation of this empirical.
And Kirzner's works can provide this vision.
Alertness, entrepreneurship alertness,
it's one of the source of economic growth in 20th century.
Of course, it's not only one source.
We need also capital accumulation,
So we need productivity, but in my presentation, I would like to concentrate only on this factor.
And we know that the great treatise of economics, Human Action by Ludwig von Mises and Man
Economy and State by Murray Rothbard is a brilliant interpretation of our knowledge
in economic theory.
But we need to bridge in these two parts of theory.
We have a priori and deductive catallactics or economics of free society and we need to
bridge in these two parts of union theory.
Usually we investigate money and investigate entrepreneurship.
It's two most important parts.
But of course fiat money influences to alertness, and we will have not only positive result
of this, we will have negative alertness.
And I would describe this.
This interrelationship between two fields of our theory is money theory and entrepreneurship
theory.
And we will analyze this interrelationship between our institution in monetary system
and Entrepreneurship Activity.
What is alertness?
Of course, it's not a strong definition of this notion
because Israel Kirzner liked to describe this situation
in many books, but I think that we will right decision
if we describe alertness as ability,
it's ability of the man, of person, not as a system.
and its ability to find profitable projects.
Why we can find it?
Because in the market process, we can't see equilibrium.
If we have equilibrium like in mainstream microeconomics,
we can't explain, we can't understand
the source of profitable projects.
We can't find projects with profit
in the system of equilibrium with perfect knowledge.
and as a foundation of this process we have imperfect exchange and of course entrepreneurship activity is the ability to find new disperse knowledge.
Of course, in this picture we can see two people, and these people don't know how to realize goals.
People at the left of this picture want to go A, and another people want another,
But they don't understand how to realize their plans.
Of course, this person A and B can get profit if we find an entrepreneur.
Of course, you know perfect investigation work
or work by Jesus Roberto de Sota about socialism,
economic calculation and entrepreneurship activity.
And this book consists this abstract scheme.
My case two is the case with entrepreneur.
This lamp is a symbol of alertness.
the symbol of ability to find new disperse knowledge.
Of course, at the earlier, we can find this.
We have situation with blindness.
This person can't realize his plans.
But in this picture, we have only a profitable result.
Profitable not only for entrepreneur,
but for person at the left and person of the right.
I would like to give you example
and this example have relation with my motherland
and maybe you something know about this people.
Of course, you know something about Russian Bailey
and the last of 19th century,
Only few people in United States, in Europe,
know something about Russian Bailey.
And it's look like this situation.
People in the Western countries won't show,
but they can't find the good means
for realization these plans.
Of course, at the right of this picture,
you can see spectators.
These spectators want to see Russian Bailey,
but at the left of this picture,
you can see photo of our great Russian Bailey dancer,
Anna Pavlova.
And of course, we need to provide this information
about great project.
and Sergei Diaghilev, Monsieur Diaghilev,
was a great entrepreneur in this fair.
He provide Russian Bailey in the Western countries
and of course, as a result of it,
we have profit for Russian Bailey dancer,
profit for entrepreneur and profit for spectators.
It's only positive alertness, positive.
And we need to analyze differences, feel the difference.
This is a system of sound money.
It look like finding, looking, a profitable project.
Blue ball is a profitable project,
but another ball is unprofitable.
It look like find it good potatoes.
Of course, if you have experience in this place,
you have successful in this project.
and a good entrepreneur can find this, this yes,
not this, I feel it, I feel,
I realize my alertness maybe, not blindness.
Blindness is a result of government intervention
but not a result of entrepreneurship creativity
and as a result we have six profitable investment from six.
Of course I can't explain now
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,
Entrepreneur 1 and 2 try to find profitable projects, but they create mistakes.
It's mistakes, not usually mistakes, not a result of these individual errors.
It's a result of system. Information signal gets him information.
It's not right information about resources, about money, about capital,
capital, and then create many malinvestment.
Malinvestment is a result not of sound money,
but of course, unsound.
And what we can see at this picture,
we can see first many profitable project can't realized.
Many unprofitable project will be realized.
It's a result of credit expansion.
It's a result of mistakes.
It's not mistakes of entrepreneurs.
It's mistakes of unsound money, great unsound money.
And I think we need to define this special case
of alertness.
It's not alertness at opposite blindness,
but I can explain it how negative alertness.
Negative as a result, total result in economic growth.
It's result only negative.
But we need to understand.
It's not result of individual entrepreneur.
It's not his problem.
Many entrepreneurs say to you, I'm very smart.
I can't understand profitable or unprofitable.
We don't care about it.
But they don't calculate and don't make right decision
not because they are stupid.
It's a result not of his mind.
is a result of a system.
And key question of my report is,
is fiat money create alertness, create new profit?
That if we have system with fixed money,
we can't realize our profitable exchange
because in the fixed currency market,
we don't have the volatile.
Volatile, more volatile market will be
a result of unsound money.
If we have no fixed currency,
speculators and another person
can realize profitable exchange.
But is it good?
Is it good for speculators if we know that speculators
and entrepreneurship is good for economy?
Why we don't want flexible currency?
Yes, we would like fixed currency
because good money creates good economic growth.
We need to analyze.
Let me give you one example.
We have three situations.
Situation A, it's a gold standard.
Situation B, fiat money, and third, socialist money.
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.
Zero
make decision about situation B.
Our opportunity cost is plus 10.
We see total result of situation B, it's plus 10.
And total result of situation A, plus 20.
And opportunity cost of our alertness
in system of fiat money is plus 10.
In situation three, we can't analyze entrepreneur.
We don't have entrepreneur, but we have only malinvestment.
Total result, minus 10.
And of course, we need to analyze not only empirical.
I said about it in the start of my presentation.
Blue line, it's a total profit.
It's what we see.
But Bastiat key idea is that we need to analyze unseen.
Unseen, unseen, this is alertness.
We can't see what is this.
It's not material, it's not objectivism.
It's something in mind, but what is this?
Or not in mind.
We need to analyze this special case,
special case of alertness.
Kirzner described, perfect described,
positive alertness, positive resultat,
positive result of this situation.
but we need to apply, we need to analyze another result of this.
If we don't have fiat money,
we don't have opportunity cost of fiat money.
We don't have negative alertness.
Negative alertness, it's a blindless,
for realization, good project.
It's essential of malinvestment
and we need to analyze this situation.
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
We need new investigation in the field between capital-based macroeconomics and Austrian
macroeconomics and entrepreneurship theory.
And we saw at the last lecture and yesterday, I think, brilliant report, brilliant presentation
about this.
I hope that this fruitful tradition will continue in this century.
Thank you for your attention.
Thank you very much.