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NOTE XIV. The Scope and Method of Catallactics (continued)

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5. THE STATE OF REST AND THE EVENLY ROTATING ECONOMY

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The only method of dealing with the problem of action is to conceive that action ultimately

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aims at bringing about a state of affairs in which there is no longer any action, whether

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because all uneasiness has been removed or because any further removal of felt uneasiness

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This is out of the question.

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Action thus tends toward a state of rest, absence of action.

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The theory of prices accordingly analyzes interpersonal exchange from this aspect.

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People keep on exchanging on the market until no further exchange is possible, because no

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party expects any further improvement of its own conditions from a new act of exchange.

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The potential buyers consider the prices asked by the potential sellers unsatisfactory and

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vice versa.

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No more transactions take place.

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A state of rest emerges.

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This state of rest, which we may call the plain state of rest, is not merely an imaginary

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construction.

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It comes to pass again and again.

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When the stock market closes, the brokers have carried out all orders which could be

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be executed at the market price. Only those potential sellers and buyers who consider

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the market price too low or too high, respectively, have not sold or bought. For the sake of simplicity,

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we disregard the price fluctuations in the course of the business day. The same is valid

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with regard to all transactions. The whole market economy is a big exchange or marketplace,

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as it were. At any instant, all those transactions take place which the parties are ready to

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enter into at the realizable price. New sales can only be affected when the valuations of

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the parties have changed. It has been asserted that the notion of the plain state of rest

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is unsatisfactory. It refers, people have said, only to the determination of prices

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The Theory of Money and Credit The Theory of Money and Credit

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to enter the market in order to sell their products and to buy what they want for their

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own consumption and for continuing production processes.

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But this does not invalidate the scheme.

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This scheme, to be sure, does not contend that the state of rest will last.

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The lull will certainly disappear as soon as the momentary conditions which brought

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it about change.

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The notion of the plain state of rest is not an imaginary construction, but the adequate

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description of what happens again and again on every market.

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In this regard, it differs radically from the imaginary construction of the final state

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of rest.

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In dealing with the plain state of rest, we look only at what is going on right now.

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We restrict our attention to what has happened momentarily and disregard what will happen

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later, in the next instant, or tomorrow, or later.

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We are dealing only with prices really paid in sales, that is, with the prices of the

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immediate past.

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We do not ask whether or not future prices will equal these prices.

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But now we go a step further.

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We pay attention to factors which are bound to bring about a tendency toward price changes.

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We try to find out to what goal this tendency must lead before all its driving force is

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exhausted and a new state of rest emerges.

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The price corresponding to this future state of rest was called the natural price by older

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Economists. Nowadays the term static price is often used. In order to avoid misleading

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associations it is more expedient to call it the final price and, accordingly, to speak

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of the final state of rest. This final state of rest is an imaginary construction, not

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a description of reality. For the final state of rest will never be attained. New disturbing

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What makes it necessary to take recourse to this imaginary construction is the fact that

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the market at every instant is moving toward a final state of rest.

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Every later new instant can create new facts altering this final state of rest, but the

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market is always disquieted by a striving after a definite final state of rest.

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The market price is a real phenomenon.

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It is the exchange ratio which was actual in business transacted.

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The final price is a hypothetical price.

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The market prices are historical facts, and we are therefore in a position to note them

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with numerical exactitude in dollars and cents.

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The final price can only be defined by defining the conditions required for its emergence.

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No definite numerical value in monetary terms or in quantities of other goods can be attributed

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to it.

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It will never appear on the market.

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The market price can never coincide with the final price coordinated to the instant in

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which this market structure is actual.

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But catallactics would fail lamentably in its task of analyzing the problems of price

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Price Determination if it were to neglect dealing with the final price.

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For in the market situation from which the market price emerges, there are already latent

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forces operating which will go on bringing about price changes until, provided no new

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data appear, the final price and the final state of rest are established.

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We would unduly restrict our study of price determination if we were to look only upon

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the momentary market prices and the plain state of rest, and to disregard the fact that

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the market is already agitated by factors which must result in further price changes,

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and a tendency toward a different state of rest.

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The phenomenon with which we have to cope is the fact that changes in the factors which

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which determine the formation of prices, do not produce all their effects at once.

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A span of time must elapse before all their effects are exhausted.

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Between the appearance of a new datum and the perfect adjustment of the market to it,

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some time must pass.

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And of course, while this period of time elapses, other new data appear.

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In dealing with the effects of any change in the factors operating on the market, we must

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never forget that we are dealing with events taking place in succession, with a series

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of effects succeeding one another.

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We are not in a position to know in advance how much time will have to elapse, but we

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know for certain that some time must elapse, although this period may sometimes be so small

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that it hardly plays any role in practical life.

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Economists often erred in neglecting the element of time.

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Take for instance the controversy concerning the effects of changes in the quantity of

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money.

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Some people were only concerned with its long-run effects, that is, with the final prices and

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the final state of rest.

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Others saw only the short-run effects, that is, the prices of the instant following the

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of Change in the Data. Both were mistaken, and their conclusions were consequently vitiated.

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Many more examples of the same blunder could be cited.

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The imaginary construction of the final state of rest is marked by paying full regard to

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change in the temporal succession of events. In this respect, it differs from the imaginary

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Imaginary Construction of the Evenly Rotating Economy, which is characterized by the elimination

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of change in the data and of the time element.

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It is inexpedient and misleading to call this imaginary construction, as is usual, the static

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economy or the static equilibrium, and it is a bad mistake to confuse it with the imaginary

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construction of a stationary economy.

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The evenly rotating economy is a fictitious system in which the market prices of all goods

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and services coincide with the final prices. There are in its frame no price changes whatever.

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There is perfect price stability. The same market transactions are repeated again and

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again. The goods of the higher orders pass in the same quantities through the same stages

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of Man.

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The system is in perpetual flux, but it remains always at the same spot.

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It revolves evenly around a fixed center.

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It rotates evenly.

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The plain state of rest is disarranged again and again, but it is instantly reestablished

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at the previous level.

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All factors, including those bringing about the recurring disarrangement of the plain

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state of rest, are constant.

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Therefore, prices, commonly called static or equilibrium prices, remain constant too.

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The essence of this imaginary construction is the elimination of the lapse of time and

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of the perpetual change in the market phenomena.

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The notion of any change with regard to supply and demand is incompatible with this construction.

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Only such changes as do not affect the configuration of the price-determining factors can be considered

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in its frame.

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It is not necessary to people the imaginary world of the evenly rotating economy with

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immortal, non-aging and non-proliferating men.

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We are free to assume that infants are born, grow old and finally die, provided that total

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population figures and the number of people in every age group remain equal.

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Then, the demand for commodities whose consumption is limited to certain age groups does not

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Walter, although the individuals from whom it originates are not the same.

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In reality, there is never such a thing as an evenly rotating economic system.

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However, in order to analyze the problems of change in the data and of unevenly and

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irregularly varying movement, we must confront them with a fictitious state in which both

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are hypothetically eliminated.

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It is therefore preposterous to maintain that the construction of an evenly rotating economy

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does not elucidate conditions within a changing universe, and to require the economists to

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substitute a study of dynamics for their alleged exclusive occupation with statics.

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This so-called static method is precisely the proper mental tool for the examination

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of change.

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There is no means of studying the complex phenomena of action other than first to abstract

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from change altogether, then to introduce an isolated factor provoking change, and ultimately

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to analyze its effects under the assumption that other things remain equal.

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It is furthermore absurd to believe that the services rendered by the construction of an

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of an Evenly Rotating Economy are the more valuable the more the object of our studies,

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the realm of real action, corresponds to this construction in respect to absence of change.

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The static method, the employment of the imaginary construction of an evenly rotating economy,

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is the only adequate method of analyzing the changes concerned without regard to whether

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Whether they are great or small, sudden or slow.

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The objections hitherto raised against the use of the imaginary construction of an evenly

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rotating economy missed the mark entirely.

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Their authors did not grasp in what respect this construction is problematic, and why

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it can easily engender error and confusion.

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Action is change, and change is in the temporal sequence.

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But in the evenly rotating economy, change and succession of events are eliminated.

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Action is to make choices and to cope with an uncertain future.

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But in the evenly rotating economy, there is no choosing, and the future is not uncertain,

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as it does not differ from the present known state.

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Such a rigid system is not peopled with living men making choices and liable to error.

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It is a world of soulless, unthinking automatons.

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It is not a human society.

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It is an anthill.

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These insoluble contradictions, however, do not affect the service which this imaginary

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construction renders for the only problem for whose treatment it is both appropriate

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and indispensable.

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The problem of the relation between the prices of products and those of the factors required

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for their production, and the implied problems of entrepreneurship and of profit and loss.

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In order to grasp the function of entrepreneurship and the meaning of profit and loss, we construct

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a system from which they are absent.

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This image is merely a tool for our thinking.

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It is not the description of a possible and realizable state of affairs.

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It is even out of the question to carry the imaginary construction of an evenly rotating

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system to its ultimate logical consequences.

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For it is impossible to eliminate the entrepreneur from the picture of a market economy.

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The various complementary factors of production cannot come together spontaneously.

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They need to be combined by the purposive efforts of men aiming at certain ends and motivated

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by the urge to improve their state of satisfaction.

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In eliminating the entrepreneur, one eliminates the driving force of the whole market system.

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Then there is a second deficiency.

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In the imaginary construction of an evenly rotating economy, indirect exchange and the

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The use of money are tacitly implied.

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But what kind of money can that be?

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In a system without change, in which there is no uncertainty whatever about the future,

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nobody needs to hold cash.

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Every individual knows precisely what amount of money he will need at any future date.

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He is therefore in a position to lend all the funds he receives in such a way that the

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Let us assume that there is only gold money and only one central bank.

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With the successive progress toward the state of an evenly rotating economy, all individuals

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and firms restrict step by step their holding of cash and the quantities of gold thus released

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flow into non-monetary industrial employment.

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When the equilibrium of the evenly rotating economy is finally reached, there are no more

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cash holdings.

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No more gold is used for monetary purposes.

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The individuals and firms own claims against the central bank, the maturity of each part

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of which precisely corresponds to the amount they will need on the respective dates for

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the settlement of their obligations.

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The central bank does not need any reserves, as the total sum of the daily payments of

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its customers exactly equals the total sum of withdrawals.

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All transactions can, in fact, be affected through transfer in the bank's books without

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any recourse to cash.

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Thus, the money of this system is not a medium of exchange.

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It is not money at all.

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It is merely a numérère, an ethereal and undetermined unit of accounting of that vague

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and indefinable character which the fancy of some economists and the errors of many

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laymen mistakenly have attributed to money.

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The interposition of these numerical expressions between seller and buyer does not affect the

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essence of the sales.

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It is neutral with regard to the people's economic activities.

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But the notion of a neutral money is unrealizable and inconceivable in itself.

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If we were to use the inexpedient terminology employed in many contemporary economic writings,

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we would have to say, money is necessarily a dynamic factor.

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There is no room left for money in a static system.

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But the very notion of a market economy without money is self-contradictory.

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The imaginary construction of an evenly rotating system is a limiting notion.

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In its frame there is in fact no longer any action.

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Automatic reaction is substituted for the conscious striving of thinking man after the

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removal of uneasiness.

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We can employ this problematic imaginary construction only if we never forget what purposes it is

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designed to serve.

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We want, first of all, to analyze the tendency prevailing in every action toward the establishment

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of an evenly rotating economy.

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In doing so, we must always take into account that this tendency can never attain its goal

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in a universe not perfectly rigid and immutable, that is, in a universe which is living and

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not dead.

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Secondly, we need to comprehend in what respects the conditions of a living world in which

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there is action differ from those of a rigid world.

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This we can discover only by the argumentum a contrario provided by the image of a rigid

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economy.

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Thus, we are led to the insight that dealing with the uncertain conditions of the unknown

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and Future, that is, speculation, is inherent in every action, and that profit and loss

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are necessary features of acting which cannot be conjured away by any wishful thinking.

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The procedures adopted by those economists who are fully aware of these fundamental

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cognitions may be called the logical method of economics, as contrasted with the technique

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of the mathematical method.

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The mathematical economists disregard dealing with the actions which, under the imaginary

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and unrealizable assumption that no further new data will emerge, are supposed to bring

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about the evenly rotating economy.

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They do not notice the individual speculator who aims not at the establishment of the evenly

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rotating economy, but at profiting from an action which adjusts the conduct of affairs

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better to the attainment of the ends sought by acting, the best possible removal of uneasiness.

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They stress exclusively the imaginary state of equilibrium which the whole complex of

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all such actions would attain in the absence of any further change in the data.

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They describe this imaginary equilibrium by sets of simultaneous differential equations.

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They fail to recognize that the state of affairs they are dealing with is a state in which

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there is no longer any action, but only a succession of events provoked by a mystical

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prime mover.

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They devote all their efforts to describing in mathematical symbols various equilibria,

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that is, states of rest and the absence of action.

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They deal with equilibrium as if it were a real entity and not a limiting notion, a mere

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mental tool.

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What they are doing is vain playing with mathematical symbols, a pastime not suited to convey any

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knowledge.

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6.

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The Stationary Economy

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The imaginary construction of a stationary economy has sometimes been confused with that

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of an Evenly Rotating Economy, but in fact, these two constructions differ.

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The stationary economy is an economy in which the wealth and income of the individuals remain

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unchanged.

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With this image, changes are compatible, which would be incompatible with the construction

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of the evenly rotating economy.

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Population figures may rise or drop, provided that they are accompanied by a corresponding

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Banking Rise or Drop in the Sum of Wealth and Income.

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The demand for some commodities may change, but these changes must occur so slowly that

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the transfer of capital from those branches of production which are to be restricted in

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accordance with them into those to be expanded can be affected by not replacing equipment

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used up in the shrinking branches and instead investing in the expanding ones.

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The imaginary construction of a stationary economy leads to two further imaginary constructions,

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the progressing, expanding economy, and the retrogressing, shrinking economy.

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In the former, the per capita quota of wealth and income of the individuals and the population

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figure tend toward a higher numerical value, in the latter toward a lower numerical value.

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In the stationary economy, the total sum of all profits and of all losses is zero.

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In the progressing economy, the total amount of profits exceeds the total amount of losses.

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In the retrogressing economy, the total amount of profits is smaller than the total amount

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of losses.

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The precariousness of these three imaginary constructions is to be seen in the fact that

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The Theory of Money and Credit

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when men in dealing with the problems of their own actions, and when economic history, descriptive

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economics and economic statistics in reporting other people's actions, employ the terms

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In the terms entrepreneur, capitalist, landowner, worker and consumer, they speak of ideal types.

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When economics employs the same terms, it speaks of catalactic categories.

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The entrepreneurs, capitalists, landowners, workers and consumers of economic theory are

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not living men as one meets them in the reality of life and history.

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They are the embodiment of distinct functions in the market operations.

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The fact that both acting men and historical sciences apply in their reasoning the results

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of economics, and that they construct their ideal types on the basis of and with reference

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to the categories of praxeological theory, does not modify the radical logical distinction

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between ideal type and economic category.

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The economic categories we are concerned with refer to purely integrated functions.

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The ideal types refer to historical events.

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Living and acting man by necessity combines various functions.

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He is never merely a consumer.

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He is, in addition, either an entrepreneur, landowner, capitalist or worker, or a person

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supported by the intake earned by such people.

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Moreover, the functions of the entrepreneur, the landowner, the capitalist and the worker

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are very often combined by the same persons.

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History is intent upon classifying men according to the ends they aim at and the means they

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employ for the attainment of these ends.

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Economics, exploring the structure of acting in the market society without any regard to

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to the ends people aim at and the means they employ is intent upon discerning categories

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and functions. These are two different tasks. The difference can best be demonstrated in

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discussing the catallactic concept of the entrepreneur. In the imaginary construction

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of the evenly rotating economy, there is no room left for entrepreneurial activity, because

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This construction eliminates any change of data that could affect prices.

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As soon as one abandons this assumption of rigidity of data, one finds that action must

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needs be affected by every change in the data.

301
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As action necessarily is directed toward influencing a future state of affairs, even if sometimes

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is only the immediate future of the next instant.

303
00:27:58.060 --> 00:28:04.300
It is affected by every incorrectly anticipated change in the data occurring in the period

304
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of time between its beginning and the end of the period for which it aimed to provide,

305
00:28:10.900 --> 00:28:12.260
period of provision.

306
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Thus, the outcome of action is always uncertain.

307
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Action is always speculation.

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This is valid not only with regard to a market economy, but no less for Robinson Crusoe,

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00:28:26.400 --> 00:28:32.680
the imaginary isolated actor, and for the conditions of a socialist economy.

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In the imaginary construction of an evenly rotating system, nobody is an entrepreneur

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and speculator.

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In any real and living economy, every actor is always an entrepreneur and speculator.

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The people taken care of by the actors, the minor family members in the market society,

314
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and the masses of a socialist society, are, although themselves, not actors and therefore

315
00:29:00.760 --> 00:29:07.080
not speculators, affected by the outcome of the actors' speculations.

316
00:29:07.080 --> 00:29:14.760
Economics, in speaking of entrepreneurs, has in view not men, but a definite function.

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This function is not the particular feature of a special group or class of men.

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00:29:20.280 --> 00:29:25.280
It is inherent in every action and burdens every actor.

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00:29:25.280 --> 00:29:32.380
In embodying this function in an imaginary figure, we resort to a methodological makeshift.

320
00:29:32.380 --> 00:29:39.720
The term entrepreneur as used by catalactic theory means acting man exclusively seen from

321
00:29:39.720 --> 00:29:45.040
from the Aspect of the Uncertainty Inherent in Every Action.

322
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In using this term, one must never forget that every action is embedded in the flux

323
00:29:50.560 --> 00:29:55.160
of time, and therefore involves a speculation.

324
00:29:55.160 --> 00:30:01.460
The capitalists, the landowners and the laborers are, by necessity, speculators.

325
00:30:01.460 --> 00:30:06.560
So is the consumer, in providing for anticipated future needs.

326
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As many as slip, twixt cup and lip.

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Let us try to think the imaginary construction of a pure entrepreneur to its ultimate logical

328
00:30:17.520 --> 00:30:19.400
consequences.

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This entrepreneur does not own any capital.

330
00:30:22.560 --> 00:30:28.120
The capital required for his entrepreneurial activities is lent to him by the capitalists

331
00:30:28.120 --> 00:30:30.660
in the form of money loans.

332
00:30:30.660 --> 00:30:36.780
The law, it is true, considers him the proprietor of the various means of production purchased

333
00:30:36.780 --> 00:30:39.540
by expending the sums borrowed.

334
00:30:39.540 --> 00:30:45.140
Nevertheless, he remains propertyless, for the amount of his assets is balanced by his

335
00:30:45.140 --> 00:30:46.900
liabilities.

336
00:30:46.900 --> 00:30:50.140
If he succeeds, the net profit is his.

337
00:30:50.140 --> 00:30:56.100
If he fails, the loss must fall upon the capitalists who have lent him the funds.

338
00:30:56.100 --> 00:31:01.300
Such an entrepreneur would, in fact, be an employee of the capitalists who speculates

339
00:31:01.300 --> 00:31:07.540
on their account and takes a 100% share in the net profits without being concerned about

340
00:31:07.540 --> 00:31:09.460
the losses.

341
00:31:09.460 --> 00:31:15.540
But even if the entrepreneur is in a position to provide himself a part of the capital required

342
00:31:15.540 --> 00:31:20.740
and borrows only the rest, things are essentially not different.

343
00:31:20.740 --> 00:31:26.800
To the extent that the losses incurred cannot be borne out of the entrepreneur's own funds,

344
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they fall upon the lending capitalists, whatever the terms of the contract may be.

345
00:31:32.780 --> 00:31:38.940
A capitalist is always also virtually an entrepreneur and speculator.

346
00:31:38.940 --> 00:31:42.820
He always runs the chance of losing his funds.

347
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There is no such thing as a perfectly safe investment.

348
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The self-sufficient landowner who tills his estate only to supply his own household is

349
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affected by all changes influencing the fertility of his farm or the object of his needs.

350
00:32:01.320 --> 00:32:07.140
Within a market economy, the result of a farmer's activities is affected by all changes regarding

351
00:32:07.140 --> 00:32:12.080
the importance of his piece of land for supplying the market.

352
00:32:12.080 --> 00:32:19.240
The farmer is clearly, even from the point of view of mundane terminology, an entrepreneur.

353
00:32:19.240 --> 00:32:24.720
No proprietor of any means of production, whether they are represented in tangible goods

354
00:32:24.720 --> 00:32:30.400
or in money, remains untouched by the uncertainty of the future.

355
00:32:30.400 --> 00:32:36.520
The employment of any tangible goods or money for production, that is, the provision for

356
00:32:36.520 --> 00:32:42.440
for Later Days is in itself an entrepreneurial activity.

357
00:32:42.440 --> 00:32:45.200
Things are essentially the same for the laborer.

358
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He is born the proprietor of certain abilities.

359
00:32:48.620 --> 00:32:54.440
His innate faculties are a means of production which is better fitted for some kinds of work,

360
00:32:54.440 --> 00:32:59.100
less fitted for others, and not at all fitted for still others.

361
00:32:59.100 --> 00:33:04.160
If he has acquired the skill needed for the performance of certain kinds of labor, he

362
00:33:04.160 --> 00:33:09.920
He is, with regard to the time and the material outlays absorbed by this training, in the

363
00:33:09.920 --> 00:33:12.280
position of an investor.

364
00:33:12.280 --> 00:33:18.840
He has made an input in the expectation of being compensated by an adequate output.

365
00:33:18.840 --> 00:33:24.080
The laborer is an entrepreneur in so far as his wages are determined by the price the

366
00:33:24.080 --> 00:33:28.460
market allows for the kind of work he can perform.

367
00:33:28.460 --> 00:33:33.160
This price varies according to the change in conditions, in the same way in which the

368
00:33:33.160 --> 00:33:37.760
The price of every other factor of production varies.

369
00:33:37.760 --> 00:33:44.300
In the context of economic theory, the meaning of the terms concerned is this.

370
00:33:44.300 --> 00:33:51.360
Entrepreneur means acting man in regard to the changes occurring in the data of the market.

371
00:33:51.360 --> 00:33:58.160
Capitalist and landowner mean acting man in regard to the changes in value and price which,

372
00:33:58.160 --> 00:34:04.120
Man with all the market data remaining equal are brought about by the mere passing of time

373
00:34:04.120 --> 00:34:10.760
as a consequence of the different valuations of present goods and of future goods.

374
00:34:10.760 --> 00:34:17.760
Worker means man in regard to the employment of the factor of production, human labor.

375
00:34:17.760 --> 00:34:21.000
Thus every function is nicely integrated.

376
00:34:21.000 --> 00:34:24.800
The entrepreneur earns profit or suffers loss.

377
00:34:24.800 --> 00:34:30.940
The owners of means of production, capital goods, or land, earn originary interest.

378
00:34:30.940 --> 00:34:33.480
The workers earn wages.

379
00:34:33.480 --> 00:34:39.380
In this sense, we elaborate the imaginary construction of functional distribution as

380
00:34:39.380 --> 00:34:43.600
different from the actual historical distribution.

381
00:34:43.600 --> 00:34:50.560
Economics, however, always did and still does use the term entrepreneur in a sense

382
00:34:50.560 --> 00:34:56.640
other than that attached to it in the imaginary construction of functional distribution.

383
00:34:56.640 --> 00:35:02.000
It also calls entrepreneurs those who are especially eager to profit from adjusting

384
00:35:02.000 --> 00:35:08.900
production to the expected changes in conditions, those who have more initiative, more venturesomeness

385
00:35:08.900 --> 00:35:16.460
and a quicker eye than the crowd, the pushing and promoting pioneers of economic improvement.

386
00:35:16.460 --> 00:35:21.420
This notion is narrower than the concept of an entrepreneur as used in the construction

387
00:35:21.420 --> 00:35:23.780
of functional distribution.

388
00:35:23.780 --> 00:35:28.180
It does not include many instances which the latter includes.

389
00:35:28.180 --> 00:35:33.760
It is awkward that the same term should be used to signify two different notions.

390
00:35:33.760 --> 00:35:39.540
It would have been more expedient to employ another term for this second notion, for instance,

391
00:35:39.540 --> 00:35:42.040
the term promoter.

392
00:35:42.040 --> 00:35:47.520
It is to be admitted that the notion of the entrepreneur-promoter cannot be defined with

393
00:35:47.520 --> 00:35:50.100
praxeological rigor.

394
00:35:50.100 --> 00:35:55.400
In this, it is like the notion of money, which also defies, different from the notion of

395
00:35:55.400 --> 00:36:00.280
a medium of exchange, a rigid praxeological definition.

396
00:36:00.280 --> 00:36:07.440
However, economics cannot do without the promoter concept, for it refers to a datum that is

397
00:36:07.440 --> 00:36:13.400
a general characteristic of human nature that is present in all market transactions and

398
00:36:13.400 --> 00:36:15.700
marks them profoundly.

399
00:36:15.700 --> 00:36:21.300
This is the fact that various individuals do not react to a change in conditions with

400
00:36:21.300 --> 00:36:24.840
the same quickness and in the same way.

401
00:36:24.840 --> 00:36:31.900
The inequality of men, which is due to differences both in their inborn qualities and in the vicissitudes

402
00:36:31.900 --> 00:36:36.600
of their lives, manifests itself in this way too.

403
00:36:36.600 --> 00:36:42.520
There are in the market pacemakers and others who only imitate the procedures of their more

404
00:36:42.520 --> 00:36:44.920
agile fellow citizens.

405
00:36:44.920 --> 00:36:50.020
The phenomenon of leadership is no less real on the market than in any other branch of

406
00:36:50.020 --> 00:36:52.080
human activities.

407
00:36:52.080 --> 00:36:58.520
The driving force of the market, the element tending toward unceasing innovation and improvement,

408
00:36:58.520 --> 00:37:04.000
is provided by the restlessness of the promoter and his eagerness to make profits as large

409
00:37:04.000 --> 00:37:06.080
as possible.

410
00:37:06.080 --> 00:37:12.520
There is, however, no danger that the equivocal use of this term may result in any ambiguity

411
00:37:12.520 --> 00:37:16.320
in the exposition of the catalactic system.

412
00:37:16.320 --> 00:37:21.680
Wherever any doubts are likely to appear, they can be dispelled by the employment of

413
00:37:21.680 --> 00:37:26.880
the term promoter instead of entrepreneur.

414
00:37:26.880 --> 00:37:31.680
The Entrepreneurial Function in the Stationary Economy

415
00:37:31.680 --> 00:37:37.920
The futures market can relieve an entrepreneur of a part of his entrepreneurial function.

416
00:37:37.920 --> 00:37:43.760
As far as an entrepreneur has ensured himself through suitable forward transactions against

417
00:37:43.760 --> 00:37:50.520
losses he may possibly suffer, he ceases to be an entrepreneur and the entrepreneurial

418
00:37:50.520 --> 00:37:54.740
function devolves on the other party to the contract.

419
00:37:54.740 --> 00:38:00.800
The cotton spinner, who, when buying raw cotton for his mill, sells the same quantity

420
00:38:00.800 --> 00:38:05.280
forward, has abandoned a part of his entrepreneurial function.

421
00:38:05.280 --> 00:38:10.960
He will neither profit nor lose from changes in the cotton price occurring in the period

422
00:38:10.960 --> 00:38:12.480
concerned.

423
00:38:12.480 --> 00:38:18.220
Of course, he does not entirely cease to serve in the entrepreneurial function.

424
00:38:18.220 --> 00:38:23.400
Those changes in the price of yarn in general, or in the price of the special counts and

425
00:38:23.400 --> 00:38:29.720
kinds he produces, which are not brought about by a change in the price of raw cotton, affect

426
00:38:29.720 --> 00:38:30.720
The Theory of Money and Credit

427
00:38:30.720 --> 00:38:32.720
The Theory of Money and Credit

428
00:38:59.720 --> 00:39:02.840
separated from all other functions.

429
00:39:02.840 --> 00:39:06.980
There emerges a class of pure entrepreneurs.

430
00:39:06.980 --> 00:39:13.160
The prices determined on the futures markets direct the whole apparatus of production.

431
00:39:13.160 --> 00:39:18.120
The dealers in futures alone make profits and suffer losses.

432
00:39:18.120 --> 00:39:23.760
All other people are insured, as it were, against the possible adverse effects of the

433
00:39:23.760 --> 00:39:26.320
uncertainty of the future.

434
00:39:26.320 --> 00:39:29.960
They enjoy security in this regard.

435
00:39:29.960 --> 00:39:36.760
The heads of the various business units are employees, as it were, with a fixed income.

436
00:39:36.760 --> 00:39:41.900
If we further assume that this economy is a stationary economy and that all futures

437
00:39:41.900 --> 00:39:48.480
transactions are concentrated in one corporation, it is obvious that the total amount of losses

438
00:39:48.480 --> 00:39:52.520
precisely equals the total amount of profits.

439
00:39:52.520 --> 00:39:58.160
We need only to nationalize this corporation in order to bring about a socialist state

440
00:39:58.160 --> 00:40:04.720
without profits and losses, a state of undisturbed security and stability.

441
00:40:04.720 --> 00:40:11.240
But this is so only because our definition of a stationary economy implies equality of

442
00:40:11.240 --> 00:40:15.320
the total sum of losses and that of profits.

443
00:40:15.320 --> 00:40:22.380
In a changing economy, an excess either of profits or of losses must emerge.

444
00:40:22.380 --> 00:40:27.980
It would be a waste of time to dwell longer upon such over-sophisticated images which

445
00:40:27.980 --> 00:40:31.780
do not further the analysis of economic problems.

446
00:40:31.780 --> 00:40:36.720
The only reason for mentioning them is that they reflect ideas which are at the bottom

447
00:40:36.720 --> 00:40:43.020
of some criticisms made against the economic system of capitalism and of some delusive

448
00:40:43.020 --> 00:40:47.420
plans suggested for a socialist control of business.

449
00:40:47.420 --> 00:40:53.900
Now it is true that a socialist scheme is logically compatible with the unrealizable imaginary

450
00:40:53.900 --> 00:41:00.220
constructions of an evenly rotating economy and of a stationary economy.

451
00:41:00.220 --> 00:41:05.960
The predilection with which mathematical economists almost exclusively deal with the conditions

452
00:41:05.960 --> 00:41:11.980
of these imaginary constructions, and with the state of equilibrium implied in them,

453
00:41:11.980 --> 00:41:18.500
has made people oblivious of the fact that these are unreal, self-contradictory and imaginary

454
00:41:18.500 --> 00:41:22.180
expedience of thought and nothing else.

455
00:41:22.180 --> 00:41:27.720
They are certainly not suitable models for the construction of a living society of acting

456
00:41:27.720 --> 00:41:28.220
men.