Hans-Hermann Hoppe gives a speech on Entrepreneurship with Fiat Property and Fiat Money in the Aula Magna of the Romanian-American University in Bucharest, and answers questions from the audience.
Hans-Hermann Hoppe is a prominent Austrian school economist and libertarian anarcho-capitalist philosopher. He is a Professor Emeritus of economics at the University of Nevada, Las Vegas. Hoppe is the author of several widely discussed books and his work has been translated to 22 languages. In 1986, he moved from Germany to the United States, to study under Murray Rothbard.
At the invitation of the Ludwig von Mises Institute Romania, on November 8-11, 2011, Professor Hans-Hermann Hoppe visited Bucharest for a series of events celebrating 130 years since the birth of Ludwig von Mises and 10 years since the foundation of the Romanian Mises Institute.
What the capitalist does is this: He saves (or borrows saved funds), hires labor, buys or rents capital goods and land, and he buys raw materials. Then he proceeds to produce his product or service, whatever it may be, and he hopes that he will make a profit.
Profits are defined simply as an excess of sales revenue over the costs of production. The costs of production, however, do not determine the revenue. If the cost of production determined price and revenue, everyone could be a capitalist. No one would ever fail. Rather, it is anticipated prices and revenues that determine what production costs the capitalist can possibly afford.
The capitalist does not know what the future prices will be or what quantity of his product will be bought at such prices. This depends on the consumers, and the capitalist has no control over them. The capitalist must speculate what the future demand for his products will be, and he can go wrong in his speculation, in which case he does not make profits but will incur losses instead.
To risk your own money in anticipation of an uncertain future demand is obviously a difficult task. Great profits may await you, but so also may total financial ruin. Few people are willing to take this risk, and even fewer are good at it and stay in business for any length of time.
In fact, there is even more to be said about the difficulty of being a capitalist.
Every capitalist stands in permanent competition with every other one for the invariably limited amounts of money to be spent on their goods and services by consumers. Every product competes with every other product. Whenever consumers spend more (or less) on one thing, they must spend less (or more) on another. Even if a capitalist has produced a successful product and earned a profit, there is nothing that guarantees that this will go on. Other businessmen can imitate his product, produce it more cheaply, underbid his price and outcompete him. To prevent this, every capitalist must thus continuously strive to lower his production costs. Yet even trying to produce whatever you produce ever more cheaply is not enough.
The set of products offered by various capitalists is in constant flux, and so is the evaluation of these products by consumers. Continuously new or improved products are offered on the market and consumer tastes constantly change. Nothing remains constant. The uncertainty of the future facing every capitalist never disappears. There is always the lure of profits but also the threat of losses. Again, then, it is very difficult to be continuously successful as a businessman and not to sink back to the rank of an employee.
In all of this there is only one thing that the businessman can count on and take for granted, and that is his real, physical property — and even that is not safe, as we will see.
His real property comes in two forms. First, there are the physical resources, the means of production, including labor services, that the capitalist has bought or rented for some time and that he combines in order to produce whatever he produces. The value of all of these items is variable, as already explained. It depends ultimately on consumer evaluations. What is stable about them is only their physical character and capability. But without this physical stability of his productive property the capitalist could not produce what he produces.
Second, besides his productive property, the capitalist can count on his ownership of real money. Money is neither a consumer good nor a producer good. It is the common medium of exchange. As such, it is the most easily and widely sold good. And it is used as the unit of account. In order to calculate profit and loss, the capitalist needs recourse to money. The input factors and the output, his products to be produced, are incommensurable, like apples and oranges. They are made commensurable only insofar as they can all be expressed in terms of money. Without money, economic calculation is impossible, as Ludwig von Mises above all has explained. The value of money, too, is variable, like the value of everything else. But money, too, has physical characteristics. It is commodity money, such as gold or silver, and money profits are reflected in an increase in the supply of this commodity, gold or silver, at the disposal of the capitalist.
What can be said, then, about both the capitalist’s means of production and his money, is this: their physical characteristics do not determine their value, but without their physical characteristics, they would have no value at all, and changes in the physical quality and quantity of his property do affect the value of his property, whatever other factors (such as changing consumer evaluations) may affect the value of his property also.
Same Lecture, Different Angle
“A fiat money system represents nothing more than a sinister and evil form of hidden taxation. When the government can print money at will, it’s morally identical to the counterfeiter who illegally prints currency. Fiat money polices especially hurt savers and those on fixed incomes, who find the value of their dollars steadily eroded by the Fed’s printing presses.” -Dr. Ron Paul