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12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe


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Entrepreneurship With Fiat

Property and Fiat Money
Recentlv bv Hans-Hermann Hoppe. Whv the State Demands
Control of Monev
The following is the
text of a speech
first delivered at
the Edelweiss
Svmposion held in
Swit:erland, on
September 17, 2011
Let me begin with
a brieI description
oI what a capitalist-
entrepreneur does,
and then explain how the job oI the capitalist-entrepreneur is
changed under statist conditions.
What the capitalist does is this: He saves (or borrows saved
Iunds), 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 proIit.
ProIits are deIined simply as an excess oI sales revenue over
the costs oI production. The costs oI production, however, do
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the costs oI production. The costs oI production, however, do
not determine the revenue. Otherwise, iI the cost oI production
would determine price and revenue, everyone could be a
capitalist. No one would ever Iail. Rather: It is anticipated
prices and revenues that determine what production costs the
capitalist can possibly aIIord.
The capitalist does not know what the Iuture prices will be or
what quantity oI 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
Iuture demand Ior his products will be, and he can go wrong in
his speculation, in which case he does not make proIits but
will incur losses instead.
To risk your own money in anticipation oI an uncertain Iuture
demand is obviously a diIIicult task. Great proIits may await
you, but also total Iinancial ruin. Few people are willing to
take this risk, and even Iewer are good at it and stay in
business Ior a lengthy time.
In Iact, there is even more to be said about the diIIiculty oI
being a capitalist.
Every capitalist stands in permanent
competition with every other one Ior the
invariably limited amounts oI 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 iI a
capitalist has produced a successIul product
and earned a proIit, 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 oI products oIIered by various capitalists is in constant
Ilux, and so is the evaluation oI these products by consumers.
Continuously new or improved products are oIIered on the
market and consumer tastes constantly change. Nothing
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remains constant. The uncertainty oI the Iuture Iacing every
capitalist never disappears. There is always the lure oI proIits
but also the threat oI losses. Again, then: it is very diIIicult to
be continuously successIul as a businessman and not to sink
back to the rank oI an employee.
In all oI this there is only one thing that the businessman can
count on and take Ior granted, and that is his real, physical
property and even that is not saIe, as we will see.
His real property comes in two Iorms. First, there are the
physical resources, the means oI production, including labor
services, that the capitalist has bought or rented Ior some time
and that he combines in order to produce whatever he
produces. The value oI all oI 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 oI his productive
property the capitalist could not produce what he produces.
Second: Besides his productive property, the
capitalist can count on his ownership oI real
money. Money is neither a consumer good,
nor is it a producer good. It is the common
medium oI exchange. As such it is the most
easily and widely sold good. And it is used
as the unit oI account. In order to calculate
proIit and loss, the capitalist needs recourse
to money. The input Iactors and the output,
his products to be produced, are
incommensurable, like apples and oranges.
They are made commensurable only insoIar
as they can all be expressed in terms oI money. Without
money, economic calculation is impossible, as Ludwig von
Mises above all has explained. The value oI money, too, is
variable, like the value oI everything else. But money, too, has
physical characteristics. It is commodity money, such as gold
or silver, and money proIits are reIlected in an increase in the
supply oI this commodity, gold or silver, at the disposal oI the
What can be said, then, about both the capitalist's means oI
production and his money, is this: their physical characteristics
do not determine their value, but without their physics, they
would have no value at all, and changes in the physical quality
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and quantity oI his property do aIIect the value oI his property,
whatever other Iactors (such as changing consumer
evaluations) may aIIect the value oI his property also.
Now let me introduce the State and see how it aIIects the
business oI the capitalist.
The State is conventionally deIined as an institution that
possesses a territorial monopoly oI ultimate decision-making
in every case oI conIlict, including conIlicts involving the state
and its agents itselI, and, by implication, the right to tax, i.e.,
to unilaterally determine the price that its subjects must pay to
perIorm the task oI ultimate decision-making.
To act under these constraints or rather,
lack oI constraints is what constitutes
politics and political action, and it should be
clear Irom the outset that politics, then, by
its very nature, always means mischieI.
More speciIically, we can make two
interrelated predictions as to the eIIect oI a
state on the business oI business. First, and
most Iundamentally, under statist conditions
real property will become what may be
called Iiat property. And secondly and more
speciIically, real money will be turned into Iiat money.
First: With the state being the ultimate arbiter in every case oI
conIlict including those in which it is involved itselI, the state
has essentially become the ultimate owner oI all property. In
principle, it can provoke a conIlict with a businessman and
then decide against him by expropriating him and making
itselI (or someone oI its liking) the owner oI the businessman's
physical property. Or else, iI it doesn't want to go as Iar, it can
pass legislation or regulations that involve only a partial
expropriation. It can restrict the uses that the businessman can
make oI his physical property. Certain things the businessman
is no longer permitted to do with his property. The state cannot
increase the quality and quantity oI real property. But it can
redistribute it as it sees Iit. It can reduce the real property at
the disposal oI businessmen or it can limit the range oI control
that they are allowed over their property; and it can thereby
increase its own property (or that oI its allies) and increase its
own range oI control over existing physical things. The
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businessmen's property, then, is their property in name only. It
is granted to them by the state, and it exists only as long as the
state does not decide otherwise. Constantly, a Damocles sword
is hanging over the heads oI businessmen. The execution oI
their business plans is based on their assumption oI the
existence, at their disposal, oI certain physical resources and
their physical capabilities, and all oI their value-speculations
are based on this physical basis being given. But these
assumptions about the physical basis can be rendered incorrect
at any time and their value-calculations vitiated as well iI
only the state decides to change its current legislation aand
The existence oI a state, then, heightens the
uncertainty Iacing the businessman. It
makes the Iuture less certain than would be
the case otherwise. Realizing this, many
people who might otherwise become
businessmen will not become businessmen
at all. And many businessmen will see their
business plans spoiled. Not because they did
not correctly anticipate Iuture consumer
demand, but because the physical basis, on
which their plan was based, was altered by
some unexpected and unanticipated change
in state laws and regulations.
Second: Rather than meddling with a businessman's productive
capital through conIiscation and regulation, however, the state
preIers to meddle with money. Because money is the most
easily and widely saleable good, it allows the state operators
the greatest Ireedom to spend their income as they like. Hence
the state's preIerence Ior money-taxes, i.e., Ior conIiscating
money income and money proIits. Real money becomes
subject to conIiscation and changing rates oI conIiscation. This
is the Iirst sense, in which money becomes Iiat money under
statist conditions. People own their money only insoIar as the
state allows them to keep it.
But there is also a second, even more perIidious way, in which
money becomes Iiat money under statist conditions.
States everywhere have discovered an even smoother way oI
enriching themselves at the expense oI productive people: by
monopolizing the production oI money and replacing real,
30.12.12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe
commodity money and commodity credit with genuine Iiat
money and Iiat or Iiduciary credit.
On its territory, per legislation, only the state is permitted to
produce money. But that is not suIIicient. Because as long as
money is a real good, i.e., a commodity that must be costly
produced, there is nothing in it Ior the state except expenses.
More importantly, then, the state must use its monopoly
position in order to lower the production cost and the quality
oI money as close as possible to zero. Instead oI costly quality
money such as gold or silver, the state must see to it that
worthless pieces oI paper, which can be produced at
practically zero cost, will become money.
Under competitive conditions, i.e., iI everyone is Iree to
produce money, a money that can be produced at zero cost
would be produced up to a quantity where marginal revenue
equals marginal cost, and since marginal cost is zero the
marginal revenue, i.e., the purchasing power oI this money,
would be zero as well. Hence, the necessity to monopolize the
production oI paper money, so as to be able to restrict its
supply, in order to avoid hyperinIlationary conditions and the
disappearance oI money Irom the market altogether (and a
Ilight into 'real values) and the more so the cheaper the
Having monopolized the production oI money and reduced its
production cost and quality to virtually zero, the state has
made a marvelous accomplishment. It costs almost nothing to
print money and one can turn around and buy oneselI
something really valuable, such as a house or a Mercedes.
What are the eIIects oI such Iiat money, and in particular what
are the eIIects Ior the business oI business? First and in
general: more paper money does not in the slightest aIIect the
quantity or quality oI all other, non-monetary goods. Rather,
what the additional money does is twoIold. On the one hand,
money prices will be higher than they would otherwise be and
the purchasing power per unit oI money will be lower. And
secondly, with the injection oI additional paper money existing
wealth will be redistributed in Iavor oI those receiving and
spending the new money Iirst and at the expense oI those
receiving and spending it later or last.
And speciIically regarding capitalists, then, paper money adds
30.12.12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe
another dose oI uncertainty to his business. II and as long as
money is a commodity, such as gold or silver, it may not be
exactly 'easy to predict the Iuture supply and purchasing
power oI money. However, based on inIormation about current
production costs and industry proIits it is very well possible to
come up with a realistic estimate. In any case, the task is not
pure guesswork. And while it is conceivable that with gold or
silver as money nominal money proIits may not always equal
'real proIits, it is at least impossible that a nominal proIit
should ever amount to nothing at all. There is always
something leIt: quantities oI gold or silver.
In distinct contrast: With paper money, the production oI
which is unconstrained by any kind oI natural (physical)
limitations (scarcity) but dependent solely on subjective whim
and will, the prediction oI the Iuture money supply and
purchasing power does become guesswork. What will the
money printers do? And it is not just conceivable, but a very
real possibility, that nominal money proIits turn out to
represent literally nothing but bundles oI worthless paper.
Moreover, hand in hand with Iiat money comes Iiat or
Iiduciary credit, and this creates still more uncertainty.
II the state can create money out oI thin air it also can create
money credit out oI thin air. And because it can create credit
out oI thin air, i.e., without any previous savings on its part, it
can oIIer cheaper loans than anyone else, at below-market
rates oI interest, even at rates as low as zero. The interest rate
is thus distorted and IalsiIied, and the volume oI investment
will become divorced Irom the volume oI savings. Systematic
mal-investment is thus generated, i.e., investment un-backed
by savings. An unsustainable investment boom is set in
motion, necessarily Iollowed by a bust, revealing large-scale
clusters oI entrepreneurial errors.
Last but not least, under statist conditions, i.e., under a regime
oI Iiat property and Iiat money, the character oI businessmen
and oI doing business is changed, and this change introduces
another hazard into the world.
Absent a state it is consumers that determine what will be
produced, in what quality and quantity, and who among
businessmen will succeed or Iail. With the state, the situation
Iacing businessmen becomes entirely diIIerent. It is now the
30.12.12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe
state and its operators, not consumers, who ultimately decide
who will succeed or Iail. The state can keep any businessman
alive in subsidizing him or bailing him out; or else it can ruin
anyone by deciding to investigate him and Iind him in
violation oI state laws and regulations.
Moreover, the state is Ilush with taxes and Iiat money and can
spend more money than anyone else. It can make any
businessman rich (or not). And the state and its operators have
a diIIerent spending behavior than normal consumers. They do
not spend their own money, but other people`s money, and in
most cases not Ior their own, personal purposes, but Ior those
oI some anonymous third parties. Accordingly, they are
Irivolous and wasteIul in their spending. Neither the price nor
the quality oI what they buy is oI great concern to them.
In addition, the state can go into business itselI. And because it
doesn`t have to make proIits and avoid losses, as it can always
supplement its earnings through taxes or made-up money, it
can always outcompete any private producer oI the same or
similar goods or services.
And Iinally, by virtue oI its ability to legislate, to make laws,
the state can grant exclusive privileges to some businesses,
insulating or shielding them Irom competition, and by the
same token partially expropriate and disadvantage other
In this environment, it is imperative Ior every businessman to
pay constant and close attention to politics. In order to stay
alive and possibly prosper, he must spend time and eIIort to
concern himselI with matters that have nothing to do with
satisIying consumers, but with power politics. And based on
his understanding oI the nature oI the state and oI politics,
then, he must make a choice: a moral choice.
He can either join in and become a part oI the vast criminal
enterprise that is the State. He can bribe politicians, political
parties or public oIIicials, whether with cash or in-kind
(including promises oI Iuture employment in the 'private
sector as 'board-members, 'advisors or 'consultants), in
order to gain Ior himselI economic advantages at the expense
oI other businesses. That is, he can pay bribes to secure state
contracts or subsidies Ior himselI and at the exclusion oI
others. Or he can pay bribes Ior the passing or maintenance oI
30.12.12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe
legislation that secures him and his business legal privileges
and monopoly proIits (and capital gains) while partially
expropriating and thus screwing his competitors. Needless to
say, countless businessmen have chosen this path. In particular
big banking and big industry have thus become intricately
involved in the state, and many a wealthy businessman has
made his Iortune more on account oI his political skills than
his abilities as a consumer-serving economic entrepreneur.
Or else: a businessman can choose the honorable but at the
same time also the most diIIicult path. This businessman is
aware oI the nature oI the state. He knows that the state and its
operators are out to get him and bully him, to conIiscate his
property and money and, even worse, that they are arrogant,
selI-righteous, haughty, and Iull oI themselves. Based on such
understanding, this very diIIerent breed oI businessman then
tries his best to anticipate and adjust to the state`s every evil
move. But he does not join the gang. He does not pay bribes to
secure contracts or privileges Irom the state. Instead, he tries
as well as he can to deIend whatever is still leIt oI his property
and property rights and make as large proIits as possible in
doing so.
November 14, 2011
Hans-Hermann Hoppe [send him mail] is distinguished fellow
at the Ludwig von Mises Institute and founder and president of
the Propertv and Freedom Societv. His books include
Democracy: The God That Failed and The Myth oI National
DeIense. Jisit his website.
Copyright 2011 by Permission to reprint in whole
or in part is gladly granted, provided Iull credit is given.
The Best of Hans-Hermann Hoppe
30.12.12 EntrepreneurshIp WIth FIat Property and FIat Money by Hans-Hermann Hoppe

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