 Well, I notice I'm the only speaker so far not including Dr. Wolf last night who is not wearing a tie but The instructions I received from Dr. Sandra Klein were that the dress code is business casual And as you can imagine when Dr. Klein gives a command I am quick to quick to comply. So here I am I'm gonna talk about US dollar hegemony the end of dollar hegemony and what that means for the for for the business landscape in other words for the Individual entrepreneur for the business person for industries So a move from the macroeconomic discussion that we've mainly mainly been having up to now to a more microeconomic Discussion now what exactly does dollar hegemony mean for purposes of this talk, right? I mean something like the system we have now Right, so a government-issued fiat US dollar which also serves as the world's reserve currency Giving the US monetary authorities the ability to influence not only, you know business conditions Economic conditions at home, but also to have vast influence in the economies of the world to intervene in foreign policy and you know effect Governance and all sorts of issues around the world. That's what I mean by dollar hegemony So I want us to sort of think through what would it be like? What would be the implications for entrepreneurs for business people if that system were to be replaced by something else? You know not by a government-issued digital currency, which would be even worse But imagine that it were replaced, you know by something much better, you know commodity money, of course Would be great. There's not much appetite for returning to the gold standard in the west Maybe it would be the gold dinar or something else But you know imagine a world in which the the US monetary authority does not have the influence that it has now Okay, so either a commodity standard, you know, maybe it's maybe it's competing fiat currencies Who knows but let's start by thinking through, you know how you know What are the basic decisions that businesses entrepreneurs investors make sort of under conditions of of real money and then we'll address how dollar hegemony Makes those decisions much more difficult. Okay, so let's start, you know as as Economics teachers like to do with Robinson Crusoe I'm not sure if that's exactly what he looked like, but you know imagine Crusoe on his island and You know, he's he's you know pulling fish out of the sea with his hands and eating them on the spot Or he's eating coconuts that just sort of fall from the trees, right? So there's not much There's there's not much planning. There's not much He doesn't have capital capital goods. He doesn't have tools. He doesn't have a complex economy He just has a sort of an immediate consumption-based economy, but now imagine that he has the idea, right? You know, hey, I could catch more fish with a fishing net rather than you you know, just using my bare hands Now, of course, he's got a there's some forward thinking that's required some planning required now, right? You know, he has to refrain from consumption Maybe, you know, several days in advance to build up a stock of fish He can eat on the day in which he's building a net gathering the materials and assembling them, you know instead of Grabbing fish out of the ocean and eating them or maybe he has to go a few days He has to fast for a few days Of course, the reason he would do that is because he imagines that once he has the net He'll be able to catch more fish And have a higher standard of living than he did before but but he's got it and you know engage in a period of sort of You know thoughtful economic planning to figure out if he wants to do this at all and if so What's the best way to do it? He has to engage in production in other words as Murray Rothbard describes it in man economy and state Production is the use by man of available elements of his environment as indirect means as cooperating factors with his labor to arrive eventually at a consumer's good that he can use directly To arrive at his end in other words production is purposeful human action to create intermediate goods Capital goods so-called that are not consumed directly, but can be used to produce things that can be consumed in the future So once Crusoe begins thinking about production, right? He's what he's really doing is transforming You know features of the natural environment like a bamboo stick Right into something that he can actually use as a net or a spear or whatever kind of Equipment he would now have available for catching fish. So production is about transformation of goods into other goods It involves it implies human purpose right purposeful human action in Mises terminology It also implies the passage of time Right, he's got to put in some effort today in building that net so that he can consume You know the bounty of the ocean in the future so his hey He has some sort of a time perspective here and it also involves some uncertainty Right, I mean it's possible the net won't work the net will fail It won't actually allow him to consume more fish than he did before and his effort will have been wasted So the decision-maker Crusoe in this case, you know, he needs some kind of a tool Some some mechanism some algorithm some means of thinking, you know for deciding if if building a net is a good idea And if so, how should he build the net he needs some way to compare the value of present means In other words the labor that he will devote to making a net as opposed to eating fish catching fish and eating them with the value of the future ends I Eat all the fish that he'll enjoy once he has this fishing net Okay, no, I mean Crusoe himself, you know the literal Crusoe I mean it's Tom Hanks, so he can do anything but the literal Crusoe, you know, he can just sort of He can wing it, right? I mean he just sort of thinks through well with a net I could probably get you know ten fish and here's how much I like fish I mean it's not that difficult for him to make a reasonable estimate of Whether it's a good idea to build a net or not, but in a modern industrial advanced economy with all of its complexity Right with you know an almost infinite array of possible means that could be used to produce an end You know like this little slide clicker I'm holding in my hand think of all the different materials that could be used to make it the different kinds of Technologies that could be embedded inside different production methods production location You know factory type should the firm that's producing these things be organized as a corporation or a proprietorship or whatever I mean there's an almost infinite array of possibilities How in the world could a purposeful human actor figure out is it a good idea to take time and effort to make these things today? You know in anticipation of selling them in the future and getting some money for selling them and if so What's the most the most effective way to produce this good or service? Well, we do have a planning tool Entrepreneurs do have a technique for figuring this out It's what Ludwig von Mises called economic calculation Now economic calculation is familiar to most of us in the context in which Mises first introduced it I eat the socialist calculation debate So Mises introduced the concept of economic calculation to explain why socialism would fail because under socialism All goods and services are owned by the state So there's no exchange of inputs like labor or bamboo sticks Or you know whatever so there are no prices for those intermediate goods no prices for factors And therefore no way for entrepreneurs to calculate to compare the value of future ends With the value of present means expressed in sort of a common unit because there are no market prices in that economy But Mises argument is much more general. It's not just about socialism It's about what production is and what entrepreneurs do and the importance Indeed the the necessity of having prices expressed in a common monetary unit In order to compare across time and across space So let me illustrate with what I mean. This is a picture that I use in my entrepreneurship classes and It's it's it's a little sort of graphical depiction of what the entrepreneur does what entrepreneurship is Right, so, you know, the entrepreneur begins with if you look in the blue box there The entrepreneur has some subjective attributes beliefs preferences Expectations right, you know, what do I want to do? How important is commercial success for me? What how do I feel about work-life balance, etc, etc I have some beliefs about possible future states of the world if I create a company and build these little clickers I can sell them and make a lot of money and live a nice, you know, lifestyle, whatever The entrepreneur does have access to information about the past and present In other words, I know the current prices of plastic and aluminum and the laser and all the stuff that's in here, right? Now I have to interpret those Data subjectively and I have some technical knowledge from my engineers about, you know, how do you actually make one of these? Can you make one based on those? Beliefs on the part of the entrepreneur based on that knowledge based on my interpretation of the world I as the entrepreneur then I then decide whether to act or not, right? So acting could be creating a company or producing these gadgets or Producing a new version of the gadget or creating a new sort of, you know, marketing campaign to try to sell the gadget Now the entrepreneur is acting in order to bring about what he imagines the future will look like, you know prosperity success I'm on the cover of ink magazine with my little clicker and so forth, right? I act, if my action is to try to bring about that state of the world I, you know, I act in reality, but of course my ability to bring about my desired ends depends not only on my own actions, but also on the actions of other people consumers and other companies and You know potential partners and rivals and so forth So the the actual future may be different from the imagined future, right? It may be that I produce maybe I try to make these things and it's a flop You know, they don't even work you press the button and it doesn't advance the slide or you press the little laser button And it doesn't allow you to blind somebody in the audience, right? It could be that it works from a technical point of view, but consumers don't really like these things They're not willing to pay as much as I imagined or another company rushes to market with an even better product before I get mine out the door So it may be that the imagined future is is not as good. Sorry the actual future falls short of my expectations You know, I earn losses. I got to go back to the drawing board and figure it out Maybe the imagined future the actual future is even better than I imagined I've got more profits and now I can decide whether to reinvest them and so forth But this is sort of an idea of the process that entrepreneurs go through, you know Sort of you know time and time again now in order to do this in a complicated economy Right to be able to figure out. Did did reality meet my expectations? I can't do it just like Crusoe I just sort of think about it in my mind. I need numbers Right. I need I need prices of Goods and services that exist now. Well, I need prices for plastic and aluminum and glass and You know computer chips and so forth Right, I need to have beliefs about what prices will be in the future and I need to have actual prices as they materialize to know whether my beliefs were accurate or not in other words I need some system of calculation where I can compare heterogeneous items in a common unit That's exactly what the price system does Okay, just you know again some classroom examples I use you know I show something like this to my students and I say okay suppose you were going to build in this example Building a railroad. It's an example from Mises, right? No, should you should you should the tracks be made out of steel or titanium? Which is the cheapest way to lay a railroad and I show the students some information like this and they look at it They scratch their head they try to puzzle it out and a lot of times they'll say well, you know It looks like method 2 is cheaper Because you know method 1 uses 1500 1500 stuff and method 2 uses 1,100 stuff and 1,100 is less than 1,500 but but of course it doesn't make sense to add you know units of a physical material and labor into You know, there's no common denominator Now this is an easy problem to solve of course if you have the prices of these inputs Then you say how much would I have to spend to use method 1 or method 2 and I can easily see which is cheaper Likewise, you know should I use a more capital intensive or more labor intensive method of production without access to prices It's impossible to compare those but with prices it's a relatively easy almost a trivial calculation and the entrepreneur needs prices to estimate the value of his capital stock and To figure out whether he should invest in replacing used capital equipment and so forth now This is just looking at things in the present now imagine that I've got to anticipate the prices in the future How much will consumers be willing to pay for this thing? How much will I earn in sales? From the output once I've produced it how long is the production gonna take I got to take that into consideration What will be the consumer demand for my product? What will my competitors do? Will there be you know changes in the weather or or you know other Unanticipated factors that will impact the profitability of my action and this is you know not a trivial task Now imagine the monetary system is what it is today So now you know we've got cheap credit We've got the printing presses turned on at full speed We've got interest rates that are different from the natural interest rates Walter Block was talking about this in his lecture We've got constant changes in the value of money associated with monetary policy Not just the demand for money by users by people who want money, but changes in the supply of money as under the control of the central bank increases in sort of the The variability of prices the noise Associated with the price system price system and of course You know trying to figure out what the monetary authority will do meaning that business people have to be you know arm chair Psychologists as well. What what color tie did Greenspan have on and you know, what was Bernanke's Janet Yellen? You know what was her expression in the press conference trying to figure out what she's really thinking? Well actual psychologists have not had a good time lately There's been a huge attack on a lot of the academic literature and psychology doesn't replicate There have been several scandals involving data manipulation by prominent social psychologists Think about how much money entrepreneurs spend on macroeconomic forecasting Okay, this is not trying to forecast will consumers like my gadget But what will the Fed be doing between now and when my gadget hits the market? There are lots of companies that offer, you know, Fed watching kind of tools and services Of course think about all the people who are employed in the business of depreciating the currency The the federal government is one of the look well about depending on how you measure About a third to a half of all economists in the United States are employed by a government agency of one sort At least a few of those might be able to do something, you know that actually adds value Instead Okay, so so what happens in an economy like the one we have now with fiat currency a boom bus cycle You know other speakers have spoken and we'll speak more about the macro side But on the micro side think about what this means for firms for entrepreneurs and investors, right? So with artificially low interest rates and implicit government guarantees against failure, right? Lenders are incentivized to make riskier loans to less valuable projects These low interest rates also encourage entry By entrepreneurs who might be less capable than entrepreneurs who would enter if interest rates were at their natural levels You know even even you know sort of high quality entrepreneurs may be tempted to take the cheap credit Even if they know the boom is unsustainable So you get a lot of snake oil salesmen, you know who can operate in the fiat money economy who would not be able to operate as well If we had natural money, you've got so-called zombie firms. You've got zombie credit, right? So high quality entrepreneurs those who have good products and services who can satisfy the consumer have to devote Extra effort time energy resources not just to producing their product, but somehow, you know convincing market participants that they are not zombies Right, whether that's additional marketing product development Whether that's some kind of a contracting thing where they have to give up more decision rights to investors because investors are worried That this might be a potential zombie company, you know, there's their spillover negative negative spillover harms from zombie firms They negatively impact the industry and so forth So entrepreneurs have to spend their effort Figuring out how to navigate all of these other things in addition to just doing the stuff that entrepreneurs normally do Okay, there's an interesting book that was published by Liberty fund back in the 80s called economic calculation under inflation That describes from the firm's point of view Some of these additional challenges that are introduced by a world like the one that we have now a Quick comment This relates to something doctors dr. Salerno said the claim here is not that we need quote-unquote stable money Whatever that means, but only we need a monetary system that is not subject to government interference as this gentleman whom you all know Put it economic calculation Does not require stability in the sense in which that term is used It what it what it requires is a monetary system whose functioning is not sabotaged by government interference Okay, this is in chapter 15. I'll let you read the rest of the sorry chapter 12 section 5 He says economic calculation doesn't have to be perfect. It just has to be good enough Okay, so to conclude if by the end of dollar hegemony we mean a monetary unit that is less subject to political control You know price changes that reflect Changes in the value of the commodity and relative price changes for entrepreneurs that reflect changes in the relative values of goods and services They buy or sell rather than the whims of government officials and a reduced scope for government intervention more generally In other words fewer obstacles in the way of economic calculation by entrepreneurs than I say bring it