Throughout history, entrepreneurs have been celebrated in the best of times and demonized in the worst. Even today, political and social arguments over the real benefits provided by these entrepreneurs remain an ongoing feature in public debate. One thing that receives scant attention, however, is the extent to which centralized fiat monetary policy impacts entrepreneurs. For many proponents of digital currency, the move to gain global acceptance of cryptocurrency holds forth the promise of relieving two of the most significant entrepreneurial burdens imposed by fiat monetary policy: uncertainty over future money supply, and the potential negative effect on the availability of capital. Many are starting to realize that decentralized money could be just what entrepreneurs need to fuel the next great wave of economic expansion.
Read the full story below.
For some time now, there has been an ongoing debate concerning the real value provided to society by entrepreneurs. While one side praises them as job-creators whose enlightened pursuit of self-interest creates employment and wealth for the entire economy, the other dismisses their importance and chooses instead to focus on the consumer’s role in that dynamic process. Both sides have an argument to make, but the fact that this debate exists at all merely distracts from the question that should be front and center in any discussion of our economic situation: how are current policies, including our present use of centralized fiat currency, hindering entrepreneurs?
That question is important, regardless of which side of the “job-creator” debate you find yourself supporting. One thing is unarguably true: the entrepreneurial role in expanding wealth is a fact of life. Without entrepreneurial risk-taking, society is nothing more than a large group of people exchanging a finite amount of wealth. There is no expansion without innovation, and no improvement in anyone’s standard of living. As we’ve seen in one society after another that has chosen to reject and demonize entrepreneurs, that path leads to stagnation, decay, and shared poverty and misery. Fiat money often acts as an obstacle to entrepreneurial innovation; digital currency holds the promise of reducing those obstacles.
So, how do these present monetary policies prevent entrepreneurs from fulfilling their vital role in society? To understand the obstacles posed by current monetary policies – and indeed, the very monetary system that makes those policies possible – it is only necessary to consider the way in which entrepreneurial innovation occurs. The best entrepreneurs are able to understand how present and future consumers will respond to various new products and services, and make their business decisions in a way that best leverages that understanding. To do that, they have to make investments in the present, oversee all of the steps necessary to bring those goods and services to market, and then deliver their products to customers at some future date.
Important business personalities like Henry Ford and Steve Jobs might immediately come to mind, but it is important to recognize that this process for innovation is true for business both large and small. At some point, every entrepreneur has to have a vision that can be translated into a future reality. The visionary aspect of that equation comes fairly easily to many entrepreneurs. The real difficulty comes in the form of uncertainty. And it is in the area of uncertainty that fiat money poses the greatest level of risk to entrepreneurial innovation.
Uncertainty occurs in two primary areas of entrepreneurial endeavor. The first involves the entrepreneur’s estimation of how uncontrollable market factors and players might impact his business plan. The fact remains that even the best entrepreneurs can only control a finite number of factors. As valuable as market research and analysis can be, it cannot predict the future with any great degree of accuracy. Nor can it accurately assess how governments, central banks, and big investment firms will impact monetary policy in ways that can severely inhibit any new enterprise’s potential for success.
The second point of uncertainty is directly tied to the first, and involves the entrepreneur’s need to invest today to make his goods or services available tomorrow. One of the first tasks is to acquire the necessary capital to put his plans into action. Typically, the entrepreneur will borrow this capital, but he may also invest his own savings. Regardless of how he acquires the capital, he uses it to direct real resources in the economy according to his future vision of consumer wants and needs.
The vulnerability in this process of capital acquisition and allocation involves the way in which governments and central banks impact fiat money. Their actions arbitrarily increase or decrease the supply of fiat money in circulation. This, in turn, affects interest rates and the entrepreneur’s costs of production. These policy-induced distortions in the market add additional uncertainty that increases the entrepreneur’s risk. Worse, government manipulation of fiat currency supply directly impact the amount of capital available to entrepreneurs, and thus have the potential for inhibiting the investment and risk-taking that is necessary for business development and sustained economic growth.
This phenomenon has been well known to depress the entrepreneurial spirit. Economist Robert Higgs, in his paper on “regime uncertainty” published in 1997, documented how monetary and governmental policy affected entrepreneurial and investment activity during the Great Depression. The uncertainty provided by arbitrary governmental and monetary policy made it more difficult for entrepreneurs to foresee the future. The same can be said exclusively for monetary policy today. Everybody in the markets is always trying to predict what the Fed will do regarding monetary policy. Markets react to almost any announcement by the Fed. This shows that Fed has a strong influence on markets precisely because it controls the money supply. The uncertainty is only exacerbated once you take into account the fact that all global fiat monies are of this nature, and therefore make the task of the entrepreneur exponentially more difficult.
In comparison, the decentralized nature of digital currencies prevents arbitrary control over its supply. In fact, many digital currencies provide a predictable rate of increase in their total supply and impose an upper limit. This provides entrepreneurs some confidence in their future visions regarding this aspect of their task. And since the technologies at the heart of the cryptocurrency phenomenon are helping to shift the power to create money away from central banks and government entities and giving it to the people, the dangers associated with bad centralized currency management can be better mitigated. With the global adoption of a digital currency, the stability and predictability of its value and supply could help to ease many of the most challenging uncertainties entrepreneurs face.