QOTD: The Missing Entrepreneur

There is no place for entrepreneurship in the market model of mainstream economics. Consider Kirzner in his How Markets Work:

The theory of entrepreneurial discovery sees the explanation of market phenomena in the way entrepreneurial decisions, taken under disequilibrium conditions, bring about changes in prices and quantities. The market process so initiated consists of continual entrepreneurial competition, made possible by an institutional framework which permits unimpeded entrepreneurial entry into both new and old markets. The success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of productive action to be replaced by newly discovered ways of serving consumers -- by producing better goods and/or by taking advantage of hitherto unknown but available, sources of resource supply. The theory focuses on the concept of discovery in contrast to the notion of the individual decision in mainstream theory. (p. 31)

 The mainstream economic view of the world relies on the idea of equilibrium. Every point in the diagram of the market model, including every point on the demand and supply curves, is an equilibrium point. So, the role of entrepreneurship is missing, and if you want to know more about the real economic world, this book by Kirzner is a good one to study.

Mises on Schools

Ludwig von Mises:

Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement but conservatories of tradition and unvarying modes of thought. The mark of the creative mind is that it defies a part of what it has learned or, at least, adds something new to it. One utterly misconstrues the feats of the pioneer in reducing them to the instruction he got from his teachers. No matter how efficient school training may be, it would only produce stagnation, orthodoxy, and rigid pedantry if there were no uncommon men pushing forward beyond the wisdom of their tutors. [Theory and History: An Interpretation of Social and Economic Evolution , p. 263]

The Economist's Toolbox

PETER BOETTKE:

"Kirzner in that 1963 work, and then again in his more developed theoretical exposition in Competition and Entrepreneurship (1973), was trying to intellectually square his understanding of mainstream neoclassical price theory, and his understanding of Misesian price theory. In short, he did not reject mainstream price theory, he accepted it but also accepted its own internal critique (provided by Arrow, but also pointed out earlier by individuals such as Joan Robinson) and sought to salvage the theory by way of Mises. Arrow had asked how can price ever change to clear markets when all the actors are themselves price takers; and Robinson years earlier had pointed out that they only to get into equilibrium under standard assumptions was to already be in equilibrium. Kirzner provides an answer with only slight modification of the assumptions to the neoclassical model."

Boettke's summary of the critiques of Arrow and of Robinson may help some of my students, especially those in Intermediate Microeconomics last semester, understand my discussions of the equilibrium nature of demand and supply, why I emphasized the nature of comparative static analysis, and why I ended the semester with a discussion of entrepreneurship as a significant missing link in understanding the real and emergent economy.

Economists Used to Believe This

PETER BOETTKE has a very interesting post about the conceptual context for the work of Israel Kirzner. Students in economics classrooms today may be interested in the history of economic thought that Boettke describes in his post. I think there is a significant delay between where economic analysis is currently and what is presented in undergraduate textbooks and course work. Thus, as you read Boettke's history you may recognize that much undergraduate economics is consistent with a conceptual economic framework that was the foundation of the economic discipline some decades ago. I think this is especially true with respect to the analysis of entrepreneurship, public policy, and prosperity.

A Paralyzing Presidency

KIMBERLEY STRASSEL:

The U.S. economy ought to be flying out of recession. Yet bank lending is sluggish. Companies refuse to hire. Business is going elsewhere to raise capital: China last year outstripped the U.S. as a center for initial public offerings. The market gyrates on Washington's latest political drama.

A venture capitalist recently remarked to me that the uncertainty the administration has created is "nothing short of paralyzing." Nobody will invest in an industry that might be the next to be overtaxed, overregulated, or publicly disemboweled.

Add to that uncertainty the administration's new populist bent, and it's a recipe for a continued capital freeze. "People in the economy are thinking about whether to invest or take risks when what they are seeing are early signs of Hugo Chávez economics," says Wisconsin GOP Rep. Paul Ryan. . . .

It seems to me this is a reasonable observation. Investing in the creation of new productive economic activities is a risky business. Uncertainty about what Congress and the President might do that would further burden business means that creative new productive economic activities looks even more risky. By the time someone is able to realize in some future moment the fruits of a commitment today to new economic activities, the opportunity to earn a profit may have been burdened away by new actions and new policies of the President and the Congress.

Of Entrepreneurs & Philosophers

LUDWIG VON MISES:

It is not the business of the entrepreneurs to make people substitute sound ideologies for unsound. It rests with the philosophers to change people's ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant. [Human Action, p. 297]

The Real City

SANDY IKEDA:

"A city is not a man-made thing. Rather, it emerges from the actions of its inhabitants, who interact in unpredictable yet orderly ways. Under the right conditions – the right “rules of the game” – what arises is vital, creative, radically unpredictable, and profitable: the living city.

The modern demand to rationalize the city and to make it “more efficient” is misplaced. A living city cannot be efficient. Efficiency, in the economic sense, presupposes an overarching plan against which measured outcomes can be evaluated. A living city, however, follows no such plan. It is itself the unplanned, collective result of the countless individual plans executed continuously in it, day after day.

[ . . . ]

Earnest attempts to preserve large parts of the city or to consciously direct its evolution, like trying to preserve or control any complex living thing, will drain the life from it."

Ikeda is one of my economist heroes.

The Cookie Cartel

From the WASHINGTON TIMES:

Wild Freeborn — adorable and age 8 — has caused considerable hubbub with entrepreneurial spirit and a little homemade video.

"Help me help others. Buy cookies. They're yummy," little Wild says in her one-minute sales pitch for Thin Mints, Samoas and other traditional mainstays of Girl Scout cookie cuisine.

The modest message included an online order form, was videotaped by her father, Bryan Freeborn, in the family living room in Brevard, N.C., and posted at YouTube.com

[ . . . ]

The Girl Scouts were not pleased with Wild's intention to sell 12,000 boxes of cookies and help send her troop to summer camp. The organization ordered the video removed from the social-networking site on the grounds that it violated a policy that bars online sales of Girl Scout cookies. Officials were also concerned that Wild's methods could put less techno-enabled young ladies at a disadvantage.