WEBVTT NOTE Authors Forum: "Entrepreneurship and Economic Progress" 1 00:00:00.000 --> 00:00:07.440 Thank you very much, Joe. I'm delighted to be here and I will show off a copy of my book, 2 00:00:07.440 --> 00:00:24.840 Entrepreneurship and Economic Progress. I actually talked to Jeff Tucker about getting copies of this book for the Mises Institute bookstore and he said he tried to negotiate a deal with Routledge, the publisher, but he said it was so expensive that they don't have it right now. 3 00:00:24.840 --> 00:00:30.340 I was curious about that, so I went on to Amazon.com to see how much it was. 4 00:00:30.340 --> 00:00:36.840 It was $135 on Amazon.com, so I'm thinking it would be like a library book only. 5 00:00:36.840 --> 00:00:39.840 So this is your last chance to really hear about it because... 6 00:00:39.840 --> 00:00:46.840 Well, let me tell you a little bit about the book, and I think for starters, 7 00:00:46.840 --> 00:00:52.840 I'm going to just read the blurb that's in the dust jacket of the book 8 00:00:52.840 --> 00:01:20.840 According to the Dust Jacket, economic progress is often analyzed narrowly as income growth, but this volume shows that other aspects of progress, new and improved goods, and improved methods of production, are ultimately more significant. 9 00:01:20.840 --> 00:01:24.740 Not only have these other dimensions of progress been responsible for much of the increase 10 00:01:24.740 --> 00:01:28.760 in human welfare, they are also what drives income growth. 11 00:01:28.760 --> 00:01:34.520 The volume develops a framework that demonstrates how entrepreneurship produces economic progress 12 00:01:34.520 --> 00:01:38.980 and contrasts that framework with the mainstream theory of economic growth. 13 00:01:38.980 --> 00:01:43.760 The contrast is interesting from an academic perspective, but there are also significant 14 00:01:43.760 --> 00:01:46.940 differences in policy implications. 15 00:01:46.940 --> 00:01:50.800 Entrepreneurship and economic progress discusses the institutional features that promote entrepreneurs 16 00:01:50.800 --> 00:01:55.280 entrepreneurship, and draws on historical examples from the 20th century to illustrate 17 00:01:55.280 --> 00:01:57.360 its major points. 18 00:01:57.360 --> 00:02:00.080 That's what the dust jacket says about the book. 19 00:02:00.080 --> 00:02:05.680 Let me tell you a little bit about the contents of the book and what I'm doing here. 20 00:02:05.680 --> 00:02:11.360 I have to say, when I look at the ideas in the book, a lot of it comes across to me as 21 00:02:11.360 --> 00:02:16.040 common sense, where you'd read the book, or at least I look at it and I say, yeah, that 22 00:02:16.040 --> 00:02:17.800 makes sense, that makes sense. 23 00:02:17.800 --> 00:02:24.160 But if you've had any formal economics training, it's pretty significantly at odds with what 24 00:02:24.160 --> 00:02:28.880 mainstream economics teaches about economic growth. 25 00:02:28.880 --> 00:02:34.640 Let me start out talking about these concepts with the concept that I prefer to call progress. 26 00:02:34.640 --> 00:02:38.860 The title of the book is Entrepreneurship and Economic Progress and I really prefer 27 00:02:38.860 --> 00:02:45.720 the term progress to growth because what growth suggests is that incomes are getting larger 28 00:02:45.720 --> 00:02:55.720 And indeed, that's true. Our incomes are rising. If you look over the 20th century in the United States, per capita income grew about seven times. That's pretty impressive. 29 00:02:55.720 --> 00:03:03.720 But I think more impressive is that we've got new and different types of goods and services to consume. 30 00:03:03.720 --> 00:03:14.720 When you stop to think about it, looking at the 20th century, how many people at the end of the 20th century would like to have seven times as many horses as they had at the beginning of the 20th century? 31 00:03:14.720 --> 00:03:22.720 7 times as much food. It's true we eat more, but not that many people would really want 7 times the per capita amount of food. 32 00:03:22.720 --> 00:03:29.720 So when you look at the economic progress of the 20th century, it's great that income has gone up so much. 33 00:03:29.720 --> 00:03:35.720 But a big element of economic progress is the different types of goods that we have to consume. 34 00:03:35.720 --> 00:03:40.720 At the beginning of the 20th century, if you wanted to cross the continent, you'd do it on a railroad. 35 00:03:40.720 --> 00:03:44.720 And if you wanted to head to Europe, you'd get on a steamship to go over. 36 00:03:44.720 --> 00:03:52.720 Now, we get in these aluminum cylinders and travel at 550 miles an hour, 37 00:03:52.720 --> 00:03:57.720 six miles above the surface of the earth, to get where we want in a matter of hours. 38 00:03:57.720 --> 00:03:59.720 I mean, that's progress. 39 00:03:59.720 --> 00:04:03.720 What would we do with seven times as many trains? 40 00:04:03.720 --> 00:04:06.720 Well, we don't need them, but we've got this progress. 41 00:04:06.720 --> 00:04:36.720 Progress. You know, at the beginning of the 20th century we didn't have movies, telephones were rare, not that many electric devices, no radio, you know, now television, the internet and so forth. And when you look at the advances in health care and the remarkable increases in life expectancy, all of these aspects of economic progress aren't captured in models that look at individual 42 00:04:36.720 --> 00:04:55.720 In fact, all that income growth wouldn't have been possible without progress, because, I mean, as I said, there's a limited demand for seven times as much of the goods we consumed at the beginning of the 20th century, so actually, income growth is driven by the fact that people want new and improved goods. 43 00:04:55.720 --> 00:05:05.980 of Goods. So I start out in the book differentiating growth, which is how standard neoclassical 44 00:05:05.980 --> 00:05:11.440 economics looks at things, differentiating growth from progress and discussing why progress 45 00:05:11.440 --> 00:05:16.480 is really the important thing that we want to focus on. Then I go on to talk a little 46 00:05:16.480 --> 00:05:22.640 bit about the theory of the firm and what businesses do. And in the neoclassical theory 47 00:05:22.640 --> 00:05:39.640 The Theory of the Firm, which is the foundation for standard economic growth theory, the foundation of that theory is a production function, where typically output is a function of capital and labor, Q is F of K and L. 48 00:05:39.640 --> 00:06:09.640 And when you look at that framework, going back to what I said before, the fact that we have this output as Q really misstates what's going on in the economy because that Q changes and by setting up the theory that way to start with, we eliminate that important aspect of economic progress in growth theory by having some homogeneous Q, some homogeneous output that we're producing. And then we have this production function, 49 00:06:09.640 --> 00:06:17.440 is a function of capital and labor and within that framework what people who run firms can 50 00:06:17.440 --> 00:06:23.200 do is to try to adjust the amount of capital and labor to produce the optimal amount of 51 00:06:23.200 --> 00:06:29.240 output that's going to maximize profits. 52 00:06:29.240 --> 00:06:36.800 And another function that firms might want to undertake is to try to make sure that resources 53 00:06:36.800 --> 00:06:40.960 are utilized efficiently, I mean we don't want to waste our capital or waste our labor, 54 00:06:40.960 --> 00:06:47.400 but essentially in that neoclassical theory of growth, what people who run firms do, their 55 00:06:47.400 --> 00:06:55.320 activity is management, that they're trying to manage the firm's inputs and outputs efficiently 56 00:06:55.320 --> 00:06:58.640 in order to maximize profits. 57 00:06:58.640 --> 00:07:04.000 But what I argue in the book is that really the key thing that firms do, the people who 58 00:07:04.000 --> 00:07:17.000 People who run firms do is entrepreneurship, looking for better ways to produce things, cheaper ways to produce things, ways to improve goods, which generates economic progress. 59 00:07:17.000 --> 00:07:27.000 So it's this entrepreneurship that generates economic progress, but in the standard neoclassical theory, growth theory, people who run firms are managers, not entrepreneurs. 60 00:07:27.000 --> 00:07:37.000 They've left out this entrepreneurial function, so what I want to do is try to draw in that entrepreneurial function 61 00:07:37.000 --> 00:07:43.000 to explain the origins of economic progress. 62 00:07:43.000 --> 00:07:52.000 Now a lot of you will probably be familiar with Israel Kirzner's competition and entrepreneurship 63 00:07:52.000 --> 00:08:22.000 Entrepreneurship and Kirzner's ideas on entrepreneurship and I start with some of Kirzner's ideas here really as a starting place but Kirzner's idea is that the entrepreneurial act is noticing a profit opportunity so you see this profit opportunity and I'd like to go a step further and say you act on it because a lot of people might you know see something and not seize on it but 64 00:08:22.000 --> 00:08:33.000 Markets are out of equilibrium. There's a potential profit opportunity. Entrepreneurs spot those profit opportunities and act on those profit opportunities to equilibrate markets. 65 00:08:33.000 --> 00:08:44.000 And Kirzner, especially in his 1973 book, Competition and Entrepreneurship, differentiates his ideas from Schumpeter's. Schumpeter is the disequilibrating entrepreneur. 66 00:08:44.000 --> 00:08:49.000 Schumpeter says, or Kirzner says, no, entrepreneurs are equilibrating. 67 00:08:49.000 --> 00:08:56.000 But I think that's really only part of the story and I try to integrate Schumpeter's ideas along with Kirzner's ideas. 68 00:08:56.000 --> 00:09:04.000 I mean, one thing you might wonder if you look at Kirzner's ideas of entrepreneurship, there are these profit opportunities that entrepreneurs spot 69 00:09:04.000 --> 00:09:08.000 and when they act on them they equilibrate markets. 70 00:09:08.000 --> 00:09:12.000 Eventually, aren't all those entrepreneurial opportunities going to be used up? 71 00:09:12.000 --> 00:09:18.000 I mean, once the market gets to equilibrium, all those entrepreneurial opportunities will be used up. 72 00:09:18.000 --> 00:09:24.000 So where do these entrepreneurial opportunities come from? And I discussed that a bit in the book, 73 00:09:24.000 --> 00:09:34.000 but the main place that entrepreneurial opportunities arise is as a result of entrepreneurial actions. 74 00:09:34.000 --> 00:09:40.000 When entrepreneurs act, they change the underlying data of the market. 75 00:09:40.000 --> 00:09:46.000 They provide entrepreneurial opportunities for other entrepreneurs. 76 00:09:46.000 --> 00:09:55.000 I mean, you look at things like, for example, does anybody have a wireless mouse on their computer? 77 00:09:55.000 --> 00:09:59.000 Man, what a great idea, you know, and where did the opportunity to do that come from? 78 00:09:59.000 --> 00:10:02.000 Well, it came from the Windows operating system. 79 00:10:02.000 --> 00:10:06.000 You know, once that innovation came along, that opened up entrepreneurial opportunities 80 00:10:06.000 --> 00:10:09.000 for the wireless mouse and for other things. 81 00:10:09.000 --> 00:10:14.000 Where did that come from? Well, it came from entrepreneurs who made personal computers. 82 00:10:14.000 --> 00:10:18.000 You know, I had a great idea of making personal computers. And how did that opportunity arise? 83 00:10:18.000 --> 00:10:22.000 Well, it came from entrepreneurs who said, you know, we can make microprocessors, you know, 84 00:10:22.000 --> 00:10:26.000 put a bunch of transistors on a chip and make these microprocessors. 85 00:10:26.000 --> 00:10:32.000 And you just have one chip that can, well, actually the designers of the microprocessor 86 00:10:32.000 --> 00:10:35.000 didn't really have in mind personal computers. It was other entrepreneurs who said, 87 00:10:35.000 --> 00:10:40.000 Entrepreneurs who said, hey, we can use this microprocessor as the brains of a computer. 88 00:10:40.000 --> 00:10:48.200 And that's one example of many that you could cite where, in fact, entrepreneurial actions 89 00:10:48.200 --> 00:10:53.120 don't use up entrepreneurial activities, they create more. 90 00:10:53.120 --> 00:10:58.240 And so entrepreneurship is the origin of entrepreneurial activities. 91 00:10:58.240 --> 00:11:02.840 The more entrepreneurial an economy is, the more entrepreneurial opportunities arise, 92 00:11:02.840 --> 00:11:06.920 And so the greater is economic progress. 93 00:11:06.920 --> 00:11:13.020 And that's one of the fundamental ideas that's in this book. 94 00:11:13.020 --> 00:11:20.920 And there are a lot of other little theoretical aspects that I could focus on in the book. 95 00:11:20.920 --> 00:11:22.800 Let me mention one. 96 00:11:22.800 --> 00:11:28.840 And that is the idea of product differentiation. 97 00:11:28.840 --> 00:11:36.840 And in the neoclassical theory of product differentiation, I've looked at a lot of contemporary 98 00:11:36.840 --> 00:11:42.280 microeconomics books to see if this has advanced since the 1930s when these ideas originally 99 00:11:42.280 --> 00:11:51.100 came and I don't see them in economics books, but if you studied some economics and talked 100 00:11:51.100 --> 00:11:56.120 about product differentiation, there's this idea of monopolistic competition and product 101 00:11:56.120 --> 00:12:03.920 Product Differentiation, and with differentiated products, as the standard theory goes, because 102 00:12:03.920 --> 00:12:11.160 firms have downward sloping demand curves with differentiated products, you tend to 103 00:12:11.160 --> 00:12:14.800 get firms that aren't producing at minimum average total cost. 104 00:12:14.800 --> 00:12:18.680 So there's a little bit of an inefficiency there according to that standard theory. 105 00:12:18.680 --> 00:12:23.600 But the advantage is you can have a whole choice of a variety of products. 106 00:12:23.600 --> 00:12:28.600 So you don't have to just take one product, you know, you have Coke or Pepsi or Dr. Pepper 107 00:12:28.600 --> 00:12:30.120 or Mountain Dew or whatever. 108 00:12:30.120 --> 00:12:35.860 You can have McDonald's or you can have Wendy's hamburger, Burger King or whatever. 109 00:12:35.860 --> 00:12:41.520 But this product differentiation comes at a cost and the cost is that firms are producing 110 00:12:41.520 --> 00:12:44.440 a bit above minimum average total cost. 111 00:12:44.440 --> 00:12:47.720 So there's the trade-off and that's the neoclassical theory. 112 00:12:47.720 --> 00:12:54.160 And if anybody has any sites to any literature that's, you know, the economic literature 113 00:12:54.160 --> 00:12:58.200 that suggests differently, I'd be happy to see them, because I've looked in particular 114 00:12:58.200 --> 00:13:00.960 in microeconomic theory textbooks and so forth. 115 00:13:00.960 --> 00:13:07.200 But this really misses the whole function of product differentiation in an economy, 116 00:13:07.200 --> 00:13:15.560 because the key thing is firms don't differentiate their products to make those products different. 117 00:13:15.560 --> 00:13:20.800 They differentiate their products to make their products better. 118 00:13:20.800 --> 00:13:27.120 It gives you no advantage to differentiate your product from your competitor's product. 119 00:13:27.120 --> 00:13:31.000 Invest resources in doing that because you invest the cost and your product is just as 120 00:13:31.000 --> 00:13:33.600 different from theirs as theirs is from yours. 121 00:13:33.600 --> 00:13:35.920 You're not giving yourself any advantage there. 122 00:13:35.920 --> 00:13:37.760 Why would you differentiate your product? 123 00:13:37.760 --> 00:13:44.700 It's to make it better, to make your product more attractive to consumers, maybe to find 124 00:13:44.700 --> 00:13:52.340 a cheaper way of producing. So product differentiation is the engine of economic progress. It's not 125 00:13:52.340 --> 00:13:59.540 a trade-off between variety and cost. I mean, that's like taking a Marshallian snapshot 126 00:13:59.540 --> 00:14:05.660 of the economy. But if you look at the market process, the advantage of product differentiation 127 00:14:05.660 --> 00:14:10.900 is firms differentiate their products to make them better, and product differentiation is 128 00:14:10.900 --> 00:14:15.900 is the engine of economic progress. That's where progress comes from. 129 00:14:15.900 --> 00:14:19.900 And one implication of that, again, going back to the standard theory of the firm, 130 00:14:19.900 --> 00:14:25.900 if you were to take the neoclassical theory of the firm that economic students learn in textbooks, 131 00:14:25.900 --> 00:14:29.900 if you were to take that theory literally, and you say, 132 00:14:29.900 --> 00:14:32.900 okay, I've studied economics, now I'm going to run a business, 133 00:14:32.900 --> 00:14:37.900 what you would do, I mean, what you would do is you would say, 134 00:14:37.900 --> 00:14:45.900 I would say, okay, what's the profit-maximizing combination of capital and labor and let me try to keep my factors of production from shirking and so forth 135 00:14:45.900 --> 00:14:52.900 so I can produce at minimum average total cost and there I'll just earn normal profits. That's equilibrium. 136 00:14:52.900 --> 00:14:59.900 And if you were to do that, you would fall steadily behind your competitors until eventually you would go out of business. 137 00:14:59.900 --> 00:15:06.900 You follow that profit-maximizing strategy that's in the textbooks, your competitors are going to keep getting ahead of you 138 00:15:06.900 --> 00:15:36.900 If you're running a firm, you need to be entrepreneurial because everyone else is. You need to look for better ways of producing products, you need to look for better products to produce, you need to find better ways to satisfy your customers, and I've got a lot of examples in the book, and in the interest of time I won't go through all of those examples. Maybe I'll mention one quickly if you look at the computer industry. I think the fast food industry is kind of simple. Let me focus on the computer industry, where in the 1960s, the Department of Justice sued IBM. 139 00:15:36.900 --> 00:15:40.740 IBM for monopolizing the industry. And they had a bunch of high-priced good attorneys, 140 00:15:40.740 --> 00:15:44.860 so they managed to stall the suit until the 1980s when it was dropped. Why? Because so 141 00:15:44.860 --> 00:15:49.340 many other competitors had entered the industry. And eventually the minicomputer industry came 142 00:15:49.340 --> 00:15:54.860 along, and IBM was sticking with its old profit-maximizing plan. And in the early 90s, people were saying 143 00:15:54.860 --> 00:15:57.940 IBM was going to go bankrupt and go out of business. Now, they changed their business 144 00:15:57.940 --> 00:16:03.340 model, and so they're back on their feet again. But, you know, they found that profit-maximizing 145 00:16:03.340 --> 00:16:07.860 Maximizing Strategy and stuck with it, and over time it's worse and worse and worse. 146 00:16:07.860 --> 00:16:10.260 And you have to be of a certain vintage to remember this. 147 00:16:10.260 --> 00:16:13.620 I talked to my students about this and they don't even know about minicomputers. 148 00:16:13.620 --> 00:16:14.860 Anybody know what a minicomputer is? 149 00:16:14.860 --> 00:16:20.380 You know, in Digital Equipment Corporation, DEC was the big firm in minicomputers. 150 00:16:20.380 --> 00:16:21.380 They did the same thing. 151 00:16:21.380 --> 00:16:26.180 They had a profit-maximizing strategy and they stuck with it until eventually, well, 152 00:16:26.180 --> 00:16:29.380 DEC ended up being bought by Compaq, which was bought by Hewlett-Packard. 153 00:16:29.380 --> 00:16:35.180 I don't think anybody is making minicomputers anymore because PCs came along and knocked 154 00:16:35.180 --> 00:16:41.940 the legs out from under minicomputers and that's an example from a high-tech industry 155 00:16:41.940 --> 00:16:46.540 of how you can't find the profit-maximizing strategy and stick to it. You've got to be 156 00:16:46.540 --> 00:16:54.180 entrepreneurial in markets in order to survive. You've got to keep finding new and improved 157 00:16:54.180 --> 00:16:58.580 ways of producing goods. You've got to find better products and entrepreneurship is the 158 00:16:58.580 --> 00:17:00.580 Entrepreneurship is the engine of economic progress. 159 00:17:00.580 --> 00:17:12.580 So this characterization of equilibrium completely mischaracterizes the whole nature of the market economy, 160 00:17:12.580 --> 00:17:15.580 which isn't characterized by equilibrium, it's characterized by economic progress. 161 00:17:15.580 --> 00:17:19.580 Entrepreneurship is the engine of economic progress. 162 00:17:19.580 --> 00:17:27.580 I mentioned before, all this sounds to me like common sense, 163 00:17:27.580 --> 00:17:33.580 But it's so at odds with the growth theory that's in the mainstream journals right now 164 00:17:33.580 --> 00:17:36.580 that is based on these equilibrium models. 165 00:17:36.580 --> 00:17:43.580 They've taken the static equilibrium models of the 20th century and put time into them. 166 00:17:43.580 --> 00:17:45.580 So now you've got these dynamic models. 167 00:17:45.580 --> 00:17:50.580 But the models leave out altogether the entrepreneurial nature of the economy 168 00:17:50.580 --> 00:17:56.580 and the importance of economic progress, not growth, but economic progress to our prosperity. 169 00:17:56.580 --> 00:17:57.580 Prosperity 170 00:17:57.580 --> 00:18:04.460 Let me just throw in one little critique of neoclassical welfare economics. 171 00:18:04.460 --> 00:18:09.660 The benchmark of welfare economics is Pareto optimality, we want to allocate resources 172 00:18:09.660 --> 00:18:15.100 efficiently and when we do that, that's how we maximize income and that underlies these 173 00:18:15.100 --> 00:18:16.620 growth models also. 174 00:18:16.620 --> 00:18:22.380 But if you just look at the real world, who in the world would say we're better off now 175 00:18:22.380 --> 00:18:28.380 than we were 20 years ago or 50 years ago or 100 years ago because we're closer to Pareto optimality. 176 00:18:28.380 --> 00:18:33.180 It just doesn't make sense. It's the economic progress that makes us better off. 177 00:18:33.180 --> 00:18:40.540 That's what we should be focusing on, but that's what the neoclassical growth models are not focusing on. 178 00:18:40.540 --> 00:18:45.580 And I talk about some policy implications here, and I think a lot of our antitrust policies, 179 00:18:45.580 --> 00:19:09.180 A lot of our policies oriented toward growth are based on conclusions out of the neoclassical models and so I also suggest in the book the way that we ought to be looking at public policies from an entrepreneurial standpoint rather than this neoclassical equilibrium standpoint. 180 00:19:09.180 --> 00:19:23.180 And one example from an industry I already mentioned, as you look at these antitrust suits against IBM back in the 60s, Microsoft in the 90s and so forth, are these firms monopolies? 181 00:19:23.180 --> 00:19:31.180 Well, by some definition, that is a neoclassical definition. They're the dominant firm in the industry and maybe there appear to be barriers to entry. 182 00:19:31.180 --> 00:19:36.180 Of course, over time we see those barriers aren't as significant as at first they looked. 183 00:19:36.180 --> 00:19:45.180 But I think what we see there would be more accurately described as transitional profits from an entrepreneurial action. 184 00:19:45.180 --> 00:19:50.180 Entrepreneur sees an opportunity, seizes it and they make profits until others can catch up, 185 00:19:50.180 --> 00:19:55.180 rather than seeing it in a static sense as some kind of a monopoly that needs to be broken up. 186 00:19:55.180 --> 00:19:59.180 Of course the problem is that if you punish that kind of behavior, 187 00:19:59.180 --> 00:20:05.180 you're punishing the very entrepreneurial behavior that drives economic progress. 188 00:20:05.180 --> 00:20:30.180 I just wondered if it wasn't standard you focused specifically on technology, because so many growth economists are just now discovering the effects of technology. 189 00:20:35.180 --> 00:20:46.180 of Technology. And that's not necessarily to say that technology is unimportant. I mean, obviously, you look at economic progress in the world and technology is vitally important. 190 00:20:46.180 --> 00:20:59.180 But Joseph Schumpeter made the distinction between what he called invention and innovation. And invention, that's the technology part. You know, we come up with some great idea. 191 00:20:59.180 --> 00:21:08.180 Innovation is applying that technology to the market, to bring goods to market where you can make a profit. 192 00:21:08.180 --> 00:21:12.180 And from an economic standpoint, I don't want to downplay the importance of technology, 193 00:21:12.180 --> 00:21:20.180 but from an economist standpoint, it's really the innovation that's much more important than the invention. 194 00:21:20.180 --> 00:21:27.180 You look at, for example, you go back thousands of years, China had invented gunpowder. 195 00:21:27.180 --> 00:21:33.180 and they use it for entertainment. They made fireworks and entertained themselves with it and everything. 196 00:21:33.180 --> 00:21:36.180 So they had the invention, but they didn't have the innovation. 197 00:21:36.180 --> 00:21:40.180 And then Europeans came along and they discovered gunpowder and they said, 198 00:21:40.180 --> 00:21:47.180 hey, we can kill people with this. So there's the innovation. 199 00:21:47.180 --> 00:21:56.180 So what I'm really focusing on, I think the innovation part is ultimately more important than the invention part. 200 00:21:56.180 --> 00:21:59.660 and let me say one more word about that it's really the fact that there's the 201 00:21:59.660 --> 00:22:05.260 opportunity for innovation that leads to the invention a lot of times anyway that 202 00:22:05.260 --> 00:22:10.220 you get firms do an R&D and so forth and the reason they're doing that isn't to 203 00:22:10.220 --> 00:22:13.380 be inventors it's because they're thinking if we come up with a great idea 204 00:22:13.380 --> 00:22:17.260 we can make a profit on this so it's really the innovation that drives the 205 00:22:17.260 --> 00:22:22.780 invention in a market economy anyway. Is there a question? 206 00:22:26.180 --> 00:22:28.340 ______________ 207 00:22:35.700 --> 00:22:46.020 That s a good question and I mean obviously legal costs in a lot of ways stifle innovation, 208 00:22:46.020 --> 00:22:50.840 in fact tax policies also stifle innovation. 209 00:22:50.840 --> 00:23:20.840 So there's a lot of government policies that get in the way of innovative activity, and I do, in the book, I have a chapter in there on institutions, and I try to focus on government policies that can foster economic progress, but unlike the typical policy view, I mean those policies aren't things government can do to encourage progress, it's things the government's doing now that stand in 210 00:23:20.840 --> 00:23:26.920 and the way of progress. So looking at it from a policy standpoint, I think the public 211 00:23:26.920 --> 00:23:31.640 policy thing is get the government out of the way so people are free to innovate and 212 00:23:31.640 --> 00:23:36.920 profit from their innovations. With the IBM case specifically, I'm really not sure how 213 00:23:36.920 --> 00:23:43.920 much the lawsuits had slowed them down, but you look now at Microsoft, for example, and 214 00:23:44.760 --> 00:23:49.280 I think there are some legal costs that are involved with Microsoft dealing with not only 215 00:23:49.280 --> 00:23:54.360 in the United States, but also the European Union now that wants them to change their 216 00:23:54.360 --> 00:23:55.360 product and everything. 217 00:23:55.360 --> 00:24:00.660 But I think the bigger factor than just the legal costs is essentially the government 218 00:24:00.660 --> 00:24:05.960 intimidation that says if you do things this way, we'll fine you, we might take your products 219 00:24:05.960 --> 00:24:09.960 out off the market, we'll make you change the characteristics of your products. 220 00:24:09.960 --> 00:24:13.640 You know, and it's ludicrous to think that somehow the government knows better how an 221 00:24:13.640 --> 00:24:16.600 operating system ought to be designed than Microsoft. 222 00:24:16.600 --> 00:24:21.300 It's not necessarily that I'm a huge fan of Microsoft, but who would say people in the 223 00:24:21.300 --> 00:24:26.360 government would know better how to design an operating system? 224 00:24:26.360 --> 00:24:30.140 And if other people do have better ideas, and Linux is coming up and a lot of people 225 00:24:30.140 --> 00:24:34.860 like Mac and so forth, but the government actions against Microsoft are also intimidating 226 00:24:34.860 --> 00:24:36.780 against these other innovators. 227 00:24:36.780 --> 00:24:43.080 So from a public policy standpoint, the big problem is a lot of times the government stands 228 00:24:43.080 --> 00:25:07.080 The choice of a publisher, that was interesting, the trade-off between could you sell your books here and the publisher. That general subject of how a writer chooses a publisher, do you make more money from this other bunch? 229 00:25:13.080 --> 00:25:22.080 and the very last part is do you make more money off of this publisher? 230 00:25:22.080 --> 00:25:26.080 I don't think I'm going to make that much money off any of my books. 231 00:25:26.080 --> 00:25:28.080 That really wasn't a concern. 232 00:25:28.080 --> 00:25:32.080 Routledge has a pretty well respected series in Austrian economics 233 00:25:32.080 --> 00:25:39.080 and so that's why I sent the manuscript to Routledge for their consideration. 234 00:25:39.080 --> 00:25:41.080 I had nothing to do with setting the price. 235 00:25:41.080 --> 00:26:11.080 in fact I'm surprised to find that the price was so high and sometimes publishers will grant concessions to people who buy large quantities of the book for resale so I was hoping for something like that but I mean I didn't even know what the price of the book would be until it came out and also along those lines I've written a lot of books before and the first book I wrote and this happened for a few other books I've tried first 236 00:26:11.080 --> 00:26:16.080 The first book I wrote, I tried to get some publishers interested in it before it was finished. 237 00:26:16.080 --> 00:26:20.080 And they said, well, send us some sample chapters, which I did. 238 00:26:20.080 --> 00:26:22.080 And they said, boy, we're very interested in this book. 239 00:26:22.080 --> 00:26:25.080 We'd love to see the final manuscript when it's done. 240 00:26:25.080 --> 00:26:27.080 So why did I send them the sample chapters? 241 00:26:27.080 --> 00:26:28.080 I don't know. 242 00:26:28.080 --> 00:26:29.080 And I've had this also. 243 00:26:29.080 --> 00:26:33.080 I've talked about the same things happened before where publishers approached me 244 00:26:33.080 --> 00:26:35.080 and said, you know, what are you working on? 245 00:26:35.080 --> 00:26:37.080 Oh, we would be very interested in that book. 246 00:26:37.080 --> 00:26:39.080 You know, would you send us some sample chapters? 247 00:26:39.080 --> 00:26:47.080 I send them sample chapters. I say, boy, we're just very interested. We think this is great. Send us the manuscript when you've got it done. 248 00:26:47.080 --> 00:26:54.080 If you're thinking about writing a book, my strategy is to write the book first and have the complete manuscript, 249 00:26:54.080 --> 00:26:59.080 and then say, here's the manuscript. Are you interested in publishing it? 250 00:26:59.080 --> 00:27:11.080 And another thing that does is sort of keep you on track, so the manuscript has what you want to have in it, as opposed to what the publisher might want to have in it. 251 00:27:11.080 --> 00:27:24.080 Sort of along those lines also, I had a book, I guess it was about ten years ago, called Public Policy and the Quality of Life, which I think, I don't know if there are any copies, I think Mises Institute has sold it before. 252 00:27:24.080 --> 00:27:33.080 But when I sent them the manuscript, as a result of the advice of some reviewers, they wanted me to take a chapter out of the book. 253 00:27:33.080 --> 00:27:37.080 And that was a chapter on legalizing drugs. 254 00:27:37.080 --> 00:27:44.080 They said, well, you know, I mean, the book has a lot to recommend, but when people see this chapter saying that drugs ought to be legalized, 255 00:27:44.080 --> 00:27:51.080 they're going to think that, I mean, it detracts from the rest of the book, and they're going to think the guy is a wacko who's writing the book, which may be true. 256 00:27:51.080 --> 00:27:58.080 But anyways, I told them, no, I didn't want to take the chapter out of the book, so if they wanted to publish it with all the chapters, that's fine. 257 00:27:58.080 --> 00:28:04.080 If they didn't, I'd look for another publisher, but they then did publish it with all the chapters in it. 258 00:28:04.080 --> 00:28:11.080 So my strategy on writing books is to finish the whole manuscript and then look for a publisher. 259 00:28:11.080 --> 00:28:16.080 And in this case, I chose Routledge because of the Austrian economics series that they had. 260 00:28:16.080 --> 00:28:20.080 And other authors may have other ideas on that. 261 00:28:20.080 --> 00:28:24.080 Okay, you have the last question. 262 00:28:50.080 --> 00:28:58.080 I don't deal directly with that argument in the book. What I think about it is that it's wrong. 263 00:28:58.080 --> 00:29:09.080 An argument I do deal with, William Baumol has a book. I really like Baumol's work on entrepreneurship. 264 00:29:09.080 --> 00:29:18.080 However, he has a recent book called The Free Market Innovation Machine that I think is not as good as some of his earlier work 265 00:29:18.080 --> 00:29:24.480 Work, where he says that in modern economies R&D has just become a routine part of business 266 00:29:24.480 --> 00:29:30.980 bureaucracy and so the entrepreneurial aspect has essentially become bureaucratized. 267 00:29:30.980 --> 00:29:37.200 And I think he misses the whole point of entrepreneurship in that, which is kind of disappointing because 268 00:29:37.200 --> 00:29:43.720 I like a lot of Baumol's work on entrepreneurship, but it's true that firms do a lot of R&D 269 00:29:43.720 --> 00:29:48.360 And that tends to be a bureaucratic function of firms. 270 00:29:48.360 --> 00:29:53.320 And the way I look at it is what they're doing is setting up an environment where it's more 271 00:29:53.320 --> 00:29:56.400 likely they can spot entrepreneurial opportunities. 272 00:29:56.400 --> 00:30:00.700 But that doesn't necessarily mean that they'll be able to take advantage of them in a profit 273 00:30:00.700 --> 00:30:02.040 maximizing way. 274 00:30:02.040 --> 00:30:06.480 So I think he really underplays the importance of the entrepreneurial aspect. 275 00:30:06.480 --> 00:30:11.520 Sort of look at government R&D the same way, you know, that the government's not going 276 00:30:11.520 --> 00:30:12.680 to make a profit on anything. 277 00:30:12.680 --> 00:30:19.680 And a great example along the lines of corporate R&D, a lot of you will know, that the Windows operating system was invented by Xerox, and they have the little windows on the screen and the mouse interface and everything, Xerox invented it. 278 00:30:42.680 --> 00:30:47.680 and they never were able to make a profitable product out of it. 279 00:30:47.680 --> 00:30:51.680 Steve Jobs comes along with the Macintosh and Bill Gates. 280 00:30:51.680 --> 00:30:55.680 Those guys aren't the inventors, they're the innovators. 281 00:30:55.680 --> 00:31:00.680 Just doing the R&D and coming up with an idea 282 00:31:00.680 --> 00:31:05.680 isn't enough to generate economic progress. 283 00:31:05.680 --> 00:31:09.680 It's taking that idea and turning it into a profitable product. 284 00:31:09.680 --> 00:31:26.680 The idea of the Windows interface is pretty instructive because the inventors in that case, Xerox, never were able to profit from their invention, but other people saw it as a profit opportunity, did things a little bit differently and turned it into a profitable product. 285 00:31:26.680 --> 00:31:36.680 Well, thank you very much for your attention. 286 00:31:36.680 --> 00:31:43.680 And like I said, I didn't have anything to do with the pricing of the book. I apologize for the fact I'm the only one who can afford to have a copy.