WEBVTT NOTE The Place of Austrian Economics in Management Research, Education, and Consulting 1 00:00:00.000 --> 00:00:18.000 So the slide that Peter had up there of the three big questions that are supposed to provoke us to what to talk about here, I'm trying to answer the first one of kind of what's going on currently in the management, specifically in the entrepreneurship literature that relates to Austrian economics. 2 00:00:18.000 --> 00:00:48.000 and entrepreneurship I think is probably the area most congenial to Austrian economics and it's currently very common to use Austrian economics in entrepreneurship especially of course Kirzner and Hayek so I'm going to go through that a little bit I have Waldo or Wally on here depending where you're from because the problem with the entrepreneurship literature is an ongoing problem of trying to identify what in the world is the entrepreneur so trying to find 3 00:01:18.000 --> 00:01:48.000 The Entrepreneurship Division of the Academy of Management 4 00:01:48.000 --> 00:01:54.800 Kirzner's idea of discovery, Hayek, knowledge, or role of information would be Hayek as well. 5 00:01:54.800 --> 00:02:01.800 So, in trying to give you a current, present perspective of the entrepreneurship literature, 6 00:02:01.800 --> 00:02:06.800 hopefully you can see Austrian economics is fairly important. It's more used than any 7 00:02:06.800 --> 00:02:14.040 other economic theory in the literature. So, part of the problem with economics, this was 8 00:02:14.040 --> 00:02:21.320 is in leading economics textbooks the words entrepreneur and entrepreneurship really couldn't 9 00:02:21.320 --> 00:02:27.080 be found in the index even when they were found in the book it was like a table or a note right a 10 00:02:27.080 --> 00:02:35.160 side note on half a page Bommel neoclassical basically says it's a specter which haunts economic 11 00:02:35.160 --> 00:02:43.400 models so it's hard to to find who the entrepreneur is these two authors wrote a couple books and 12 00:02:43.400 --> 00:03:13.400 And they've written quite a bit 13 00:03:13.400 --> 00:03:42.400 Entrepreneurs are a homogenous lump of individuals in these models. 14 00:03:42.400 --> 00:03:55.400 They have a measurable degree of risk, so every entrepreneur is given the same amount of risk in the model, and they're all termed innovators, which probably again goes back to Schumpeter. 15 00:03:55.400 --> 00:04:04.400 So Kirzner talks about these entrepreneurs being sort of automated maximizers, so they're basically reduced to a mathematical formula. 16 00:04:04.400 --> 00:04:09.400 So in the model, if there's a problem with the entrepreneur, it's just a problem with arithmetic, right? 17 00:04:09.400 --> 00:04:15.400 So you change a few equations and numbers and what not and you produce a better model of entrepreneurship. 18 00:04:15.400 --> 00:04:25.400 So in my paper, I eventually said that this leads me to conclude that the neoclassical theory of the entrepreneur is essentially entrepreneurialist. 19 00:04:25.400 --> 00:04:31.400 So it's basically non-existent. So I want to go through some of these main themes now. 20 00:04:31.400 --> 00:04:38.400 And instead of giving you specific ideas, I'm trying to map out the literature so hopefully you can take some ideas from this ideally. 21 00:04:38.400 --> 00:05:08.400 So the first ones were creative destruction and innovation and I gave this example in the Cantillon talk so I don't want to go through it again but for those that weren't there of course Cantillon mentions it's the circular flow of economic life and basically there's three options either we're in equilibrium or we're in disequilibrium right so that would be the second option and I guess the third option of two parts would be there we're tending toward equilibrium meaning the entrepreneurs equilibrating 22 00:05:08.400 --> 00:05:36.400 Entrepreneurial Function, Uncertainty and Risk, Minimized, Profit and Loss, Profit and Loss, 23 00:05:36.400 --> 00:05:42.000 Profit, The Theory of Profit and Loss 24 00:05:42.000 --> 00:05:45.800 Different from Uncertainty Uncertainty is basically the future is just 25 00:05:45.800 --> 00:05:51.320 not knowable It's because of uncertainty that entrepreneurship 26 00:05:51.320 --> 00:05:57.480 exists where entrepreneurs come in and forecast and use their judgment to identify ideally 27 00:05:57.480 --> 00:06:02.960 profitable opportunities So those that consistently make failures or 28 00:06:02.960 --> 00:06:32.960 Entrepreneurial Opportunities 29 00:06:32.960 --> 00:06:42.960 Scott Shane here. This is one of the most quoted articles on entrepreneurship, which was in the Academy of Management. Is that right? 30 00:06:42.960 --> 00:06:52.960 Is that what it was? And he's written a book called the Entrepreneurship Opportunity Nexus. Is that right? Something like that. 31 00:06:52.960 --> 00:06:54.960 Individual Opportunity Nexus. 32 00:06:54.960 --> 00:06:59.640 individual opportunity nexus anyway and he comes at it from the more of an 33 00:06:59.640 --> 00:07:05.600 economics background and he seems more susceptible to Austrian economics you 34 00:07:05.600 --> 00:07:16.160 probably know that better than I do but that's right he's not immune to it so in 35 00:07:16.160 --> 00:07:19.760 the literature opportunities can be subjective or objective subjective of 36 00:07:19.760 --> 00:07:22.840 court according to the entrepreneur but their objective in the sense that if the 37 00:07:22.840 --> 00:07:29.840 The Entrepreneur makes a profit out of these opportunities, that means it was an actual opportunity that could have been pursued by anyone. 38 00:07:29.840 --> 00:07:39.840 Jeff makes the distinction here of whether or not opportunities are generalizable, meaning they can be generalized and others can take advantage of them. 39 00:07:39.840 --> 00:07:45.840 Whether they're accurate, meaning making a profit or not, and timeless. 40 00:07:45.840 --> 00:07:51.840 Okay, so let me just go through to the next one because I'm running out of time a bit. 41 00:07:51.840 --> 00:07:54.840 And you can come back to the more, you know, during this session. 42 00:07:54.840 --> 00:07:55.840 Yeah, that's right. 43 00:07:55.840 --> 00:07:59.720 Okay, so talking about the origins, so here in this picture, if you can't read it, it's 44 00:07:59.720 --> 00:08:02.320 a Rudolph-guided sleigh rental, right? 45 00:08:02.320 --> 00:08:08.640 So create an entrepreneurial opportunity, a business out of this opportunity. 46 00:08:08.640 --> 00:08:13.180 Talking about where do opportunities actually come from, and again, this would get into 47 00:08:13.180 --> 00:08:20.640 more ontology, an ontological or epistemological perspective or question, which I think is 48 00:08:20.640 --> 00:08:23.640 is also fundamental, and that's an area for research, I think. 49 00:08:23.640 --> 00:08:26.640 Anyway, it's due to information asymmetry. 50 00:08:26.640 --> 00:08:32.800 So this is a very big theme of, right, we're all here, we're all participating in the same 51 00:08:32.800 --> 00:08:37.240 sort of event, yet we're all interpreting things differently, we have the same information. 52 00:08:37.240 --> 00:08:44.460 But even given that, we have information that is imperfectly distributed, it's understood 53 00:08:44.460 --> 00:08:47.720 in a subjective, imperfect way, maybe. 54 00:08:47.720 --> 00:08:51.540 So entrepreneurs are discovering ideas and they're equilibrating in this way, which 55 00:08:51.540 --> 00:08:56.560 is the main theme in the Austrian economics literature, so Kirzner says it's, and Rothbard 56 00:08:56.560 --> 00:09:01.000 says the same thing, we're moving towards the ERE even though we'll never reach that. 57 00:09:01.000 --> 00:09:04.840 So through this discovery, entrepreneurs that make incorrect judgments, meaning they're 58 00:09:04.840 --> 00:09:09.120 making a loss, are eventually eliminated and those that continually make profits are the 59 00:09:09.120 --> 00:09:16.040 ones that continue to exist, thus errors in the system become fewer and fewer. 60 00:09:16.040 --> 00:09:20.040 Of course, the problem with equilibrium models is everything's already given, right? 61 00:09:20.040 --> 00:09:24.040 There's no real opportunity, there's no room for arbitrage there. 62 00:09:24.040 --> 00:09:28.040 Supply equals demand, price equals cost. 63 00:09:28.040 --> 00:09:32.040 This is Hayek's big thing, and just so you know, 64 00:09:32.040 --> 00:09:36.040 I mean, Kirzner and Hayek are some of the most quoted in the entrepreneurship literature, 65 00:09:36.040 --> 00:09:42.040 and it's interesting because some of the discussion here has been on 66 00:09:42.040 --> 00:10:12.040 problems that other Austrians have with critiquing Kirzner, right, not problems with critiquing, but problems with Hayek, the Hayek and Kirznerian framework, which I think is one of the reasons that entrepreneurship research uses that more is it's less, not intimidating, but less, that's the word I'm looking for, they don't have to take on the entire Austrian perspective, they can just use kind 67 00:10:12.040 --> 00:10:24.920 You can come back to more points when we get into the discussion. 68 00:10:24.920 --> 00:10:31.560 Is your summary view that, as you mentioned, both Hayek and Kirzner are very frequently 69 00:10:31.560 --> 00:10:35.960 cited and in the example of the Academy of Management, the Entrepreneurship Division statement 70 00:10:35.960 --> 00:10:42.280 is explicitly so, listed as sort of founders, founding fathers, if you like, of the discipline. 71 00:10:42.280 --> 00:10:47.680 Is it your view that the mainstream entrepreneurship literature has correctly interpreted them 72 00:10:47.680 --> 00:10:53.200 and has sort of run with their ideas and applied them in a direction that maybe Hayek and Kirzner 73 00:10:53.200 --> 00:10:59.880 did not themselves do but would fully approve of, or at the other extreme is the literature 74 00:10:59.880 --> 00:11:07.280 to paying lip service to some sort of obscure theorist because it gives some credibility 75 00:11:07.280 --> 00:11:11.400 somehow to the enterprise but haven't really grasped the essence of what those writers were 76 00:11:11.400 --> 00:11:15.920 all about. Is it more towards the first or the second? 77 00:11:15.920 --> 00:11:20.200 More towards the second. I know you've mentioned this in a talk. I just listened to it again 78 00:11:20.200 --> 00:11:25.520 the other day and how they've been misinterpreted. Kirzner has been misinterpreted and interpreted 79 00:11:25.520 --> 00:11:32.340 and those opportunities now become research for like cognitive type research, right? 80 00:11:32.340 --> 00:11:38.060 So how is it that person A understands an opportunity compared to person B? 81 00:11:38.060 --> 00:11:40.880 What is it that makes that person more alert to the opportunity? 82 00:11:40.880 --> 00:11:48.480 So yeah, they're citing Kirzner's competition and so what I'm talking about, an entrepreneurship 83 00:11:48.480 --> 00:11:50.080 book, right? 84 00:11:50.080 --> 00:11:54.680 So I doubt even more that people have actually read the entire book and usually, you know, 85 00:11:54.680 --> 00:11:59.680 You know, just as common in any literature, you're just citing the person that cited someone else ad infinitum.