WEBVTT NOTE A Note on Rothbardian Decision-Making Rents 1 00:00:00.000 --> 00:00:02.840 Good afternoon, everyone. 2 00:00:02.840 --> 00:00:06.480 I would first and foremost like to thank the Mises Institute 3 00:00:06.480 --> 00:00:08.920 for this great opportunity. 4 00:00:08.920 --> 00:00:12.560 I am honored and very happy to be here. 5 00:00:12.560 --> 00:00:16.200 My task today is a most difficult one. 6 00:00:16.200 --> 00:00:21.200 Firstly, because I stand between you and a very nice break. 7 00:00:21.200 --> 00:00:27.760 Secondly, because I speak in front 8 00:00:27.760 --> 00:00:30.920 of a very important part of my all-time bibliography 9 00:00:30.920 --> 00:00:34.360 or list of references, if I'm allowed to say so. 10 00:00:34.360 --> 00:00:35.520 So I'm a bit nervous. 11 00:00:36.960 --> 00:00:41.480 And thirdly, I will speak about the Rothbardian concept, 12 00:00:41.480 --> 00:00:44.640 the ownership decision-making function, 13 00:00:44.640 --> 00:00:48.280 and the corresponding decision-making grants, 14 00:00:48.280 --> 00:00:52.440 a concept which I ended up considering problematic. 15 00:00:52.440 --> 00:00:55.800 So I argue against Rothbard of all people. 16 00:00:55.800 --> 00:01:06.360 Although I hope to do so only in letter and not in spirit, I almost wish I were wrong, but I cannot help thinking that I might be right. 17 00:01:06.360 --> 00:01:15.960 Therefore, the place to start for me is what I would call the Mises-Rothbard theory of entrepreneurship as uncertainty bearing. 18 00:01:15.960 --> 00:01:34.960 And I might as well say that in my view, whatever the theory of the firm will look in the future, the correct theory of the firm will look in the future, it will most definitely be a build-up from this Mises-Rothbard framework. 19 00:01:34.960 --> 00:01:44.960 Briefly stated, this theory says the following, entrepreneurs act based on entrepreneurial judgments, 20 00:01:44.960 --> 00:01:57.960 they allocate scarce resources based on entrepreneurial judgments, these entrepreneurial judgments refer to particular circumstances of time, place and persons from the future. 21 00:01:57.960 --> 00:02:06.960 So consumer demand, their taste, the shifting of this taste, prices, costs, technologies, so on and so forth. 22 00:02:06.960 --> 00:02:11.960 So particular circumstances of time, place and persons from the future. 23 00:02:11.960 --> 00:02:18.960 And the future is uncertain and this renders these judgments unscientific. 24 00:02:18.960 --> 00:02:21.960 They are not scientific in what sense. 25 00:02:21.960 --> 00:02:26.960 they cannot be delivered together with, here and now, 26 00:02:27.260 --> 00:02:31.820 hick et nunc, as the Latin say, with their test of validity, 27 00:02:31.820 --> 00:02:33.500 together with their test of validity. 28 00:02:33.500 --> 00:02:38.500 Therefore, a special role that businessmen have to fulfill 29 00:02:38.520 --> 00:02:42.720 is unavoidable, and that is the ultimate bearing 30 00:02:42.720 --> 00:02:47.080 of uncertainty, roughly put, successful actions 31 00:02:47.080 --> 00:02:49.960 based on correct entrepreneurial judgments 32 00:02:49.960 --> 00:02:55.680 lead to profits while unsuccessful actions based on wrong entrepreneurial judgments lead 33 00:02:55.680 --> 00:02:58.720 to losses. 34 00:02:58.720 --> 00:03:06.280 Now going on to Rothbard's treatment before proceeding to my PowerPoints, I would like 35 00:03:06.280 --> 00:03:17.600 to emphasize or to point the fact that Rothbard is very careful not to deprive the real world 36 00:03:17.600 --> 00:03:21.760 for a businessman of any feature that he might have. 37 00:03:23.560 --> 00:03:26.880 So therefore, he's not so much concerned 38 00:03:26.880 --> 00:03:30.560 about the so-called catalytic functions or economic functions. 39 00:03:30.560 --> 00:03:34.120 Of course, he speaks about them, he treats them correctly. 40 00:03:34.120 --> 00:03:37.280 But for him, for Rothbard, the entrepreneur, 41 00:03:37.280 --> 00:03:40.480 of course, he's a property owner, necessarily. 42 00:03:40.480 --> 00:03:44.600 He's a capitalist, he advances resources 43 00:03:44.600 --> 00:03:51.400 within a time horizon, implying waiting and it is more than a capitalist and an owner, 44 00:03:51.400 --> 00:04:00.060 it is capitalist plus so to speak in the sense that he bears the previously mentioned uncertainty. 45 00:04:00.060 --> 00:04:05.920 So he speaks of the businessman, of the investor, of the capitalist entrepreneur or simply of 46 00:04:05.920 --> 00:04:12.160 the entrepreneur referring to this real world entrepreneur. 47 00:04:12.160 --> 00:04:21.600 And now, proceeding to my power points, in Man Economy and State, in one point, he introduces 48 00:04:21.600 --> 00:04:28.360 an additional element or just highlights another way of seeing this element, this ownership 49 00:04:28.360 --> 00:04:38.640 function or the ultimate decision function. 50 00:04:38.640 --> 00:04:41.880 My presentation from now on will follow this structure. 51 00:04:41.880 --> 00:04:47.400 I will briefly present Rothbard's introduction of the concept, 52 00:04:47.400 --> 00:04:50.000 then other places where Rothbard uses the concept, 53 00:04:50.000 --> 00:04:53.880 a bit about Rothbard's source of inspiration, 54 00:04:53.880 --> 00:04:57.440 what would be the main contribution, if it is one, 55 00:04:57.440 --> 00:05:04.840 of my paper, and some conclusions. 56 00:05:04.840 --> 00:05:08.120 Well, this is an inadequate slide, so to speak, 57 00:05:08.120 --> 00:05:18.120 but I just wanted to put the whole quote there and the summary of this quote would be, if you would allow me, 58 00:05:18.120 --> 00:05:34.120 there is a function that the entrepreneurs, real entrepreneurs fulfill, an economic function, a catalactic function in Misesian terminology that has the following features. 59 00:05:34.120 --> 00:05:52.120 Of course, the suggested content is this ultimate responsibility and control of production, decision of the nature of how much capital to invest and in what particular processes, and of course thereby the choice of managers. 60 00:05:52.120 --> 00:06:05.120 One particular feature of this function is that it continues in equilibrium, in the Misesian-Rothbardian version of the general equilibrium, the even rotating economy. 61 00:06:05.120 --> 00:06:19.120 So therefore, this function is supposedly different from the entrepreneurial catalactic function, and the income which is correspondent therefore has to be different from profit and loss. 62 00:06:19.120 --> 00:06:34.120 Of course, it has to be different from mere capital advancing and managerial work, and therefore the decision-making rents are different from interest and wage, pure interest and an implicit wage. 63 00:06:34.120 --> 00:07:01.120 An implicit income for these rents cannot be computed by real-world entrepreneurs because this function cannot be isolated, it cannot be hired on the market, it's something very specific to the entrepreneur, so it cannot be bought and sold, therefore no implicit price for it. 64 00:07:01.120 --> 00:07:06.320 No price on the market, therefore no implicit price for it in the calculations of the entrepreneur. 65 00:07:06.320 --> 00:07:13.720 And this function, it's specific, this is a very attractive feature of this function, 66 00:07:13.720 --> 00:07:25.920 because it can lead to an explanation of the variety of firms and of business ventures on the real market, in the real market. 67 00:07:25.920 --> 00:07:51.520 When I first read an article by Professor Salerno in which he appointed this element, the entrepreneur, real and imagined, I said, while I was working on my PhD on the theory of the firm, an Austrian perspective on the multinational firm, I said, well, this is the solution. 68 00:07:51.520 --> 00:07:57.520 With this catalytic function, a theory of the firm can be built. 69 00:07:57.520 --> 00:08:05.520 And then I started looking for other places where Rothbard uses the concept in his works. 70 00:08:05.520 --> 00:08:19.520 And of course, those places are not very numerous, and searching for them I discovered that he employed the concept differently. 71 00:08:19.520 --> 00:08:29.760 Mostly, and I have some quotes here, he includes decision-making under some form of labor. 72 00:08:29.760 --> 00:08:32.480 He considers it some form of labor. 73 00:08:32.480 --> 00:08:40.080 The first quote might not be so striking in this sense, but the second quote, he says 74 00:08:40.080 --> 00:08:46.120 for instance, a brand name therefore is an attribute of a labor factor, specifically 75 00:08:46.120 --> 00:08:51.040 The owner or owners of the firm, or considered catallactically, the brand name represents 76 00:08:51.040 --> 00:08:54.520 the decision-making rent accruing to the owner and his name. 77 00:08:54.520 --> 00:09:01.340 So labor factor, decision-making as a labor factor, if I correctly interpret him. 78 00:09:01.340 --> 00:09:08.580 And a few other places, most of them in Man Economy and State, and only one other place 79 00:09:08.580 --> 00:09:13.100 I managed to found in an earlier article, 80 00:09:13.100 --> 00:09:15.620 not connected with the special issues. 81 00:09:15.620 --> 00:09:19.400 But again, here he said, for instance, 82 00:09:19.400 --> 00:09:23.140 wages can include wages of decision-making. 83 00:09:23.140 --> 00:09:28.660 So here, in these quotes, I read him making the point 84 00:09:28.660 --> 00:09:30.820 that decision-making, nevertheless, 85 00:09:30.820 --> 00:09:32.740 might be included under labor. 86 00:09:32.740 --> 00:09:37.740 so it would not be a different distinct catalactic function. 87 00:09:40.300 --> 00:09:44.120 So this is attention, either different catalactic function 88 00:09:44.120 --> 00:09:45.140 or labor. 89 00:09:49.740 --> 00:09:54.740 Rothbard's source of inspiration is a quote from a passage 90 00:09:55.340 --> 00:09:59.080 from Boehm-Bawerk, from Capital and Interest, 91 00:09:59.080 --> 00:10:03.640 And he gives this portion of the Boehm-Bawerk quote. 92 00:10:06.600 --> 00:10:13.720 Boehm-Bawerk says that even in equilibrium, 93 00:10:13.720 --> 00:10:16.080 even when the entrepreneur does not personally take 94 00:10:16.080 --> 00:10:18.340 part in the production process, he 95 00:10:18.340 --> 00:10:21.920 contributes a certain amount of trouble 96 00:10:21.920 --> 00:10:24.720 in the shape of intellectual superintendents. 97 00:10:24.720 --> 00:10:27.920 And even more, at least an act of will 98 00:10:27.920 --> 00:10:31.400 by which he devotes his means of production to a definite undertaking. 99 00:10:31.400 --> 00:10:34.320 And this idea of a mere act of will, of course, 100 00:10:34.320 --> 00:10:40.120 is the very source of the idea of decision making as a function. 101 00:10:40.120 --> 00:10:47.920 But then I looked at the whole passage there. 102 00:10:47.920 --> 00:10:51.800 And there is, again, at least attention. 103 00:10:51.800 --> 00:10:55.920 After saying this, Boehm-Bawerk goes on. 104 00:10:55.920 --> 00:11:04.520 I will only present the last part of what Boehm-Bawerk is saying there, that in his view, what he has said previously, included that part, 105 00:11:04.520 --> 00:11:11.320 for the subject of an independent problem of no little difficulty, the problem of the undertaker's profit. 106 00:11:11.320 --> 00:11:24.320 And he says that he purposely refrains to enter on a very complicated and a complicating for him new venture, 107 00:11:24.320 --> 00:11:26.540 because he was trying to explain interest 108 00:11:26.540 --> 00:11:28.940 and he didn't want to complicate with profit. 109 00:11:28.940 --> 00:11:30.920 That might suggest that Boehm-Bawerk 110 00:11:30.920 --> 00:11:35.920 would interpret this problem, this function 111 00:11:37.520 --> 00:11:42.520 as included under the theory of profit 112 00:11:42.840 --> 00:11:44.260 and of entrepreneurship. 113 00:11:47.280 --> 00:11:49.240 So not necessarily a different function, 114 00:11:49.240 --> 00:11:51.480 so a decision-making function. 115 00:11:51.480 --> 00:11:54.480 although that's the debate in itself. 116 00:11:54.480 --> 00:12:03.480 And now, if I may proceed to what I probably pretentiously call the analytical critique of the concept, 117 00:12:03.480 --> 00:12:09.480 I would like to point the following things and then try to conclude. 118 00:12:09.480 --> 00:12:17.480 At first, at least it seems that if ownership decision-making becomes a distinct catalytic function, 119 00:12:17.480 --> 00:12:21.280 That implies a separation in terms of catalytic functions, 120 00:12:21.280 --> 00:12:25.160 of economic functions, between ownership and entrepreneurship. 121 00:12:25.160 --> 00:12:29.680 And this is a surprising withdrawal bug, 122 00:12:29.680 --> 00:12:33.680 because if I correctly understand the matter, 123 00:12:33.680 --> 00:12:39.520 he was bothered by this fact in the works of Israel Kirzner. 124 00:12:39.520 --> 00:12:44.920 He was bothered not only by the practical possible separation 125 00:12:44.920 --> 00:12:48.720 of Entrepreneurship and Ownership, 126 00:12:48.720 --> 00:12:52.480 but even by the theoretical separation. 127 00:12:53.840 --> 00:12:56.680 Actually, Rothbard, if I correctly read him, 128 00:12:56.680 --> 00:12:59.920 never separates ownership as a special function 129 00:12:59.920 --> 00:13:02.880 from anything, so the worker is a owner, 130 00:13:02.880 --> 00:13:05.940 the capitalist is an owner, the entrepreneur is an owner, 131 00:13:05.940 --> 00:13:08.160 so ownership is never separated, 132 00:13:08.160 --> 00:13:10.440 apart from this decision-making issue, 133 00:13:11.280 --> 00:13:13.880 from any other catalytic function. 134 00:13:14.920 --> 00:13:25.920 Of course, a question remains after reading that part of Rothbard, what are entrepreneurship and uncertainty bearing still supposed to mean? 135 00:13:25.920 --> 00:13:40.920 Because if you try to give content to the decision making in equilibrium, you necessarily get to include things from uncertainty bearing. 136 00:13:44.920 --> 00:13:47.920 Can decision making rents be negative? 137 00:13:47.920 --> 00:13:52.920 The Rothbardian answer is no, and is based on his standard analysis of rent. 138 00:13:52.920 --> 00:13:54.920 But then a problem appears. 139 00:13:54.920 --> 00:13:59.920 What is rewarded through these positive rents when there are losses? 140 00:13:59.920 --> 00:14:07.920 And on the one hand, in his capacity as entrepreneur, the owner has failed to correctly forecast the relevant market data. 141 00:14:07.920 --> 00:14:19.160 So, for the same thing, a decision, first you reward with a positive income the entrepreneur 142 00:14:19.160 --> 00:14:27.120 and then you punish him, first you reward him as a decision maker and then you punish 143 00:14:27.120 --> 00:14:31.840 him as an entrepreneur. 144 00:14:31.840 --> 00:14:39.320 I won't dwell upon this, I argue that this is a different case than the one with the 145 00:14:39.320 --> 00:14:42.120 implicit wage. 146 00:14:42.120 --> 00:14:50.820 Okay, I looked in other places where Rothbard implies that decision making and uncertainty 147 00:14:50.820 --> 00:14:58.100 bearing cannot be meaningfully separated, although you might accuse me of hand-picking 148 00:14:58.100 --> 00:14:59.100 in Quotes. 149 00:14:59.100 --> 00:15:00.580 I hope it's not the case. 150 00:15:05.340 --> 00:15:09.140 I also touch the idea of decision-making under certainty. 151 00:15:09.140 --> 00:15:12.100 And I found a quote by Rothbard in which he suggests 152 00:15:12.100 --> 00:15:16.540 that there's not much left in it. 153 00:15:19.820 --> 00:15:23.980 Decision-making without uncertainty 154 00:15:23.980 --> 00:15:27.340 vanishes into the idea of passive waiting 155 00:15:27.340 --> 00:15:28.780 that such as the capitalist function. 156 00:15:32.940 --> 00:15:44.260 OK, because I'm trying to, one more thing, 157 00:15:44.260 --> 00:15:46.100 and then I will really conclude. 158 00:15:46.100 --> 00:15:47.140 I apologize. 159 00:15:47.140 --> 00:15:49.700 I'm not a very good time manager, it seems. 160 00:15:52.500 --> 00:15:56.540 Our decision making grants operational, the answer was no. 161 00:15:56.540 --> 00:15:59.300 This is a problem, but then another fundamental question 162 00:15:59.300 --> 00:16:00.940 arises. 163 00:16:00.940 --> 00:16:03.660 Can they be independently derived, praxeologically, 164 00:16:03.660 --> 00:16:06.620 even if they are not operational? 165 00:16:06.620 --> 00:16:10.420 It is my opinion that they cannot. 166 00:16:10.420 --> 00:16:13.060 I would argue, in the toughest case, 167 00:16:13.060 --> 00:16:17.020 that Rothbard almost merely stipulates them. 168 00:16:17.020 --> 00:16:19.860 Even the terminology is a little bit question begging. 169 00:16:19.860 --> 00:16:21.020 You have decision making. 170 00:16:21.020 --> 00:16:22.740 Why for decision making? 171 00:16:22.740 --> 00:16:24.700 Although that might be me. 172 00:16:27.820 --> 00:16:30.660 He himself criticized the idea in another place 173 00:16:30.660 --> 00:16:32.700 that decision-making could be considered labor. 174 00:16:35.540 --> 00:16:37.500 How many things I left out? 175 00:16:37.500 --> 00:16:43.620 Well, the conclusion would be that, in my opinion, 176 00:16:43.620 --> 00:16:48.180 contrary to the attractiveness of this theoretical device 177 00:16:48.180 --> 00:16:51.580 of the decision-making grants, it 178 00:16:51.580 --> 00:16:55.780 is problematic to separate decision-making from uncertainty bearing even at the level 179 00:16:55.780 --> 00:16:59.740 of catalectical function analysis. 180 00:16:59.740 --> 00:17:05.340 So therefore, the Austrian theory of the firm will not be a decision-making and entrepreneurial 181 00:17:05.340 --> 00:17:08.820 theory of the firm or a decision-making theory of the firm. 182 00:17:08.820 --> 00:17:13.420 It will be just an entrepreneurial theory of the firm, again, based on the Mises-Rothbard 183 00:17:13.420 --> 00:17:14.860 theory. 184 00:17:14.860 --> 00:17:19.220 Having made a mess of my presentation, I stop here. 185 00:17:19.220 --> 00:17:20.220 Thank you very much. 186 00:17:20.220 --> 00:17:22.220 Thank you very much.