WEBVTT NOTE Authors Forum: The Capitalist and the Entrepreneur 1 00:00:00.000 --> 00:00:06.000 It's a delight to be here with you today, and it's a particular delight not to have to follow Tom Woods. 2 00:00:06.000 --> 00:00:17.000 As Mark said, this book, The Capitalist and the Entrepreneur, appeared last year, published by the Mises Institute. 3 00:00:17.000 --> 00:00:29.000 Entrepreneurship is becoming an increasingly important phenomenon as recognized by popular media, academic institutions, think tanks, politicians, and so on. 4 00:00:29.000 --> 00:00:35.600 The number of programs, courses, journals, books and so on 5 00:00:35.600 --> 00:00:38.600 devoted to the entrepreneur have increased dramatically. 6 00:00:38.600 --> 00:00:41.800 The number has increased dramatically in the last few years. 7 00:00:41.800 --> 00:00:46.800 However, the mainstream literature, mainstream economics in particular, 8 00:00:46.800 --> 00:00:53.000 has a very uneasy relationship with entrepreneurs and with entrepreneurship 9 00:00:53.000 --> 00:00:58.800 and really doesn't quite know how to handle this particular phenomenon. 10 00:00:58.800 --> 00:01:06.800 In some sense, this might surprise you if you remember that the first important systematic treatise on economics, 11 00:01:06.800 --> 00:01:15.800 the essay published originally written in the 1730s, published in 1755 by the proto-Austrian economist Richard Cantillon, 12 00:01:15.800 --> 00:01:22.800 gives a very central role to the entrepreneur in the organization and direction of economic activity. 13 00:01:22.800 --> 00:01:28.440 Activity. However, from the time of the British classical school on down through 14 00:01:28.440 --> 00:01:33.400 the present, and particularly the case in modern contemporary neoclassical 15 00:01:33.400 --> 00:01:39.440 mathematical economics, the entrepreneur simply plays little role in the economic 16 00:01:39.440 --> 00:01:44.240 system. Now how have mainstream economists and scholars in business 17 00:01:44.240 --> 00:01:49.280 administration attempted to deal with the surge of interest in the 18 00:01:49.280 --> 00:01:54.400 Entrepreneur, well mainly by adopting a very narrow perspective on what 19 00:01:54.400 --> 00:02:00.320 entrepreneurship is, specifically defining entrepreneurs as self-employed 20 00:02:00.320 --> 00:02:05.240 owners of small enterprises and entrepreneurship as essentially the 21 00:02:05.240 --> 00:02:11.360 study of small business and startup companies. Now while self-employed 22 00:02:11.360 --> 00:02:15.840 individuals running small enterprises, starting new small enterprises is 23 00:02:15.840 --> 00:02:19.680 is undoubtedly extremely important. That is a much 24 00:02:19.680 --> 00:02:22.840 narrower concept of the entrepreneur 25 00:02:22.840 --> 00:02:27.480 than one finds in Cantillon or in the contemporary Austrian 26 00:02:27.480 --> 00:02:31.880 school. In fact, Mises says the following in Human Action, 27 00:02:31.880 --> 00:02:36.600 it is impossible to eliminate the entrepreneur 28 00:02:36.600 --> 00:02:41.440 from the picture of the market economy. The various complementary factors of 29 00:02:41.440 --> 00:02:42.160 production 30 00:02:42.160 --> 00:02:47.720 cannot come together spontaneously. They need to be combined by the purpose of 31 00:02:47.720 --> 00:02:50.800 efforts of men aiming at certain ends 32 00:02:50.800 --> 00:02:55.240 and motivated by the urge to improve their state of satisfaction. 33 00:02:55.240 --> 00:03:00.580 In eliminating the entrepreneur, one eliminates the driving force of the 34 00:03:00.580 --> 00:03:02.040 whole market system. 35 00:03:02.040 --> 00:03:08.240 So for Mises, the entrepreneur is not simply a specialized actor 36 00:03:08.240 --> 00:03:12.120 operating in one narrowly defined part of the economy 37 00:03:12.120 --> 00:03:19.720 But indeed the entrepreneur is the driving force behind the entire market system. 38 00:03:19.720 --> 00:03:28.700 Now what I do in the book is to discuss and analyze and apply the Misesian perspective 39 00:03:28.700 --> 00:03:34.580 on the entrepreneur, specifically linking the entrepreneur to the capitalist system 40 00:03:34.580 --> 00:03:35.840 more broadly. 41 00:03:35.840 --> 00:03:39.920 So the book is called The Capitalist and the Entrepreneur and it represents an attempt 42 00:03:39.920 --> 00:03:44.040 to integrate entrepreneurship into the more general theory 43 00:03:44.040 --> 00:03:47.440 of markets and capitalism. 44 00:03:47.440 --> 00:03:50.640 The story behind the book is fairly straightforward. 45 00:03:50.640 --> 00:03:55.080 It collects a series of essays, mainly most of them 46 00:03:55.080 --> 00:03:58.560 written for academic audiences, academic publications, 47 00:03:58.560 --> 00:04:02.880 but also including some shorter, more popular pieces that 48 00:04:02.880 --> 00:04:06.640 are designed to bring together various research streams 49 00:04:06.640 --> 00:04:08.080 that I personally have been working 50 00:04:08.080 --> 00:04:14.520 on in the last decade or so. As Mark mentioned, I was a graduate fellow here at the Mises 51 00:04:14.520 --> 00:04:22.840 Institute long, long ago, but I received my PhD from a mainstream economics program and 52 00:04:22.840 --> 00:04:28.880 I specialized in my dissertation research and elsewhere in various aspects of the modern 53 00:04:28.880 --> 00:04:35.840 theory of organizations, the economic theory of the firm, the economic theory of firm strategy, 54 00:04:35.840 --> 00:04:38.680 from Organization and Structure and so on. 55 00:04:38.680 --> 00:04:42.480 And I worked with prominent mainstream academic economists. 56 00:04:42.480 --> 00:04:47.560 My dissertation chair, Oliver Williamson, was one of the last years, the 2009 Nobel 57 00:04:47.560 --> 00:04:48.920 Laureates. 58 00:04:48.920 --> 00:04:57.760 But at the same time, I was deeply immersed in the Austrian tradition and spent much of 59 00:04:57.760 --> 00:05:05.160 my early career thinking about ways to bring together Austrian economics and contemporary 60 00:05:05.160 --> 00:05:10.000 Organization Theory. And so the essays that are collected in this volume represent the 61 00:05:10.000 --> 00:05:18.280 fruits of much of that effort. As I mentioned, the entrepreneur is central to Austrian economics. 62 00:05:18.280 --> 00:05:23.240 The entrepreneur, of course, figures prominently in Mises' human action, also in Rothbard's 63 00:05:23.240 --> 00:05:29.700 Man Economy and State. Israel Kirzner in the 1970s and 80s produced a series of essays 64 00:05:29.700 --> 00:05:34.900 and books on the importance of the entrepreneur, though I take a slightly different perspective 65 00:05:34.900 --> 00:05:40.020 on Interpreting Mises than Professor Kirzner does. 66 00:05:40.020 --> 00:05:43.100 My claim that I elaborate in the volume 67 00:05:43.100 --> 00:05:46.820 is that applying Austrian economics more generally 68 00:05:46.820 --> 00:05:49.700 and the Misesian concept of the entrepreneur, 69 00:05:49.700 --> 00:05:54.620 more specifically, to problems in business administration, 70 00:05:54.620 --> 00:05:59.100 economic organization, strategic management, public policy, 71 00:05:59.100 --> 00:06:03.620 and so on, generates substantial insight, 72 00:06:03.620 --> 00:06:08.860 alternative and better explanations for many of the phenomena that we think are 73 00:06:08.860 --> 00:06:13.140 increasingly important in today's economy. 74 00:06:13.140 --> 00:06:17.220 Now you might wonder what does Austrian economics have to do with the 75 00:06:17.220 --> 00:06:23.060 entrepreneur, with business, with firms, with strategy and so on. 76 00:06:23.060 --> 00:06:26.900 Well there are some key insights from the Austrian tradition 77 00:06:26.900 --> 00:06:29.580 that are particularly relevant 78 00:06:29.580 --> 00:06:34.860 for Organizational and Managerial Issues. 79 00:06:34.860 --> 00:06:40.820 The most obvious one being the Austrian School's emphasis on heterogeneity. 80 00:06:40.820 --> 00:06:47.420 Heterogeneous resources or assets, heterogeneous markets, heterogeneous 81 00:06:47.420 --> 00:06:49.040 individuals. 82 00:06:49.040 --> 00:06:53.580 So the Austrian School has always celebrated the diversity of skills, 83 00:06:53.580 --> 00:06:58.400 abilities, and attributes among economic actors, as Mises explains 84 00:06:58.400 --> 00:07:01.360 in giving primacy to the social division of labor 85 00:07:01.360 --> 00:07:04.560 as the driver of the market system. 86 00:07:04.560 --> 00:07:06.980 The Austrian theory of the business cycle 87 00:07:06.980 --> 00:07:12.760 is of course founded on the notion that resources are not perfect substitutes, 88 00:07:12.760 --> 00:07:16.280 that investments in particular stages of production 89 00:07:16.280 --> 00:07:21.160 cannot easily be redeployed to other parts of the economy's intertemporal 90 00:07:21.160 --> 00:07:22.240 structure 91 00:07:22.240 --> 00:07:24.940 when interest rates change and so on. 92 00:07:24.940 --> 00:07:27.640 The Austrian business cycle theory is essentially 93 00:07:27.640 --> 00:07:34.560 A story of malinvestment, where particular resources are allocated to the wrong uses 94 00:07:34.560 --> 00:07:40.200 and are deployed in a way that is not suitable for producing over time the set of goods and 95 00:07:40.200 --> 00:07:43.140 services desired by consumers. 96 00:07:43.140 --> 00:07:49.040 So Austrian business cycle theory is essentially a theory of resource heterogeneity, which 97 00:07:49.040 --> 00:07:54.960 of course stands in stark contrast to the mainstream Keynesian approaches and neo-Keynesian 98 00:07:54.960 --> 00:08:00.760 and Post-Keynesian and New Keynesian approaches that dominate mainstream economics in which 99 00:08:00.760 --> 00:08:08.500 capital is regarded as sort of a homogeneous blob or shmoo as Robert Solow famously characterized 100 00:08:08.500 --> 00:08:14.800 it borrowing from the little Abner cartoon of the shmoo. The notion of heterogeneity 101 00:08:14.800 --> 00:08:21.040 squares in a very straightforward way with our notions of entrepreneurship and business 102 00:08:21.040 --> 00:08:27.080 Business Administration, firms are obviously different, entrepreneurs differ in their capacities, 103 00:08:27.080 --> 00:08:31.340 in their activities, in the uncertainties that they're willing to bear and so on. 104 00:08:31.340 --> 00:08:37.080 So Austrian economics with its emphasis on heterogeneity provides a natural foundation 105 00:08:37.080 --> 00:08:41.080 for applied studies of markets and organizations. 106 00:08:41.080 --> 00:08:46.480 Production takes time as has already been mentioned, entrepreneurs engage in economic 107 00:08:46.480 --> 00:08:52.320 Economic Calculation, and Mises of course has elaborated a very comprehensive account 108 00:08:52.320 --> 00:08:57.200 of the problem of economic calculation, its nature and implications. 109 00:08:57.200 --> 00:09:04.300 Market competition is a kind of selection process, selecting for entrepreneurial ability 110 00:09:04.300 --> 00:09:06.720 and skill. 111 00:09:06.720 --> 00:09:14.600 As the Austrian economist Ludwig Lachmann put it in his 1956 book, Capital and its Structure, 112 00:09:14.600 --> 00:09:20.860 We are living in a world of unexpected change, hence capital combinations will be ever-changing, 113 00:09:21.620 --> 00:09:28.400 will be dissolved and reformed. In this activity, we find the real function of the entrepreneur. 114 00:09:29.920 --> 00:09:37.600 So the essays in this volume attempt to tease out and elaborate on this real function of the entrepreneur. 115 00:09:38.480 --> 00:09:44.420 Some specific highlights or features of the treatment of entrepreneurship as a generalized function 116 00:09:44.600 --> 00:09:52.600 In Mises' conception, the function of bearing uncertainty through ownership and control of productive resources, 117 00:09:52.600 --> 00:10:02.600 not treating entrepreneurship just as a job category or as a specific type of firm or of one kind of marketing plan or whatever. 118 00:10:02.600 --> 00:10:10.600 Mises' notion, Mises' concept of the entrepreneur as a judgmental decision maker under conditions of uncertainty 119 00:10:10.600 --> 00:10:15.360 implies that the entrepreneur is a resource owner, 120 00:10:15.360 --> 00:10:19.440 suggesting a close link between capitalism 121 00:10:19.440 --> 00:10:24.040 and entrepreneurship, that the entrepreneur uses economic calculation, 122 00:10:24.040 --> 00:10:28.920 the comparison of present expenditures with anticipated future receipts 123 00:10:28.920 --> 00:10:34.320 as his primary decision-making tool, and this perspective also places an emphasis 124 00:10:34.320 --> 00:10:35.840 on capital markets, 125 00:10:35.840 --> 00:10:40.120 not only markets for tangible assets, but of course markets for financial capital 126 00:10:40.120 --> 00:10:46.720 as well as being sort of the primary driver of economic prosperity. 127 00:10:46.720 --> 00:10:51.380 And I develop a number of implications, specific implications of this perspective for applied 128 00:10:51.380 --> 00:10:54.580 topics in organizations and markets. 129 00:10:54.580 --> 00:11:02.260 The notion of firms as manifestations of entrepreneurial imaginations or visions. 130 00:11:02.260 --> 00:11:09.220 The idea that organizational design can be explained in terms of organizing or delegating 131 00:11:09.220 --> 00:11:21.220 How the entrepreneur delegates particular forms of judgment to other individuals working as part of the entrepreneurial team. 132 00:11:21.220 --> 00:11:31.220 Also that firms frequently change their structure, their organization, their scope, their scale and so on in response to changes in the environment 133 00:11:31.220 --> 00:11:44.220 and as a manifestation of a kind of experimental process in which entrepreneurs are trying to find the appropriate combinations of resources as described by Lachman. 134 00:11:44.220 --> 00:11:51.220 So I'd be happy to answer any questions that you have about the book and look forward to talking to you later this week. Thank you.