WEBVTT NOTE Austrian Economics for Capitalists and Entrepreneurs 1 00:00:00.000 --> 00:00:10.000 Next up is a gentleman who received his PhD in economics from the University of California at Berkeley, but don't hold that against him. 2 00:00:10.000 --> 00:00:15.000 BA from the University of North Carolina at Chapel Hill. He's edited a couple of books. 3 00:00:15.000 --> 00:00:23.000 He is the professor in the Division of Applied Social Sciences at the University of Missouri. 4 00:00:23.000 --> 00:00:36.000 His research focuses on the boundaries and internal organization of the firm, and he has served as senior economist with the Council of Economic Advisors. 5 00:00:36.000 --> 00:00:45.500 He has a brand new book out on the table that he is actually teaching an online class for us from. It's called The Capitalist and the Entrepreneur. 6 00:00:45.500 --> 00:00:49.500 He studied under Nobel Laureate Oliver Williamson. 7 00:00:49.500 --> 00:00:54.500 He's talking to us today about Austrian economics for capitalists and entrepreneurs. 8 00:00:54.500 --> 00:00:58.500 Please help me welcome Dr. Peter Klein. 9 00:01:06.500 --> 00:01:08.500 Good morning, everyone. 10 00:01:08.500 --> 00:01:12.500 I'm not as easy on the eyes as Doug French, so I prepared some visuals 11 00:01:12.500 --> 00:01:15.780 to make the presentation a little bit more enjoyable for you. 12 00:01:15.780 --> 00:01:19.380 As Doug mentioned, I want to talk about Austrian economics 13 00:01:19.380 --> 00:01:22.540 and some of its implications for capitalists 14 00:01:22.540 --> 00:01:26.300 and entrepreneurs. Now the reason for choosing this topic 15 00:01:26.300 --> 00:01:30.140 is twofold. First, as most of you know, 16 00:01:30.140 --> 00:01:34.620 there's been a great resurgence of interest in the Austrian school 17 00:01:34.620 --> 00:01:39.340 over the last couple of years, and it's no surprise with what's been going on 18 00:01:39.340 --> 00:01:45.860 In the macroeconomy, as people have tried to make sense of the financial crisis, the 19 00:01:45.860 --> 00:01:52.260 subsequent economic recession, tried to understand the government's policy response, the sort 20 00:01:52.260 --> 00:01:58.260 of vulgar Keynesianism that is now all the rage in Washington and in parts of academia, 21 00:01:58.260 --> 00:02:03.500 they've begun to look at alternatives and many are rediscovering or discovering for 22 00:02:03.500 --> 00:02:09.500 for the first time, the works of Mises, Hayek, Rothbard, other Austrians who have written 23 00:02:09.500 --> 00:02:16.540 extensively and persuasively about the business cycle, about the problems with government, 24 00:02:16.540 --> 00:02:23.260 with central bank expansion of credit, about the misallocation of resources that is manifest 25 00:02:23.260 --> 00:02:30.060 in the cycle of boom and bust. And of course this is a fantastic thing for Austrians. While 26 00:02:30.060 --> 00:02:37.820 While in one sense it's a bit depressing to watch the resurgence of John Maynard Keynes, 27 00:02:37.820 --> 00:02:44.520 the monster we thought we had killed off once and for all decades before, at the same time 28 00:02:44.520 --> 00:02:50.620 exposing many new people to the teachings of the Austrian School is extremely encouraging. 29 00:02:50.620 --> 00:02:55.500 What I would like to discuss today is some implications of Austrian economics, not specifically 30 00:02:55.500 --> 00:03:02.000 Specifically for the business cycle, not specifically for what mainstream economists call macroeconomic 31 00:03:02.000 --> 00:03:08.060 issues, but rather to talk a little bit about so-called microeconomic issues, namely some 32 00:03:08.060 --> 00:03:13.220 implications of Austrian economics for the theory of entrepreneurship, for the theory 33 00:03:13.220 --> 00:03:18.060 of the business firm, for the theory of firm strategy, and a little bit for the theory 34 00:03:18.060 --> 00:03:20.140 of investment. 35 00:03:20.140 --> 00:03:24.540 Now the second reason for speaking about Austrian economics for capitalists and entrepreneurs 36 00:03:24.540 --> 00:03:29.900 as Doug mentioned is that I have this wonderful new book that is available for sale on the 37 00:03:29.900 --> 00:03:36.840 table just outside the door and I certainly hope that you will take a look at it. 38 00:03:36.840 --> 00:03:41.840 The book was published just a few months ago by the Mises Institute and the Institute did 39 00:03:41.840 --> 00:03:45.100 a terrific job putting the book together. 40 00:03:45.100 --> 00:03:52.820 I've been thinking about implications of Austrian economics for entrepreneurship and for business 41 00:03:52.820 --> 00:04:21.700 Entrepreneurship is an extremely popular topic at universities these days, not only in business 42 00:04:21.700 --> 00:04:30.700 in schools, but in other parts of the university as well, in engineering, in law, in medicine, even in the liberal arts, there are many courses and programs on entrepreneurship. 43 00:04:30.700 --> 00:04:43.700 How do we know that entrepreneurship is so hot? Well, there's lots and lots of courses, there are many, many research publications, there are academic journals that focus on entrepreneurship, 44 00:04:43.700 --> 00:04:52.700 You know, sort of the typical empirical research findings with charts and tables describing various aspects of the entrepreneurial process. 45 00:04:52.700 --> 00:04:58.700 There's been a huge explosion of funded research centers at major U.S. universities. 46 00:04:58.700 --> 00:05:02.700 There's Stanford, Illinois and MIT to give you just a couple of examples. 47 00:05:02.700 --> 00:05:07.700 There's increased research funding for entrepreneurship. 48 00:05:07.700 --> 00:05:13.420 The Kauffman Foundation in Kansas City, not too far from our campus in Columbia, is one 49 00:05:13.420 --> 00:05:21.380 of the leading funders of academic research in entrepreneurship. Even among policy makers 50 00:05:21.380 --> 00:05:29.040 in fields like economic development, there's Mr. Eunice, the winner of the Nobel Peace Prize 51 00:05:29.040 --> 00:05:35.620 before the distinguished theorist Mr. Obama was the winner this year. Eunice, as you know, 52 00:05:35.620 --> 00:05:47.880 is an economist by training who specializes in microfinance, microentrepreneurship, microenterprise, 53 00:05:47.880 --> 00:05:52.680 and some people describe the Nobel Peace Prize from the previous year as being effectively 54 00:05:52.680 --> 00:05:59.960 a Nobel Prize for entrepreneurship. 55 00:05:59.960 --> 00:06:02.600 What is an entrepreneur though? 56 00:06:02.600 --> 00:06:11.320 In most of this literature, in business schools, elsewhere on campus, in the media and so on, 57 00:06:11.320 --> 00:06:18.000 the word entrepreneur usually is meant to invoke particularly important innovators in 58 00:06:18.000 --> 00:06:28.400 the economy, people like Steve Jobs, for example, Bill Gates, etc., maybe Thomas Edison, maybe 59 00:06:28.400 --> 00:06:36.080 Nicholas Tesla, others who were particularly important technological innovators in society. 60 00:06:36.080 --> 00:06:43.160 Sometimes we have in mind particular companies, Google or Apple or 3M. We say that Google 61 00:06:43.160 --> 00:06:48.640 seems to be a particularly entrepreneurial firm or Apple is a more entrepreneurial company 62 00:06:48.640 --> 00:06:54.600 than IBM let's say or some more staid and more established rival. Although some of these 63 00:06:54.600 --> 00:07:07.680 Sometimes we use the word entrepreneurial to describe entire societies or even countries. 64 00:07:07.680 --> 00:07:12.080 One of the leading scholars in this field, David Audresch, recently came out with a book 65 00:07:12.080 --> 00:07:21.280 called The Entrepreneurial Society, contrasting the economy of the U.S. and the economies 66 00:07:21.280 --> 00:07:26.600 of the EU with economies elsewhere in the world that he perceived as being less dynamic, 67 00:07:26.600 --> 00:07:31.960 less innovative, less entrepreneurial. Three scholars from the Kauffman Foundation came 68 00:07:31.960 --> 00:07:37.120 out with a book a couple of years ago called Good Capitalism, Bad Capitalism, in which 69 00:07:37.120 --> 00:07:41.520 they distinguished what they called entrepreneurial capitalism as it's practiced in much of the 70 00:07:41.520 --> 00:07:48.040 West with a kind of more bureaucratic capitalism that they saw in other parts of the world. 71 00:07:48.040 --> 00:07:52.200 Now this is all very well and good, these are all perfectly legitimate ways to think 72 00:07:52.200 --> 00:07:58.420 about the entrepreneur, to think about entrepreneurship, to think about entrepreneurial organizations 73 00:07:58.420 --> 00:08:03.620 or societies, but in a sense all of these characterizations of entrepreneurship are 74 00:08:03.620 --> 00:08:10.120 somewhat limited, right? They either refer to a specific type of person, an entrepreneur 75 00:08:10.120 --> 00:08:16.320 is a person who runs a business or a person who founds a company or a person who brings 76 00:08:16.320 --> 00:08:22.240 Finds New Goods and Services to Market, or an entrepreneurial company is one that invests 77 00:08:22.240 --> 00:08:26.920 a lot in technological innovation or produces many new goods and services. 78 00:08:26.920 --> 00:08:33.480 An entrepreneurial society does more R&D than another type of society, for example. 79 00:08:33.480 --> 00:08:38.400 If we look at the Austrian literature, however, we find a notion of entrepreneurship that, 80 00:08:38.400 --> 00:08:44.300 in an important sense, is much more general than the notions that one finds in the mainstream 81 00:08:44.300 --> 00:08:52.340 Ludwig von Mises, in Human Action, defined entrepreneurship this way. 82 00:08:52.340 --> 00:08:58.860 He said the term entrepreneur, as used by economic theory, means acting man exclusively 83 00:08:58.860 --> 00:09:12.360 seen from the aspect of the uncertainty inherent in every action. 84 00:09:12.360 --> 00:09:18.220 In other words, according to Mises, in the real world, in the real economy, not, in other 85 00:09:18.220 --> 00:09:24.460 words, in the abstract mathematical models of mainstream economic theory, action is always 86 00:09:24.460 --> 00:09:27.720 made under conditions of uncertainty. 87 00:09:27.720 --> 00:09:32.900 All of us, when we make decisions about what to do in our daily lives, in the commercial 88 00:09:32.900 --> 00:09:39.220 world, when we invest resources in anticipation of future gains, we never know with certainty 89 00:09:39.220 --> 00:09:43.500 what the outcome of those investments or those actions will be. 90 00:09:43.500 --> 00:09:47.260 If there were no uncertainty in Mises' interpretation, 91 00:09:47.260 --> 00:09:51.460 there would be no action, because there would be no point in doing anything 92 00:09:51.460 --> 00:09:56.380 with purpose if we knew for certain what the outcome was going to be. 93 00:09:56.380 --> 00:10:01.580 Therefore, according to Mises, there is an aspect of entrepreneurship 94 00:10:01.580 --> 00:10:06.860 in all human behavior. Mises went on, however, in Human Action 95 00:10:06.860 --> 00:10:11.700 to distinguish or to discuss in particular 96 00:10:11.700 --> 00:10:14.060 one type of entrepreneurship 97 00:10:14.060 --> 00:10:18.220 that is especially important in an industrial market economy. 98 00:10:18.220 --> 00:10:22.420 What Mises called the entrepreneur promoter, or what I call in most of my 99 00:10:22.420 --> 00:10:25.820 texts, the capitalist entrepreneur. 100 00:10:25.820 --> 00:10:30.980 This is a specific category of action, a specific type of acting man 101 00:10:30.980 --> 00:10:36.900 who is involved specifically in the investment of valuable capital resources 102 00:10:36.900 --> 00:10:41.820 in anticipation of the creation of future economic value. 103 00:10:41.820 --> 00:10:46.380 And Mises pointed out that this decisive, 104 00:10:46.380 --> 00:10:53.340 uncertainty-bearing, capitalist agent is really at the heart of the market economy. 105 00:10:53.340 --> 00:10:58.700 The entrepreneur in this sense is the driving force of the market. 106 00:10:58.700 --> 00:11:02.960 As Mises put it in a discussion of mathematical economic modeling, 107 00:11:02.960 --> 00:11:06.260 quote, it is impossible to eliminate the entrepreneur 108 00:11:06.260 --> 00:11:09.060 from the picture of a market economy. 109 00:11:09.060 --> 00:11:12.180 The various complementary factors of production, 110 00:11:12.180 --> 00:11:16.260 he means capital resources, human labor, 111 00:11:16.260 --> 00:11:20.980 land, so on, these various complementary factors of production 112 00:11:20.980 --> 00:11:25.260 cannot come together, cannot come together spontaneously. 113 00:11:25.260 --> 00:11:28.420 They need to be combined by the purpose of efforts 114 00:11:28.420 --> 00:11:35.420 of Men Aiming at Certain Ends and Motivated by the Urge to Improve Their State of Satisfaction. 115 00:11:35.800 --> 00:11:42.800 So there are purposive efforts of men to reorganize, to put together, complementary factors of 116 00:11:45.620 --> 00:11:51.620 production to produce the goods and services that satisfy consumer wants. In eliminating 117 00:11:51.620 --> 00:11:58.140 the entrepreneur, Mises continues, one eliminates the driving force of the whole market system. 118 00:11:58.140 --> 00:12:14.140 So what I've tried to do in my work and in the book is to bring entrepreneurship and capitalism together by linking the entrepreneur in Mises' sense to other aspects of the industrial market economy. 119 00:12:14.140 --> 00:12:19.140 So that's exactly what I try to do in the book, the capitalist and the entrepreneur. 120 00:12:19.140 --> 00:12:29.340 A little bit of background, as I mentioned earlier, most of my academic work is influenced 121 00:12:29.340 --> 00:12:35.940 by two primary research traditions, the Austrian School of Economics and also what is sometimes 122 00:12:35.940 --> 00:12:41.220 in the mainstream literature described as the economic theory of the firm or organizational 123 00:12:41.220 --> 00:12:43.180 economics. 124 00:12:43.180 --> 00:12:49.780 And my main influence in the Austrian literature is Murray Rothbard, the great 20th century 125 00:12:49.780 --> 00:12:55.160 Austrian economist who taught for several years here at UNLV and whom Doug mentioned 126 00:12:55.160 --> 00:12:57.740 in his introduction. 127 00:12:57.740 --> 00:13:01.100 My dissertation advisor is this fellow Oliver Williamson. 128 00:13:01.100 --> 00:13:06.780 Doug mentioned just a moment ago Williamson, who was the co-winner of the Nobel Prize this 129 00:13:06.780 --> 00:13:13.260 This past year is one of the founders of the modern field of organizational economics or 130 00:13:13.260 --> 00:13:14.900 the theory of the firm. 131 00:13:14.900 --> 00:13:21.260 I might mention just for fun that usually I'm pretty skeptical about the Nobel Prize, 132 00:13:21.260 --> 00:13:27.220 not only the Nobel Peace Prize, but the Nobel Prize in Economics, certainly the award to 133 00:13:27.220 --> 00:13:33.180 Professor Krugman a year and a half ago was not particularly inspiring, but I was very 134 00:13:33.180 --> 00:14:03.180 I'm very happy, of course, for personal, sentimental reasons, that my old professor and colleague and friend was able to snag the prize this year, and I might just mention, in talking to him a little bit, I've learned a bit about the privileges of being a Nobel laureate. And there are a few. Let me highlight some of them. You get accolades, right? You get fame and fortune. This is Professor Williamson at the press conference at Berkeley the day the Nobel Prize was announced. 135 00:14:03.180 --> 00:14:23.180 You get the hardware, of course. It's a pretty nice metal made out of gold, and at a recent visit to Professor Williamson's home, I got to see and actually touch the thing, but then they told me that was not the real one. That was a replica that was on display. The real one is, you know, in a vault in Switzerland somewhere. 136 00:14:23.180 --> 00:14:35.180 You get to hang out with royalty. So here's Professor Williamson escorting the Swedish Princess Madeline at the Nobel Prize dinner. 137 00:14:35.180 --> 00:14:41.180 And according to my Swedish graduate student who sent me this photo from one of the Swedish tabloids, 138 00:14:41.180 --> 00:14:51.180 Princess Madeline, who is the youngest of the royal children in Sweden, is known to the paparazzi as the party princess. 139 00:14:51.180 --> 00:14:56.320 and my students said, I wonder if that's why Williamson looks so nervous in the picture. 140 00:14:56.320 --> 00:14:58.220 He doesn't know what she's going to do next. 141 00:14:58.220 --> 00:15:00.560 But at Berkeley, the best 142 00:15:00.560 --> 00:15:04.400 the best perk of all is none of these things. If you've ever visited the 143 00:15:04.400 --> 00:15:07.040 Berkeley campus, it's a very pretty place. 144 00:15:07.040 --> 00:15:08.860 It's a very beautiful campus. 145 00:15:08.860 --> 00:15:14.020 But like most universities, like most urban university campuses, 146 00:15:14.020 --> 00:15:18.240 there isn't very much parking. 147 00:15:18.240 --> 00:15:23.920 And having access to a good parking place is one of the major perks of having sort of 148 00:15:23.920 --> 00:15:28.640 elite status at the university. So if you get the Nobel Prize at Berkeley, you get a 149 00:15:28.640 --> 00:15:37.360 spot in the NL parking lot. So they actually have a parking lot reserved exclusively for 150 00:15:37.360 --> 00:15:41.800 Nobel laureates, although I understand they still have to pay and renew every year to 151 00:15:41.800 --> 00:15:49.520 Going back to the story, how does the entrepreneur fit into all this? 152 00:15:49.520 --> 00:15:55.160 Well, as those of you who have studied the Austrian School know, Austrians have always 153 00:15:55.160 --> 00:16:01.000 paid particular attention to entrepreneurs and to entrepreneurship. 154 00:16:01.000 --> 00:16:07.160 Entrepreneurship is largely absent from neoclassical economics and from mainstream economic theories 155 00:16:07.160 --> 00:16:11.160 Studies of the firm, though it's extremely important, indeed central to the Austrian 156 00:16:11.160 --> 00:16:12.560 understanding. 157 00:16:12.560 --> 00:16:18.560 And so there are some opportunities to bring those two areas of study together. 158 00:16:18.560 --> 00:16:23.640 So what I have tried to do in my own research that's summarized in the book is to apply 159 00:16:23.640 --> 00:16:31.320 Austrian economics to managerial and organizational problems, which leads to, in my judgment, 160 00:16:31.320 --> 00:16:35.240 sort of an entrepreneurial theory of the business firm. 161 00:16:35.240 --> 00:16:42.300 and really a new perspective, new to the mainstream that is, on the very nature of capitalism itself. 162 00:16:42.300 --> 00:16:50.140 So the book contains a series of essays written from 1994 to 2008 dealing with various aspects 163 00:16:50.140 --> 00:16:56.340 of capitalism and entrepreneurship and how they can be brought together. 164 00:16:56.340 --> 00:16:58.200 Why is any of this important? 165 00:16:58.200 --> 00:17:04.180 Well some of the questions that I've tried to address in my work include the following. 166 00:17:04.180 --> 00:17:10.520 Can entrepreneurial ideas, discoveries or judgments, that's a word that is favored 167 00:17:10.520 --> 00:17:15.820 by the great economist Frank Knight and one that I use in my own work, can entrepreneurial 168 00:17:15.820 --> 00:17:19.500 judgments be traded in markets? 169 00:17:19.500 --> 00:17:25.660 Can you buy and sell entrepreneurship or do entrepreneurs need to establish firms holding 170 00:17:25.660 --> 00:17:31.380 real assets in order to realize their visions? 171 00:17:31.380 --> 00:17:42.300 Can existing firms stimulate entrepreneur-like behavior among their employees? Does this 172 00:17:42.300 --> 00:17:47.420 necessarily create economic value, or does it give employees opportunities to behave 173 00:17:47.420 --> 00:17:53.780 in ways that owners might not approve of? How can firms organize themselves to be more 174 00:17:53.780 --> 00:17:58.900 innovative? This has been an extremely important question in the mainstream literature and 175 00:17:58.900 --> 00:18:03.720 and one that I think our entrepreneurial perspective can inform. 176 00:18:03.720 --> 00:18:09.860 How do institutions, background institutions, in particular the state, how does government 177 00:18:09.860 --> 00:18:15.500 intervention, in other words, affect the exercise of the entrepreneurial function? 178 00:18:15.500 --> 00:18:22.180 In what ways does government intervention hamper entrepreneurs as they attempt to allocate 179 00:18:22.180 --> 00:18:25.780 resources in accordance with consumer wishes? 180 00:18:25.780 --> 00:18:31.780 Now, why appeal to the Austrian School to try to answer some of these questions? 181 00:18:31.780 --> 00:18:38.780 Well, Austrian economics has some unique attributes that make it particularly well-suited to address these kinds of questions. 182 00:18:38.780 --> 00:18:49.780 For example, the Austrian School, going back to its founder, Carl Menger, emphasizes that resources, productive resources, are heterogeneous. 183 00:18:49.780 --> 00:18:52.780 Capital goods are not alike. 184 00:18:52.780 --> 00:18:58.780 Now, this insight is, you know, absurdly trivial to anyone who's ever... 185 00:18:58.780 --> 00:19:04.780 who knows anything about the real world, but, you know, you would never know it if all you read is Keynesian macroeconomics 186 00:19:04.780 --> 00:19:08.780 in which all capital goods are assumed to be identical, 187 00:19:08.780 --> 00:19:12.780 equally exchangeable or transformable into anything else. 188 00:19:12.780 --> 00:19:16.780 You old timers may remember the Shmoo from Little Abner. 189 00:19:16.780 --> 00:19:31.780 The Schmoo is this funny little creature in a comic strip, old American comic strip that could transform itself into any shape, could take any form, for you younger people, sort of like the Terminator in T2, okay? 190 00:19:31.780 --> 00:19:45.780 And mainstream macroeconomics has a Schmoo concept of capital, that differences between factories, between assets, between resources, are sort of trivial or uninteresting, all that matters is aggregate demand. 191 00:19:45.780 --> 00:20:01.780 Austrians have always emphasized that production takes time, that resources must be invested in the present, to produce consumer goods that will only materialize in the future, and future market conditions are not known with certainty. 192 00:20:01.780 --> 00:20:09.280 Some of you who have studied Austrian business cycle theory may recognize the so-called Hayekian Triangle, 193 00:20:09.280 --> 00:20:17.880 this diagram that was introduced not in this exact version of it, in F. A. Hayek's great works in the 1930s. 194 00:20:17.880 --> 00:20:28.280 Roger Garrison and Mark Skousen have written extensively on the Hayekian Triangle and the Austrian notion of the structure of production. 195 00:20:28.280 --> 00:20:34.400 Ludwig von Mises' concept of economic calculation, which Doug mentioned in his talk this morning, 196 00:20:34.400 --> 00:20:40.620 is the primary tool that is used by entrepreneurs in their judgmental decision-making about 197 00:20:40.620 --> 00:20:46.720 the future. And Mises' insights on economic calculation and how economic calculation requires 198 00:20:46.720 --> 00:20:52.000 private ownership of the means of production is extremely important for understanding what 199 00:20:52.000 --> 00:20:55.560 What it is that entrepreneurs do. 200 00:20:55.560 --> 00:21:01.280 And of course competition in the market, as Mises emphasized in his 1951 book, Profit 201 00:21:01.280 --> 00:21:08.560 and Loss, can be thought of as a selection process in which the market chooses among 202 00:21:08.560 --> 00:21:14.740 skilled and less skilled entrepreneurs, directing productive resources toward those who are 203 00:21:14.740 --> 00:21:21.120 better stewards of resources and away from those who are less able to invest in ways 204 00:21:21.120 --> 00:21:25.440 that Satisfy Eventual Market Wants. 205 00:21:25.440 --> 00:21:31.540 The Austrian economist Ludwig Lachmann put it this way in his 1956 book, Capital and 206 00:21:31.540 --> 00:21:37.480 Its Structure. He said, we are living in a world of unexpected change. Hence, capital 207 00:21:37.480 --> 00:21:44.360 combinations will be ever-changing, will be dissolved and reformed. In this activity, 208 00:21:44.360 --> 00:21:48.660 we find the real function of the entrepreneur. 209 00:21:48.660 --> 00:21:53.580 The real function of the entrepreneur, in other words, to Austrian economists, is to 210 00:21:53.580 --> 00:22:00.580 manage, to direct, to govern, to coordinate the productive process in a modern capitalist 211 00:22:00.580 --> 00:22:03.180 economy. 212 00:22:03.180 --> 00:22:07.140 Some of the highlights, some highlights from the book, and these are only highlights to 213 00:22:07.140 --> 00:22:11.660 get the full story, of course, you have to plunk down a few bucks and go across the hall 214 00:22:11.660 --> 00:22:14.640 and buy the book, and I'd be happy to sign it for you. 215 00:22:14.640 --> 00:22:20.600 I can sign it Doug French, Lew Rockwell, Tom Woods, whatever you like. 216 00:22:20.600 --> 00:22:29.600 The book emphasizes the notion of entrepreneurship as this generalized function that Mises characterized. 217 00:22:29.600 --> 00:22:35.380 Judgmental decision making about the investment of resources under uncertainty. 218 00:22:35.380 --> 00:22:41.360 So entrepreneurship is not merely an employment category entrepreneur or employee that you 219 00:22:41.360 --> 00:22:43.920 might check on a tax return. 220 00:22:43.920 --> 00:22:50.360 It's not merely a type of firm that Apple is entrepreneurial, IBM is not. No, it describes 221 00:22:50.360 --> 00:22:56.200 a general and critical function that is performed in the market economy. And, as I said before, 222 00:22:56.200 --> 00:23:02.400 according to Mises, that function is judgmental decision-making about the investment of resources 223 00:23:02.400 --> 00:23:08.040 under conditions of uncertainty. Now, this perspective immediately helps us to link the 224 00:23:08.040 --> 00:23:13.280 capitalist and the entrepreneur because it emphasizes the entrepreneur as an owner of 225 00:23:13.280 --> 00:23:15.640 of Productive Resources. 226 00:23:15.640 --> 00:23:21.200 And it highlights how economic calculation is the entrepreneur's primary decision-making 227 00:23:21.200 --> 00:23:22.360 tool. 228 00:23:22.360 --> 00:23:28.000 And it reminds us that capital markets, that markets for productive resources, including, 229 00:23:28.000 --> 00:23:33.800 and most importantly, markets for financial assets, are at the heart of the market economy, 230 00:23:33.800 --> 00:23:38.220 are the ultimate drivers of economic prosperity. 231 00:23:38.220 --> 00:23:43.220 Implications from the management and organization of firms include the following. 232 00:23:43.220 --> 00:23:50.220 First, conceiving of business firms as manifestations of entrepreneurial visions. 233 00:23:50.220 --> 00:24:01.220 Second, characterizing the design of business firms, organizational design, as a nested hierarchy of judgment. 234 00:24:01.220 --> 00:24:05.220 With the resource owner's judgment at the very top of that hierarchy, 235 00:24:05.220 --> 00:24:17.220 and subordinates in the organization to whom a decision-making authority is delegated as other members of that nested hierarchy of judgment. 236 00:24:17.220 --> 00:24:30.220 Third, that changes in firms, in firm boundaries, mergers and acquisitions, divestitures, changes in internal organizations such as restructurings, re-engineerings and so on, 237 00:24:30.220 --> 00:24:35.220 can be understood as processes of entrepreneurial experimentation. 238 00:24:35.220 --> 00:24:45.220 So, while in mainstream economics, changes in firm structure, expansions, contractions, reorganizations, 239 00:24:45.220 --> 00:24:51.220 are typically seen as the response to errors made by entrepreneurs, 240 00:24:51.220 --> 00:24:55.220 or examples of market failure that the government should correct 241 00:24:55.220 --> 00:25:01.020 make sure that firms are always at their optimal size and always have their optimal structure. 242 00:25:01.020 --> 00:25:06.480 In contrast to that perspective, in a world of uncertainty, entrepreneurs will continually 243 00:25:06.480 --> 00:25:12.440 experiment with different combinations of resources to find those that are best able 244 00:25:12.440 --> 00:25:16.920 to satisfy consumer wants. 245 00:25:16.920 --> 00:25:21.320 Some of the policy implications are fairly straightforward, right? 246 00:25:21.320 --> 00:25:25.740 As I described before, referring to Mises' 1951 book, here's the new edition from the 247 00:25:25.740 --> 00:25:33.840 Mises Institute, a market economy is not just a profit system, it is a profit and loss system. 248 00:25:33.840 --> 00:25:40.280 And so just as profits should be encouraged, losses too are part of the capitalist market 249 00:25:40.280 --> 00:25:41.920 economy. 250 00:25:41.920 --> 00:25:47.800 If there are no losses, or if the government always bails out entrepreneurs who make losses, 251 00:25:47.800 --> 00:25:51.880 Even resource allocation might as well be random. 252 00:25:51.880 --> 00:26:02.880 So no bailouts, no bailouts of large firms, no tarp, I couldn't agree with you more. 253 00:26:02.880 --> 00:26:10.520 No bailouts for banks, no Bernanke, no ultra low 0% interest rates to encourage entrepreneurs 254 00:26:10.520 --> 00:26:15.200 to make investments that are not economically rational. 255 00:26:15.200 --> 00:26:21.700 No Stimulus 256 00:26:21.700 --> 00:26:28.360 The freedom to succeed in a capitalist market economy also includes the freedom to fail. 257 00:26:28.360 --> 00:26:31.160 In the absence of that freedom, we don't have market competition. 258 00:26:31.160 --> 00:26:36.680 We have government-coordinated, government-controlled, pseudo-competition. 259 00:26:36.680 --> 00:26:42.400 Just to conclude, as I mentioned before, it's been depressing to see the return of Keynes. 260 00:26:42.400 --> 00:26:48.360 is sort of the man of the hour, reported by Time in this article in 2008. 261 00:26:48.360 --> 00:26:54.060 We are all Keynesians now, a phrase that entered public discourse in 1965. 262 00:26:54.060 --> 00:26:57.680 Now it's coming back into fashion, according to Time Magazine. 263 00:26:57.680 --> 00:27:01.000 Well, all of us aren't, okay? 264 00:27:01.000 --> 00:27:03.280 There are a few holdouts, fortunately. 265 00:27:03.280 --> 00:27:10.080 But again, as I said, the good side of this new interest in economic controversies and 266 00:27:10.080 --> 00:27:16.000 and Debates has been the resurgence of interest in the Austrian School. F. A. Hayek, in particular, 267 00:27:16.000 --> 00:27:21.400 there's the famous Hayek-Keynes rap video that some of you have seen. And I think this 268 00:27:21.400 --> 00:27:26.700 is all to the good and it's wonderful that Austrian business cycle theory is starting 269 00:27:26.700 --> 00:27:31.880 to get some attention in the public domain among academics, among policy makers. But 270 00:27:31.880 --> 00:27:37.180 I would urge that Austrians, I would urge us all to remember that Austrian economics is 271 00:27:37.180 --> 00:27:42.180 There's more than just business cycle theory. There's much, much more. In particular, Austrian 272 00:27:42.180 --> 00:27:48.580 economics has important implications for business firms, for how business firms are owned, managed 273 00:27:48.580 --> 00:27:55.180 and organized, how entrepreneurial decision-making is done, and I think to gain insight on this 274 00:27:55.180 --> 00:28:03.060 we should go back to Ludwig von Mises and his concept of the entrepreneur as the driving 275 00:28:03.060 --> 00:28:10.060 and force of the market economy as the agent who owns and controls productive resources 276 00:28:10.380 --> 00:28:16.540 and invest them using judgment under conditions of uncertainty. If we rediscover this Misesian 277 00:28:16.540 --> 00:28:21.620 notion of entrepreneurship, I think we can build on the interest in Austrian economics 278 00:28:21.620 --> 00:28:26.820 and the interest in entrepreneurship among mainstream scholars and practitioners to 279 00:28:26.820 --> 00:28:32.820 develop a better and sounder understanding of the capitalist market process. Thank you.