It is possible that economics could once again become useful

The entrepreneur is the missing ingredient in economics about which I have written. What cannot be linked is the paper I did on “The Absence of the Entrepreneur in the Economic Theories of the English-Speaking World”. What there is a link for is Origin and Evolution of the Term “Entrepreneur” in English, unpublished alas but available online.

But when it comes to the study of entrepreneurship, the names that matter are William Baumol and Israel Kirzner. Baumol has unfortunately gone to his reward, but Kirzner, bless him, at 88 has now been formally recognised by the American History of Economics Association. The citation below virtually leaves out his work on the entrepreneur but still does focus on his Austrian perspective. But even in awarding him the Distinguished Fellow Award, they also added, “our recommendation is, of course, based on his scholarly contributions and not on his political views”. Heaven forfend that that anyone should think that his political beliefs should matter, but you may be sure that they did. Nevertheless, here we are. There is also finally recognition that mainstream economics has no penetration in allowing us to understand how an economy works. A straw in the wind, but a good sign all the same.

The 2018 HES Distinguished Fellow Award was presented to Israel Kirzner at the recent HES conference at Loyola University, Chicago. Several strong candidates were proposed by the membership this year. The nominating committee, formed by Robert Leonard, Jeff Biddle and Mauro Boianovsky (chair), unanimously agreed that the most deserving of these candidates was Israel Kirzner and recommended to the HES Executive Committee that he should be the recipient of the HES Distinguished Fellow Award in 2018. The nominating letter was submitted by Peter Boettke, together with supporting letters by Bruce Caldwell, Karen Vaughn and Mario Rizzo. Our recommendation resulted from our consideration of several aspects of Kirzner’s work and career.

Born in 1930, Kirzner is well known as a leading scholar in the Austrian economic tradition. His work forcefully illustrates how the history of economics can be used as an important heuristic tool to cast light on current economic research. In that sense, Kirzner shares with members (e.g. Stigler, Robbins, Dobb, Viner, Galbraith, Schumpeter, Hayek, Patinkin and Sraffa) of what Craufurd Goodwin used to call the “Golden Age” of the history of economic thought (HET) a commitment to understanding economic problems through the use of HET as an analytical device instead of a separate sub-discipline. As put by Bruce Caldwell, “precisely because he works within the Austrian tradition, Kirzner often draws on history to make comparisons between the view he endorses and those he criticizes, and often the criticisms are methodological”. This shows especially in his main books The Economic Point of View (1960), Essay on Capital (1966) and Competition and Entrepreneurship (1973).

The highlights of Kirzner’s specific contributions to the history of economics are his 1994 edition of Classics in Austrian Economics (which includes a number of essential translations) and several essays on Von Mises and particularly Carl Menger. As pointed out by Karen Vaughn, Kirzner has been instrumental not only in explaining Menger’s ideas as the founder of Austrian economics, but also in encouraging a revival of interest in his writings. Moreover, as observed by Mario Rizzo, Kirzner is not just a historian of Austrian economics – for instance, in his works on the theories of profit and capital, Kirzner discusses carefully contributions by J.B. Clark, F.B. Hawley, F. Knight, I. Fisher, J. Schumpeter and others.

Kirzner has produced a body of work deeply imbued with a historical-philosophical sensibility. Although our recommendation is, of course, based on his scholarly contributions and not on his political views, it should be noted that Kirzner has shown that it is possible to combine political beliefs and scholarly scruple, and that this has been a source of inspiration for his followers, in whom we see that same attitude perpetuated.

LET ME NOW ADD TO WHAT I WROTE ABOVE: Below are the title, insert quotes and abstract from an article of mine that was published in France as part of a J.B. Say Symposium held in 2014. Economic theory is now structured as if some entity called “the entrepreneur” has no active and essential role in the way an economy unfolds. If you’ve studied economics, you have been compulsorily miseducated in how an economy works. The Soviet Union once upon a time and Venezuela right now are managed as if the independent entrepreneur of a market economy is just so much baggage. And if you think there is anywhere in mainstream economics where this deficiency is being made up by some aspect of modern theory, you could not be more wrong. The entrepreneur is found nowhere, so economists do Hamlet without the prince. If you don’t even understand why the role of the entrepreneur might be an important feature of an economy worth mentioning, then you have zero understanding of how an economy works, just like virtually every economist miseducated today. You might also see my Free Market Economics for some further instruction. In the meantime, there is this.

The Absence of the Entrepreneur in the Economic Theories of the English-Speaking World: More Consequential than You would Believe

“Different societies meet these problems in different ways – by custom, instinct, fiat and decree, and in our own system through a price and market system.” (Samuelson 1948: 31)

“In a market economy, the decisions of a central planner are replaced by the decisions of millions of firms and households.” (Mankiw 1998: 9)

Abstract: This is a paper on the importance of the word “entrepreneur” in economic theory and as a basis for policy formation. There are two elements in the framing the underlying concept, both of which were brought out by Jean-Baptiste Say. They are, first, the person who directs other resources within a business firm. The second is to separate the role of the entrepreneur from the role of the capitalist owners of capital, with this second distinction of utmost importance. The problem for the English-speaking world has been that the original term used by Adam Smith – the “undertaker” – was unusable because of its other connotations. Economists within the English speaking world, and therefore because of their influence, economists generally, have framed economic theory without the concept of an entrepreneur at its core. The consequences, both economic and political, have been astonishingly large.

This entry was posted in Economics and economy, History. Bookmark the permalink.

13 Responses to It is possible that economics could once again become useful

  1. Nicholas (Unlicensed Joker) Gray

    You can’t do much with the name. I like Hayek because you can put this message on a T-shirt. ‘Tell Keynesians to go to Hayek!’

  2. Nati

    That was a good read. Etymology is fun.’adventurer’ 🙂

  3. Bad Samaritan

    I’m mystified by your endless references to this. Long ago I was taught all about the four factors of production, and right now, as I google “Factors of Production” it still comes up Land, Labour, Capital and Enterprise /Entrepreneurship.

    Is this a strawman, Steve?

  4. Steve Kates

    Try to get beyond that and see where you end up.

  5. Bad Samaritan

    Plus: since any references to capital indicates we are discussing “free market” economics, then entrepreneurs are of necessity, part of the mix. I am still not getting it.

  6. JC

    Long ago I was taught all about the four factors of production, and right now, as I google “Factors of Production” it still comes up Land, Labour, Capital

    It was always three when I was taught. Land, Labor, Capital. The last one you mentioned is really redundant seeing it’s encompassed in the capital structure.

  7. Tel

    Plus: since any references to capital indicates we are discussing “free market” economics, then entrepreneurs are of necessity, part of the mix. I am still not getting it.

    I would regard entrepreneurship as a specialist form of labour, although I accept that the word “labour” is often used in a very non-economic manner to mean only people who work primarily with their muscles.

    The last one you mentioned is really redundant seeing it’s encompassed in the capital structure.

    Hmmm, it isn’t the capital itself though. I might will a million bucks in the lottery but suppose I want to invest that, then I need to make decisions about what to buy with it, judge the risks, etc. Even if I end up going for a dopey “index fund” I’m still making a decision to do that… which involves thinking.

    So I would separate the capital itself (which is just a dead thing) from the process of allocating capital (which is human effort).

  8. Catfeesh?

    I like Hayek because Salma has a nice set.

  9. RobK

    Entrepreneurship is an interesting concept. To me it means tayloring a service or product to customer requirements and optimising processes in doing so. Kind of simple but easily stymied by regulatory imposts.

  10. Roger

    …economists generally, have framed economic theory without the concept of an entrepreneur at its core.

    Perhaps because they believe government is the chief economic actor?

  11. Nicholas (Unlicensed Joker) Gray

    Catfeesh, I agree, but what does she believe? How sound is she economically? If all sorts of Keynesians turn up at her doorstop, what would she tell them?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.