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Entrepreneurship: Catallactic and constitutional perspectives

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Abstract

The most important distinction between Virginia political economy (VPE) and the other branches of public choice scholarship is a close affinity of the former to Austrian economics. Contributions in both the Virginia and the Vienna (Austrian) traditions have emphasized this connection and highlighted the analytical and ideological interdependencies of the two schools. This paper argues that an application of the Austrian theory of political entrepreneurship to the VPE framework can provide important insights regarding the direction of political change. Kirzner’s theory of entrepreneurship explains that coordination of individual action is possible where price signals provide information. When price signals are absent the entrepreneurial process breaks down. There is common ground between Kirznerian entrepreneurship and Buchanan’s creative action. Scholars at the intersection of the Virginia and the Vienna traditions can use this common ground to make pattern predictions regarding the direction of political change.

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Notes

  1. Boettke and Lopez (2002) discuss the close affinity between Austrian economics and Virginia political economy. See also DiLorenzo (1990).

  2. Contributions by Holcombe, Sutter, and Benson in the 2002 volume of the RAE. Other prior contributions make similar claims, see for example Wagner (1966), DiLorenzo (1988), and Ikeda (1997).

  3. See Kirzner (1960) chapter 7 for a description of the Kirzner’s perspective on the Economic point of View as well as its roots in Mises’ understanding of praxeology.

  4. Mises (1996 [1949], p.391/392) defines connexity as the interdependence of goods brought about by relative prices.

  5. In a recent paper published in Rationality Markets and Morals (2011), Buchanan argues that “there is nothing comparable to the profit-loss dynamic of the market that will insure any continuing thrust toward more desirable rules.”

  6. Boettke and Sautet (2011) emphasize the importance of this connection from Mises to Kirzner in a recent paper .

  7. Kirzner (1960) describes his understanding of The Economic Point of View as directly derivative of Mises’ understanding of catallactics.

  8. See Kirzner (1973, p. 30 ff) for a detailed discussion of the role of the entrepreneur.

  9. Kirzner places the term “constrained maximization” in quotes, referencing a concept he derives from Robbins. He discusses the distinction between this term and what he calls catallactics more fully in chapter 6 of his The Economic Point of View (1960).

  10. Kirzner (1985, p. 18) cites Frank Knight’s Risk, Uncertainty, and Profit (1921) in his discussion of uncertainty.

  11. Footnote 1 in Buchanan’s 1964 article is to Kirzner’s (1960) Economic Point of View, which attributes the most complete development of the theory of catallactics and praxeology to Mises’ Human Action (1996[1949]).

  12. For a survey of this type of public choice scholarship see Crain and Tollison (1990).

  13. See Buchanan (1964, p. 214) and Kirzner (1960, chapter 7).

  14. Both scholars cite Frank Knight’s Risk, Uncertainty, and Profit (2000[1921]) in their respective discussions of the creative/entrepreneurial realm.

  15. In his “Theory of Complex Phenomena” Hayek (1980[1967]) argues that pattern predictions represent the limit of possible theoretical knowledge about complex phenomena, such as social structures.

  16. This relationship between Knight and Buchanan on economics as a science is further discussed in Boettke 1998, p. 24.

  17. Kirzner 1985, section on Oscar Lange, pp. 31–34

  18. Personal gain is here not limited to monetary gain. Instead, Kirzner defines gain broadly to include “fame, power, prestige, even the opportunity to serve a cause or to help other individuals” (1985, p.28).

  19. Boettke et al. (2007) make a similar point when they argue that entrepreneurship in politics will not generate economic efficiency, but instead political efficiency.

  20. Boettke (1998, p.28) points out that it was Buchanan’s goal to identify rules for the political realm that would transform individual revenue maximizing behavior through constitutional reform into individual wealth-maximizing behavior.

  21. This is significant because agent heterogeneity does nothing to our analysis of the realm of public choice.

  22. The work in the tradition of the Bloomington School is an example of the application of this creative constitutional perspective to the analysis of rule systems. In her dissertation (1965), Elinor Ostrom discusses the role individual policy entrepreneurs played in the evolution of a governance structure for the management of a ground water basin in California. Also see the contribution by Boettke & Snow in this volume.

  23. See also Buchanan and Brennan (1984) for a perspective on constitutions that incorporates creative action.

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  1. Department of Economics and Finance, Utah State University, 3565 Old Main Hill, Logan, UT, 84322-3565, USA

    Diana W. Thomas & Michael D. Thomas

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  1. Diana W. Thomas
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Correspondence to Diana W. Thomas.

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Thomas, D.W., Thomas, M.D. Entrepreneurship: Catallactic and constitutional perspectives. Rev Austrian Econ 27, 11–22 (2014). https://doi.org/10.1007/s11138-013-0208-x

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