The Quarterly Journal of Austrian Economics

, Volume 11, Issue 3–4, pp 188–207 | Cite as

The Entrepreneur: Real and Imagined

Article
First Online:

Abstract

Ludwig von Mises, Friedrich Hayek, and Murray Rothbard were the main architects of the distinctly Austrian theory of production as it exists today. All three conceived the entrepreneurial function in the actual market economy as presupposing the ownership of property, specifically capital. Yet, many, if not most, contemporary Austrian economists conceive the entrepreneur as a pure decision-maker possessing superior “alertness” but owning no resources. This pure entrepreneur earns profits by “discovering” and seizing objectively existing but previously unperceived opportunities to arbitrage price discrepancies between a bundle of complementary inputs and the output it yields. That this is the essence of “the” Austrian theory of the entrepreneur and profit is accepted as a matter of course by those among the broader economics profession who are sympathetic to the Austrian approach. It is the goal of this paper to demonstrate that there is in the Austrian tradition traceable back to Carl Menger, a very definite and prominent strand of thought that conceives property ownership as central to the tasks that the entrepreneur characteristically performs in the real-world market economy.

The managerial function . . . can never evolve into a substitute for entrepreneurship. The fallacy to the contrary is due to the error confusing the category of entrepreneurship as it is defined in the imaginary construction of functional distribution with conditions in a living and operating market economy. The function of the entrepreneur cannot be separated from the direction of the employment of factors of production for the accomplishment of definite tasks. The entrepreneur controls the factors of production; it is this control that brings him either entrepreneurial profit or loss. (Mises 1998, p. 302)

Mr. Keynes obviously arrives at this view by an artificial separation of the function of the entrepreneurs as owners of capital and their function as entrepreneurs in the narrow sense. But these two functions cannot be absolutely separated even in theory, because the essential function of the entrepreneurs, that of assuming risks, necessarily implies the ownership of capital. Moreover, any new chance to make entrepreneurs’ profits is identical with a change in the opportunities to invest capital, and will always be reflected in the earnings (and value) of capital invested. (Hayek 1931, p. 277; emphasis in original)

It is clear, therefore, that the process of equalization of rate of return throughout the economy, one that results in a uniform rate of interest, is the very same process that brings about the abolition of profits and losses in the ERE. . . . [I]f the . . . entrepreneur owns no assets, then how in the world does he earn profits? Profits, after all, are simply the other side of the coin of an increase in the value of one’s capital; losses are the reflection of a loss in capital assets. (Rothbard 2004, pp. 513–14; 1997, 2:247; emphasis in original)

Keywords

Entrepreneur Entrepreneurship Firm Uncertainty 
This is a preview of subscription content, log in to check access.

References

  1. Böhm-Bawerk, Eugen von. 1959. Capital and Interest. 3 vols. Trans. George D Huncke and Hans F. Sennholz. South Holland, Ill.: Libertarian Press.Google Scholar
  2. Clark, John Bates. 1907. Essentials of Economic Theory: As Applied to Modern Problems of Industry and Public Policy. New York: Macmillan, 1918.Google Scholar
  3. Fetter, Frank A. 1915. Economic Principles. New York: Century.Google Scholar
  4. Fetter, Frank A. 1977. Capital, Interest, and Rent: Essays in the Theory of Distribution. Ed. Murray N. Rothbard. Kansas City, Mo.: Sheed Andrews and McMeel.Google Scholar
  5. Greaves, Percy L., Jr. 1974. Review of Competition and Entrepreneurship by Israel M. Kirzner. Wertfrei: A Review of Praxeological Science 1:17–20.Google Scholar
  6. Gross, Daniel, Editors of Forbes magazine. 1996. Forbes Greatest Business Stories of All Time. New York: Wiley & Sons.Google Scholar
  7. Hayek, F. A. 1931. “Reflections on the Pure Theory of Money of Mr. J. M. Keynes.” Part I. Economica 33 (August). http://www.mises.org/story/2474 270–95. Reprinted in Prices and Production and Other Works: F. A. Hayek on Money, the Business Cycle, and the Gold Standard. Ed. with an Introduction by Joseph T. Salerno. Auburn, Ala.: Ludwig von Mises Institute, 2008.
  8. Hazlitt, Henry. 1974. Review of Competition and Entrepreneurship by Israel M. Kirzner. The Freeman 24 (December): 756–60. Available at http://www.fee.org/pdf/the-freeman/issues/december%201974.pdf.
  9. High, Jack. 1982. “Alertness and Judgment: Comment on Kirzner.” In Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises. Ed. Israel M. Kirzner. Lexington, Mass.: D. C. Heath and Company. Pp. 161–68.Google Scholar
  10. Harrod, Roy F. 1952. “The Theory of Profit.” In Harrod, Economic Essays. New York: Harcourt, Brace & Company.Google Scholar
  11. Kirzner, Israel M. 1973. Competition and Entrepreneurship. Chicago: University of Chicago Press.Google Scholar
  12. Kirzner, Israel M. 1976. “Equilibrium Versus Market Process.” In The Foundations of Modern Austrian Economics. Ed. Edwin G. Dolan. Kansas City, Mo.: Sheed & Ward. Pp. 115–25.Google Scholar
  13. Kirzner, Israel M. 1985. “Uncertainty, Discovery, and Human Action: A Study of the Entrepreneurial Profile in the Misesian System.” In Kirzner, Discovery and the Capitalist Process. Chicago: University of Chicago Press. Pp. 40–67.Google Scholar
  14. Lachmann, Ludwig M. 1976. “On the Central Concept of Austrian Economics: Market Process. In The Foundations of Modern Austrian Economics. Ed. Edwin G. Dolan. Kansas City, Mo.: Sheed & Ward. Pp. 126–32.Google Scholar
  15. Lachmann, Ludwig M. 1979. “On the Recent Controversy Concerning Equilibration.” Austrian Economics Newsletter 2: 6–7. Available at http://www.mises.org/journals/aen/aen2_2_1.asp.Google Scholar
  16. Littlechild, Stephen C. 1982. “Equilibrium and the Market Process.” In Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises. Ed. Israel M. Kirzner. Lexington, Mass.: D. C. Heath and Company. Pp. 85–102.Google Scholar
  17. Menger, Carl. 1981. Principles of Economics. Trans. James Dingwall and Bert F. Hoselitz. New York: New York University Press.Google Scholar
  18. Mises, Ludwig von. 1998. Human Action: A Treatise on Economics. Scholar’s Edition. Ed. Jeffrey M. Herbener, Hans-Hermann Hoppe, and Joseph T. Salerno. Auburn, Ala.: Ludwig von Mises Institute.Google Scholar
  19. O’Driscoll, Gerald P., Jr. 1977. “Spontaneous Order and the Coordination of Economic Activities.” Journal of Libertarian Studies: An Interdisciplinary Review 1: 137–51.Google Scholar
  20. O’Driscoll, Gerald P., Jr., and Mario J. Rizzo. 1985. The Economics of Time and Ignorance. New York: Basil Blackwell.Google Scholar
  21. Rothbard, Murray N. 1974. Review of Competition and Entrepreneurship by Israel M. Kirzner. Journal of Economic Literature 12: 902–04.Google Scholar
  22. Rothbard, Murray N. 1985. “Professor Kirzner on Entrepreneurship.” In Rothbard, The Logic of Action Two: Applications and Criticism from the Austrian School. Lyme, N.H.: Edward Elgar Publishing, 1997. Pp. 245–53.Google Scholar
  23. Rothbard, Murray N. 2004. Man, Economy, and State: A Treatise on Economic Principles with Power and Market. Scholar’s Edition. Auburn, Ala.: von Mises Institute.Google Scholar
  24. Salerno, Joseph T. 2006. “Mises’s Favorite Anglo-American Economists.” Mises.org Daily Articles. October 6. Available at http://www.mises.org/story/2345.
  25. Selgin, George A. 1987. “Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics.” Review of Austrian Economics 2: 19–58. Available at http://www.mises.org/journals/rae/pdf/rae2_1_2.pdf.
  26. Selgin, George A. 1990. Preface to Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics. Auburn, Ala.: Ludwig von Mises Institute. Pp. 5–7.Google Scholar
  27. White, Lawrence H. 1976. “Entrepreneurship, Imagination and the Question of Equilibration.” Unpublished ms presented at the Austrian Economics Seminar at New York University (March).Google Scholar
  28. White, Lawrence H. 1979a. “The Austrian School and Spontaneous Order: Comment on O’Driscoll.” Austrian Economics Newsletter 2(Spring): 6–7. http://www.mises.org/journals/aen/aen2_1_1.asp.Google Scholar
  29. White, Lawrence H. 1979b. “On the Recent Controversy Concerning Equilibration.” Austrian Economics Newsletter 2(Fall): 6–7. Available at http://www.mises.org/journals/aen/aen2_2_1.asp.Google Scholar
  30. White, Lawrence H. 1982. “Mises, Hayek, Hahn, and the Market Process: Comment on Littlechild.” In Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises. Ed. Israel M. Kirzner. Lexington, Mass.: D. C. Heath and Company. Pp. 103–10.Google Scholar

Copyright information

© Ludwig von Mises Institute 2008

Authors and Affiliations

  1. 1.Lubin School of BusinessPace UniversityNew YorkUSA

Personalised recommendations