The absence of the entrepreneur in economic theory

It was a choice either to come to France and to the meeting on J.-B. Say or go to Hong Kong and to the Mt Pelerin Society meeting. With some racing across France and then an all-night flight I might have made it for the last three days, one of which was an excursion to Macau, where I have already been. So here I went, not without some regrets, but this conference has been so exceptional and I will feed off the things I learned for a long time to come.

My own presentation was on the absence of the entrepreneur in the economics of the English speaking world, a problem few notice and about which there is generally little comment or even the slightest general recognition that it matters.

• the dominance over the past century of the economics of the English speaking countries

• the absence of discussion of the entrepreneur in the economic literature written in English

• the meaning of “entrepreneur” comes from the French entreprendre which means to undertake with the word for entrepreneur in English having literally been “undertaker” which has its other more common meaning as someone who buries people for a living – a morbid connection

• interestingly as a sidelight, the German word to undertake is unternehmen and therefore the German for entrepreneur is Unternehmer but in this case with none of the morbid connectivity of English

• John Stuart Mill in 1848 was discussing the need for an English equivalent of entrepreneur and lamented that no such term existed

• Schumpeter’s notion of an entrepreneur embeds innovation

• the Kirzner version of an entrepreneur is someone who exploits opportunities others have overlooked

• the meaning that is missing with such overtones is the plain notion of an entrepreneur as a factor of production that exists along with land, labour and capital – someone who runs a business and brings the other factors together in a productive profit making enterprise

• all such entrepreneurs are almost certainly creative in their own way, some more than others, but it is the notion of the organiser of a business that is needed

• economic theory has, however determined that it must follow physics in depending on external non-human forces, such as demand or utility with human decision making almost invisible

• the use of MC=MR as the profit-maximising position is paradigmatic in that no actual human decision making is visible other than to follow the dots to the highest possible profit

• although this is the essence of the theory of the firm, what is omitted is the possibility of novelty and innovation not to mention time

• an innovative entrepreneur is inconsistent with economics-as-physics since it opens up the possibility of discontinuity

• discontinuity via innovation makes mathematically-based economics a limited approach to understanding the dynamics of economic change since the future cannot be expected to be like the past.

The one point that was underscored for me at this conference is the importance of defining capitalism as an economic system in which economic decisions are made by entrepreneurs who are defined as a self-selected group who run businesses to earn their living. They are not chosen by governments or funded by governments but live or fail based on their own capabilities in providing buyers with the things they want. If you want to distinguish a true market-based economy from amongst the many fakes that now exist, just find out who owns their businesses and how such individuals ended up running such firms.

Israel’s challenge is to stay alive in a sea of barbarians

A problem we will all soon be sharing. In the meantime, this is about Israel and how it has united in the face of its enemies.

Who in their right mind believes that Israel started this war, that Hamas wasn’t just waiting for an excuse to fire so it could arrest its rapid decline into irrelevance? Who is still sufficiently naïve to believe that had Israel made a deal with Palestinian Authority President Mahmoud Abbas, Hamas would not have fired? Who imagines that a Palestinian state will stop Hezbollah from doing the same thing, when it gets the command from Tehran? Who is so divorced from reality as to suggest that a Palestinian state will do anything to stop the steady march of the Islamic State across the region? It is no accident that Israelis were so riveted by the photos of Hamas executing people on the streets of Gaza last Friday, for they were a reminder of what we’re fighting, a reminder of what they would have tried to do to us if we didn’t find all the tunnels, a reminder of the barbarism that surrounds us everywhere we look – in Gaza, in Syria, with IS. We are far from perfect, but make no mistake: Israel’s challenge is to stay alive in a sea of barbarians.

Reclining seats on planes

It is one of the phenomena for me on planes that the person in front of me is always, and often, the only person to put their seat back from the moment of takeoff. I am not an unreasonable person – ok, perhaps I am – but I have no problem if we are all heading off to sleep around, say, late in the evening as we leave. But at 9:00 am or anything it is more or less daytime, you should leave your seat vertical, especially if you are watching the movies and not trying to sleep. Then it is a matter of courtesy not to rob the person behind you of the limited and diminishing space the airline provides.

Megan McCardle has now lost me forever with this insufferable and ridiculous article on Fighting for Legroom at 40,000 Feet. Here’s her argument why it is none of my business if the jerk in front wants to fly from Melbourne to London with his seat rolled back.

The airline owns the plane, not you. You are renting a seat from them. They have chosen to rent seats that recline. If you can’t handle someone in front of you reclining, you have a few choices: You can politely ask them not to recline, you can purchase a more expensive seat that offers more legroom, or you can find another mode of transportation. What you are not entitled to do is modify the seat to prevent it from reclining, no matter how unfair you feel life is to us tall folks. The person in front of you purchased that seat with the expectation that it would be able to recline. If your legs are actually preventing movement of the seat (which happened to me on one particularly tight flight), that’s tough luck on them. But you should not go beyond what nature has given you in the way of reclining prevention.

You can also argue that if someone on the train wants to talk as loud as he likes for the entire forty minutes on the way home on his mobile, that there is no common etiquette that can be called upon that should stop him. Or if someone wants to sit in a coffee shop for hours on end nursing his coffee while he surfs the net that it’s quite all right and none of anyone else’s business.

The airlines managed to ban smoking on planes however inconvenient it may be to any particular passenger, and they have a limit on the size of passengers allowed in a normal economy seat, so they can do something about reclining seats. How’s this:

No seat can be put back until after the meal that is classified as the dinner meal unless it is 10:00 pm or later at the airport from which the plane has taken off.

If you’re six foot eight and can’t travel without putting your seat back, then you should pay for the privilege by paying for a more expensive seat where there is more room between rows. Otherwise, sit up straight until after dinner or after ten.

Russia invades Ukraine

Mr Useless still president:

Declaring that Russian troops had crossed into Ukraine, President Petro O. Poroshenko on Thursday canceled a planned visit to Turkey and convened a meeting of the national security council to focus on the “marked aggravation of the situation” in the southeast of his country.

The meeting of the national security council will focus on shaping a response, and Ukraine will also request a meeting of the United Nations Security Council.

Mr. Poroshenko made his comments as the leader of the main separatist group in southeastern Ukraine said that up to 4,000 Russians, including active-duty soldiers on leave, had been fighting against Ukrainian government forces and NATO released images that show Russian artillery units and about 1,000 soldiers operating in Ukraine.

Weird to be here dealing with the liberation of France in 1944 and the start of World War I in 1914 and now to see this.

The new French government and the economics of J.-B. Say

The forces of J.-B. Say seem to have overtaken France in the last couple of days. The front page of Le Figaro is filled with the Prime Minister (not the President – Republic anyone?) doing over his economic ministers and installing someone from the more market oriented side of politics. This Keynesian-socialist stuff is not working so they are about to embark on something new. These are my (free as in best guess) translations from the front page:

The Heads of Industry Applaud these Changes and Now Wait for Some Follow-up Action


The Beliefs of the Prime Minister have Exasperated the Left


Survey: the French Have No Confidence in the New Government


The Unemployment Rate has Reached a New Record

There is Hollande who will go down with the ship one way or another but at least he seems to be trying to do the right thing. I, of course, am in the midst of a conference in which at least some of those are thinking the right way. The conference organisers have just put out a journal which is devoted to “Jean-Baptiste Say: et la liberation des forces de production”. Odd as it may seem, I have never been in the company of anyone at all who has had a strong appreciation of J.-B. Say and for the past two days I have been in rooms filled with them. Incroyable!

Say lives

I don’t know about the rest of the economics world, but where else but here at the J.-B. Say Congress would one find this:

Entrepreneurship has become a specific field of research in Economics since the beginning of the 1980s. This period was characterised by two linked phenomena: (1) the end of economic growth (“The Glorious Thirty 1945-1975”) and (2) the failure of Keynesian policies. A new economic dynamics should be ensuing from a radical economic and political change. Thus, the challenge was to find a new economic dynamics based on a new institutional structure, aimed to promote free markets and private initiative.

This is from an editorial in the local research institute into industry and innovation newsletter, Innov.doc No. 54 dated Septembre 2014. The spirit of Jean-Baptise Say has not yet been extinguished, although it has been exiled to the far north west of France, as had Say himself.

Lies, damned lies and rising temperatures

global warming aust

This would not be just a minor fraud but the basis of a tens-of-billions dollar loss to the future growth and wellbeing of Australians. No one would have robbed more people of more of their potential earnings than anyone who might have undertaken this:

The Australian Bureau of Meteorology has been caught red-handed manipulating temperature data to show “global warming” where none actually exists.

As we motor through the weirdly extraterrestrial stand of windmills you see by the highways all over France, but which I had never run across before, what occurs each time is the phenomenal scandal of the entire global warming con. This story must be big news back home – although a quick look has not seen it mentioned on any of the usual sites. But it is part of a worldwide determination on behalf of the most ignorant to demonstrate that they are right about what appears to be completely unproven, and near enough unprovable.

Visiting the battlefields of France

We have just been off to a couple of the battlefields of France which have great meaning to me. Yesterday it was Azincourt and today Crecy, 1415 and 1346 respectively. Not great successes for the French but the museum at Azincourt was the best of its kind I have yet seen (and I have seen many). If, for example, you would like to find out what the field of vision was for someone wearing armour or how heavy one of the broadswords was, this is where you can find out. Not many French visitors, as you can imagine, but both were very well served.

Now onto a different kind of historic site, Jean-Baptiste Say’s cotton mill and his local historian, M. Zephyr Tilliette. They are trying to preserve Say and his memory in Auchy–les-Hesdin where the factory is. Longer story than the one I currently know, but I will know much more later on.

On the road in northern France

Here I am in the far north west of France, on my way today to Auchy-des-Hesdins, the home of J.-B. Say where he went to set up and run his factory making textiles after being exiled by Napoleon for refusing to endorse his centralised economic policies. That Napoleon also offered him an immense amount of money, in the form of an appointment as a tax commissioner, which he indignantly knocked back, may be the single most principled act in the history of economics. See who else would refuse something like ten times the average wage, and especially someone who could have you arrested at will, because he did not agree with what he was asked to write. But such as he was.

I might add that virtually my last act before heading off was to do the final touches of the 2nd ed which will be out in September. I like to tell those here in France that my Free Market Economics is Say’s sixth edition as it combines emphasis on the entrepreneur, uncertainty and Say’s Law. I am looking forward to the factory tour tomorrow.

Don’t call me stupid

world iq

It is the second time in two days that I have come across an article that deals with IQ, the third rail of public commentary up until now. Here is today’s: Are we becoming more STUPID? IQ scores are decreasing – and some experts argue it’s because humans have reached their intellectual peak

IQ test results suggest people [living] in the UK, Denmark and Australia have become less intelligent in the past decade. . . .

Some studies have shown the average IQ of Westerners has plunged 10 points or more since Victorian times and others claim it will keep decreasing.

Yesterday it was an article on IQ versus poverty which discussed “a longer running controversy is the persistent gap in literacy and numeracy associated with socioeconomic status.” This is moving into even more dangerous territory since it is grouping IQs by categories of some kind.

It must be the weather.