Quotation of the Day…

by Don Boudreaux on December 4, 2011

in Antitrust, Competition, Complexity & Emergence, Myths and Fallacies

… is from this splendid new essay by Deirdre McCloskey (original emphasis):

Israel [Kirzner]’s point about entrepreneurship, which much later was the main influence on me of his ideas, was of course not all that difficult to understand: an old-fashioned way to put it is that the unhirable factor of production has to be something like Israel’s notion of “alertness.”  Entrepreneurship can’t be something that can be provided routinely, such as the services of banking or management.  It must be creative.

In light of yesterday’s Quotation of the Day, I note fyi that I did in this case ask for, and receive, explicit permission from Deirdre to quote from her paper.  I did so because it wasn’t clear to me if this paper, which she sent to me by e-mail, was intended for public consumption.  And quite coincidentally – again in light of yesterday’s QotD – what Deirdre, following Kirzner, emphasizes is entrepreneurship’s creativity.  Such creativity is of entrepreneurship’s essence – just as it is an essential feature of private-property markets that the process of entrepreneurial creativity interacts with consumer sovereignty to create always-surprising market patterns and “outcomes.”

This creativity plays out not merely in devising new means of shaving pennies off of unit-costs of production, or in having an Ah-Ha! moment about, say, a new scent for bath soap or a new design for supermarket shelves (although these achievements are important and often require creativity).  Entrepreneurship – market, productive, socially useful, economic-growth-fueling entrepreneurship – often involves creatively experimenting with different ways to make markets and industrial ‘organizations’ work better: for example, how to justify up-front investments that lead to lower costs and higher quality but that might not be covered by revenue if, at every moment of time, pricing is done at or close to marginal cost.  (See Schumpeter’s discussion of competition in Capitalism, Socialism, and Democracy, as well as George Bittlingmayer‘s important research – inspired by Lester Telser’s work on core theory – on marginal-cost pricing and also the Addyston Pipe case.  A fine example here is George’s important paper “Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case,” Journal of Law & Economics, October 1982.)

The fact that business people often use the state to forcibly construct or to maintain certain industrial arrangements and market outcomes that promote the welfare of these businesses at the expense of consumers – and the fact that the justifications that business people, and their agents in government, offer for these intrusions often sound very much like the justifications that business people offer to explain their non-coercive efforts to create markets marked by patterns of sustainable specialization and trade – is insufficient reason to lump the latter (non-coercive) efforts in with the former (state-based) actions.  The latter are far more likely to be part of a competitive discovery procedure, while the former have as their central rationale the throttling of entrepreneurial creativity and competitive market discovery.

To quote Jim Buchanan yet again, “order [is] defined in the process of its emergence.”

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{ 64 comments }

Jon Murphy December 4, 2011 at 8:51 am

Another fine quote from the very quotable McCloskey. It is also further evidence of the quotation from last week about academia: Academia believes you can teach entrepreneurship.

Dances with Wolves December 4, 2011 at 12:01 pm

And you don’t? What a clown you are. Stop trolling.

El Diablo December 4, 2011 at 1:16 pm

Nah! Jon Murphy knows what he is talking about. He has credibility. You use a fake Indian name of a white man that never lived from an old, bad movie about Hollywood’s silly obsession of a white man saving the Indians from other white men. That makes you the clown. The fact that you are on an economics blog taking emoting silly nonsense reveals that you are the troll.

Dances with Wolves December 4, 2011 at 1:41 pm

Appropriate that you use the Spanish word for devil. Too bad if you don’t like my name. You don’t believe in freedom of choice, obviously.

Sam Grove December 4, 2011 at 1:55 pm

How easily you constructed that straw man.
El Diablo made no effort to deny you your choice.

Dances with Wolves December 4, 2011 at 1:55 pm

My real name is Skye V. Bluemountains. What your ancestors did to my ancestors is hideous and murderous beyond description. You want to learn about the white man’s theft of our land, you can start here:

http://en.wikipedia.org/wiki/Geronimo

g-dub December 4, 2011 at 4:00 pm

dww> You want to learn about the white man’s theft of our land, you can…

Yeah, that’s going to go over great here. The story of the “collective white man” screwing over the “collective red man” on a site that is dedicated to individualism. Moreover, you do it on a site that vehemently opposes the concentration of political power necessary for systematic exploitation of any so-called “group.”

You are a troll and an idiot.

Dances with Wolves December 4, 2011 at 8:59 pm

No, you are a troll and an idiot. You idiots love private property except when your country stole it fair and square. Hypocrites and thieves.

El Diablo December 4, 2011 at 11:31 pm

LOL! A fat, stupid old white Marxist pretending to be an American Indian who adopts a fake Indian name for a fictitious white man who saves the Indians from other white men. That’s hilarious!

Dances with Wolves December 4, 2011 at 12:03 pm
Dances with Wolves December 4, 2011 at 12:06 pm

What is your beef with “Academia.” You need to explain yourself so what other nonsense you possess. You need to be shame off of this blog, I feel. There probably is no other way to get you to stop troll. But, I sense you have no shame. It would be nice if their were a genetic test for such horrible qualities in a fetus.

El Diablo December 4, 2011 at 2:03 pm

You are a horrible person to make such silly statements. But, don’t worry, I’ve got just the place for you.

Jon Murphy December 4, 2011 at 2:05 pm

Dude, just let him go. At best he’s a douche with a chip on his shoulder. At worst, he’s a troll. You cannot reason with people who refuse to understand.

El Diablo December 4, 2011 at 2:12 pm

You are right, of course. No one can change a Useful Idiot’s view point.

Jon Murphy December 4, 2011 at 2:14 pm

Another Digression, el Diablo:

Next time you see him, will you tell Pope Boniface VIII he was a dick for expelling Dante from Florence and for slaughtering the Knights Templar?

El Diablo December 4, 2011 at 2:19 pm

Sure will. It will take some time though. The Useful Idiot section is so big now that I have a hard time finding any of the other sections including the fake religious section.

steve December 4, 2011 at 4:39 pm
El Diablo December 5, 2011 at 12:02 am

Jon, Pope Boniface VIII knows what a dick he was in his feuds with Dante. But, it was Pope Clement V who, with King Phillip IV of France, slaughtered the Knights Templar. Both are dicks. But, King Phillip IV was a type of dick that is common in all ages. Phillip borrowed lots of money from the Knights Templar, then trumped up false charges against them and had them murdered to avoid having to repay the loans and to steal their property. You have similar thieving dicks trolling this blog. They are called leftists now.

Bastiat Smith December 4, 2011 at 5:48 pm

In the process that appears to be spontaneous entrepreneurship, the atmosphere or culture of risk taking and hard work is necessary for a great volume of start-ups. In other countries that do not espouse the possibilities of success, general entrepreneurship is less ubiquitous. And the unforeseeable nature of which firms will be successful demands that entrepreneurial attempts be maximized. Russ and Don to their part to further such an ethos. And though they cannot directly capture the benefits thereof, their affect on us all is valuable.

To declare their hypocrisy would be much akin calling a citizen who espouses justice as much because he is not a member of the judiciary. We may all lend our support verbally without contributing more directly and tangibly.

El Diablo December 4, 2011 at 2:02 pm

There are 45,000 books on Amazon on innovation. Do you really think that you can teach innovation? That is why Steve Jobs left the university. Someone cannot teach what they cannot understand. Which is why silly Marxists like you cannot teach economics, government, philosophy, common sense, to tie one’s shoe laces, etc.

SmoledMan December 4, 2011 at 10:35 am

The problem is crony capitalism is so part of the American fabric that the average “voter dunce” can’t tell the difference between the real thing and that. It’s a brilliant tactic by the left of “muddying the waters” as to confuse the average “voter dunce” AKA the “swing vote”.

Jon Murphy December 4, 2011 at 10:46 am

Do you blame them? We are taught of the “Robber Barons.” Gordon Gekko is in the popular lexicon. This last crisis isn’t doing anything to help. It’s easier to stereotype than research. That is why our work and a blog like this is so important. At the risk of sounding like I’m being self-important (an incurring the wrath of the useful idiots), we (meaning capitalists) NEED this blog. We NEED the Keynes-Hayek rap videos, we NEED books not written for economists or politicians, but for laymen. We NEED to have this information out there.

Keep up the good work professors. We NEED you.

SmoledMan December 4, 2011 at 11:45 am

WE are all convinced of the virtues of capitalism. What are doing to convert that squishy co-worker of yours who is thinking that “re-electing Obama is not such a bad idea”….

Dances with Wolves December 4, 2011 at 12:24 pm

“That is why our work …”

Your Nobel Prize is in the mail. Chump.

El Diablo December 4, 2011 at 1:22 pm

Your check from George Soros is in the mail, Useful Idiot.

Methinks1776 December 4, 2011 at 2:55 pm

Why “useful”?

El Diablo December 4, 2011 at 11:32 pm

Useful to corrupt politicians and their cronies. Otherwise not.

steve December 4, 2011 at 11:04 am

“Entrepreneurship can’t be something that can be provided routinely, such as the services of banking or management. It must be creative.”

I liked this a lot. I find that creativity can come from many different people, if we let them be creative. It is unfortunate that we have so concentrated capital into the hands of so few people that we exclude large segments of our population from employing that creativity. If there is any merit to Cowen’s Stagnation idea, I think it may be based upon how we have managed to shrink the entrepreneur class. Part and parcel with this shrinkage is the health care issue. I have a number of people who work for me who cannot leave as they would never be able to obtain health insurance (cancer diagnoses). We need to find some way to get more people into the entrepreneur mode.

Steve

SmoledMan December 4, 2011 at 11:56 am

One can still start an internet multi level marketing scheme.

Dances with Wolves December 4, 2011 at 12:20 pm

I had dinner with some friends and relatives last night. My nephew had an IPad and showed it to my sister. She liked it, but said she didn’t like the name IPad because it made her think of these pads.

http://www.amazon.com/Kotex-Ultra-Thin-Long-Count/dp/B000FFAAKA/ref=sr_1_1?ie=UTF8&qid=1323018831&sr=8-1

There was also a discussion of the future of Apple and Microsoft. The consensus was that fierce competition would eventually drive Apple out of business, but that Microsoft had a long-term future.

Also, Disney paid of a dividend to the estate of Steve Jobs in excess of 25,000,000. Dividends paid to estates should be taxed at a higher rate. The man is dead and can’t use the money, most of which he never used while he was alive.

anthonyl December 4, 2011 at 2:34 pm

Yes, that joke about iPads is kind of used up – Time to flush it.
Only time will tell which way computing will go and whether either company will have a stake.
Don’t you have any money sitting in a savings account not “doing anything?” Maybe we should tax savings at a higher rate?

Darren December 4, 2011 at 5:44 pm

Just an anecdote, but based on what I’ve heard from my wife and here relatives, Apple seems to be popular in China, perhaps as something of a status symbol to some degree in addition to any other advantages. If Apple can do well in that market, they’ll be around quite a while.

Sam Grove December 4, 2011 at 12:54 pm

The man is dead and can’t use the money, most of which he never used while he was alive.

It is good that you understand that, but what you don’t understand is that SOMEBODY used that money.

Dances with Wolves December 4, 2011 at 1:08 pm

How would you feel if your Social Security were cut or stopped? You’d be digging in the trash on Christmas? Even the Koch brothers wouldn’t hire an old, fat, bald, untalented person like you. They’d prefer someone young, thin, a head of hair, and with some up-to-date skills. The government needs the money from the rich to keep worthless people like you alive.

Dances with Wolves December 4, 2011 at 1:17 pm

Buy your own health insurance, too. What insurance company in their right mind would give an old guy like you health insurance? I don’t know what you’d do if Ron Paul, or Newt becomes president. Die, I guess. Out of sight, out of mind.

El Diablo December 4, 2011 at 1:24 pm

Nah, Useful Idiot With Fake Indian Name for Fictional White Man. Sam will buy his own insurance with money he has earned. You will survive, but only because you will find some other way to steal from the productive even if government is pared down.

Dances with Wolves December 4, 2011 at 1:47 pm

Your comments are unproductive, rude and worthless. Rot in hell, Devil.

El Diablo December 4, 2011 at 2:00 pm

Nah, Useful Idiot With Fake Indian Name for Fictional White Man. I rule in Hell. Useful Idiots like you rot here.

See you soon!

Jon Murphy December 4, 2011 at 2:10 pm

Digression:

Why is it no one prays for Lucifer? Why is it no one has the humanity to pray for the one sinner who needs it the most?

Back to your regularly scheduled program.

Sam Grove December 4, 2011 at 3:09 pm

You’re right, I have many marketable skills.
I can do carpentry, plumbing, some auto work, electrical, electronic design and repair, software development; I have many computer skills, and can do other useful work.

DwW probably can paint crappy class warfare posters and had out flyers on the street.

He’ll starve, I will work.

And I’m not bald, I just keep my hair short; besides, what’s wrong with baldness?

El Diablo December 5, 2011 at 12:10 am

Thanks Jon. That is very kind of you to pray for me. My pride and ego are my downfall. I think I should control. And, I do! I control all my mindless minions — leftists, Marxists, liberals, progressives, etc who think they should control everyone, which makes them useful idiots for me! Bwahahaha! There can be only one to rule! And, it is me!

El Diablo December 4, 2011 at 1:20 pm

Nah! Sam has marketable skills and does not need Social Security. The fact that you are so concerned about this issue reveals that you are an old clown who loves silly, bad movies with Kevin Costner and are living on Social Security now since you have no marketable skills. The government should not be involved in stealing from the productive to give to the unemployed, silly Marxists like you. Get off your fat ass, you silly troll, and get a job.

Dances with Wolves December 4, 2011 at 1:44 pm

You’re a broken record without sense. Productive means cashing dividend check to you. Get lost, Devil.

El Diablo December 4, 2011 at 1:59 pm

Silly Marxist with Fake Indian Name for Fictional White Man, a person who earned, saved, and then invested his money like Steve Jobs did EARNED that dividend by taking a risk and investing the money as opposed to you silly Marxists who bought “mind-enhancing” (really mind-destroying) drugs and blew it on other stupid things. Productive to silly Marxists like you mean stealing from the productive like Steve Jobs.

Be seeing you real soon! BTW, Karl and Vlad sent their regards.

Sam Grove December 4, 2011 at 3:02 pm

Are you stupid? Oops, I mean, you are stupid.

You are supposing governments never fail.

What do you think will happen to all those people now dependent on government checks when the price of food and energy go way up do to monetary inflation?

I intend never to collect SSI and a lot of young people already realize that they won’t benefit from the SS system. It’s going down.

The government needs the money from the rich to keep worthless people like you alive.

Evidence of cluelessness. People can’t eat money. Taking money from the rich won’t save a collapsing system, and it won’t make the rest of us wealthier.

Dances with Wolves December 4, 2011 at 1:12 pm

“Disney has paid out dividends of $.35 per share each of the past 3 years. Owning 138 million shares results in over $48 million received each year in dividend income. Even Steve Jobs can survive on $48 million in stock dividends each year.” – internet source

I understated his dividend income, sorry.

Becky Hargrove December 4, 2011 at 2:18 pm

Her new essay was a wonderful way to spend the morning – plus I got a full page of references to dig around for, to boot.

GiT December 4, 2011 at 4:40 pm

What exactly is sustaining the distinction between ‘entrepreneurial’ creative activity under competition and state creative activity under competition? Note that by creative I mean something more like innovative than productive – i.e. creating new ideas/schemes/plans, not necessarily creating new value/wealth (planning a heist, for example, is innovative and requires creativity although it does not add any value, unless it’s made into a good movie).

Clearly one can debate whether a particular system of encouraging creativity is pernicious or beneficent, but that’s not the question I’m interested in. The question I’m interested is how we can define entrepreneurship analytically such that it is necessarily beneficial to consumers, and whether if, in finding a definition that would capture that quality, we actually end up with a definition of what entrepreneurship is.

I suppose, analytically, one could distinguish between changes to markets which only relatively, but not absolutely, decrease consumer surplus from those that absolutely decrease consumer surplus – i.e. those changes which simply transfer money from consumers to producers from those which, at worst, leave consumers with a smaller share of a larger pie without any decrease in what they get.

But given that distinction, it is clearly the case that ‘entrepreneurs’ attempt to innovate in both ways. Profit maximization is served both by driving down costs and driving up prices. Much creativity has gone into ways of driving up prices, both via states and via markets.

And, of course, most ‘consumers’ are ‘consumers’ by virtue of their being ‘workers,’ and driving down wages is a regular part of driving down costs – which is not to say that workers do not benefit to some degree from a lowering of price levels by virtue of a lowering in their wages, but rather to say that such benefits are mitigated in a way which decreases in the costs of other inputs are not.

Wage cuts simultaneously lower purchasing power (by decreasing income) and increase purchasing power (by decreasing price levels) – i.e. both increase and decrease absolute consumer surplus. The extent to which a worker benefits depends upon the extent to which falls in their wages turn into falls in price levels.

So unless we restrict our definition of entrepreneurial activity to only that activity which increases competitiveness by lowering non-labor costs (which would eliminate a whole swathe of ingenuity practiced by entrepreneurs and businessmen), we don’t have prima facie grounds for saying that what actors in a state and actors in a market are doing is essentially different.

Even if we do so restrict our definition, insofar as the state does, at times, lower non-labor costs, it is acting entrepreneurially (or rather actors within it are). And even if we grant that the state is always necessarily less efficient than markets, it is nonetheless the case that bureaucrats and politicians occasionally innovate and lower costs within the state even if the basic incentive structure is generally opposed to them doing so. (Both in the degree to which politicians sometimes dismantle parts of the state, and in the degree to which, say, the post office or court system becomes more efficient despite (or, of course constantly denied here, because of) their public character.)

GiT December 4, 2011 at 6:07 pm

In other words, once again we have Don making distinctions defined arbitrarily by ideology rather than in an analytically precise fashion.

Markets = good, states = bad; entrepreneurs = good, therefore only markets can have entrepreneurs.

Brilliant arguments, as usual.

Sam Grove December 4, 2011 at 7:02 pm

There’s something missing from your commentary.

How is it determined that anyone is creating value for others?

GiT December 4, 2011 at 7:32 pm

I’m not sure why you question me about assumptions made in the argument to which I’m responding, which explicitly concerns what happens at whose expense and what is conducive to better or worse arrangements. Or, more broadly, which concerns what processes are ‘essentially creative’ in a way that is ‘productive’, ‘socially useful’, and conducive to ‘economic growth.’

Jon Murphy December 4, 2011 at 7:36 pm

I’ve read your post multiple times, but I really don’t know what you are saying or the question you are asking.

GiT December 4, 2011 at 8:24 pm

Don starts out his post stating that ‘creativity’ is of entrepreneurship’s ‘essence.’

He ends his post by saying the ‘creativity’ essential to ‘entrepreneurship’ is unique to markets because markets are chiefly about ‘competitive discovery procedures’ and states are chiefly about ‘creativity throttling.’

The argument, then, is over what counts as entrepreneurial behavior and what counts as creativity.

I challenge a few points.

1. That ‘creativity’ is only beneficent, and as such that the competitive discovery of ways to exploit and coerce should be excluded from the category.
2. That entrepreneurs are only creative in beneficent ways – that they are not also sometimes concerned with raising prices by decreasing competition rather than only increasing profit margins by lowering costs or creating entirely new products.
3. That (actors within) states are only creative in malignant ways – that they do not also face accountability mechanisms and forms of competition which can generate creativity which creates or protects value for others.

None of this challenges the dogma of the site that markets are uniformly better than states at ‘essentially’ everything. What it challenges is the idea that this relative superiority means that markets are somehow essentially only beneficent and creative and states are somehow essentially only malignant and derivative.

Jon Murphy December 4, 2011 at 8:51 pm

Gotcha

Sam Grove December 4, 2011 at 10:56 pm

states are somehow essentially only malignant and derivative.

It all depends on what “states” are doing.

If the state is limited to prohibiting interpersonal aggression, then the state can indeed be a boon. On the other hand, if the state is allowed to exceed that scope, then the state will become a self feeding malignant entity.

History is replete with examples of this tendency of political organization.

GiT December 5, 2011 at 2:39 am

And even if we restrict the positive aspects of the state to ‘prohibiting interpersonal aggression,’ then the history of state formation and the evolution of judicial and police functions is in many respects a spontaneous, emergent, and necessarily creative process.

Sam Grove December 5, 2011 at 2:26 pm

Even conquest fomented creativity; weapons technology, military strategy and tactics are examples.
One might even say that the idea of conquest was initially “creative”.

GiT December 6, 2011 at 4:10 pm

Yes, that’s part of my point. It’s hard to see how military ingenuity would not fall under a common sense definition of ‘creativity.’

Any variety of end oriented behavior will necessarily have to innovate when confronted with the natural competition reality presents us with, with or without markets and other social institutions.

Everything we do requires effort, and every expenditure of effort induces the creation of strategies to minimize that effort.

hayseed December 5, 2011 at 11:52 pm

The most helpful response is to refer you to the first page of “The Fatal Conceit”
I believe you believe more to be knowable than is possible.

GiT December 6, 2011 at 4:01 pm

And I believe you don’t know what you’re talking about.

I’m not the one arguing that the ‘central rationale’ of all state-based activities is ‘throttling creativity and discovery’ while all activities carried out by entrepreneurs are ‘essentially creative.’

I am arguing about how we define words and the sorts of theoretical, not empirical, distinctions we can make in order to give our concepts useful meanings.

I have offered potential theoretical distinctions by which we could distinguish creative from destructive or zero-sum effects, and I have suggested that if we look seriously at the world we will find states, markets, and entrepreneurs engaging in both sorts of activities – i.e. that real world institutions are complex and varied in their behavior.

Is the second part a claim to knowledge? Yes, but it is a much more modest one than the claim to ‘know’ that everything states do is uncreative and everything entrepreneurs do is creative.

Sam Grove December 4, 2011 at 7:01 pm

And, of course, most ‘consumers’ are ‘consumers’ by virtue of their being ‘workers,’

I expect that if you compare the labor force to the total population, you will find that a majority of the population is not part of the worker class (at any moment in time).

GiT December 4, 2011 at 8:08 pm

Ah yes, we need to include all those who are dependents of workers and all those who live off of the savings acquired from when they worked (which could, of course, be disaggregated into principal, which would be the direct result of wage-work, and the interest, which would ostensibly not be).

Presently being ‘part of the worker class’ has little to do with whether or not one is a consumer primarily by virtue of waged or salaried work.

Jacob Haney December 4, 2011 at 7:50 pm

The public sector is crafty in its chameleon like ability to mimic the private sector. In an uneducated, uninformed populace, these are the precursors to oppression and massive deficit.

Slocum December 5, 2011 at 5:26 pm

In general, I’m sympathetic to McCloskey’s arguments, but she has a tendency to toss off gross, offensive smears at people she sees as intellectual opponents — which shows up here as it did in Bourgeois Virtues:

For example the scientific innovation of eugenics, reaching its dismal height in 1945 but now revived by writers such as Stephen Pinker, was indeed an innovation, and scientific.

Steven Pinker is reviving scientific eugenics?!? And not even a citation to back up such an over-the-top claim? WTF? Really, she should just back away from discussing Evolutionary Psychology (which she clearly doesn’t grasp beyond a gross caricature) and stick with political economy.

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