… 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.”
