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Quotation of the Day…

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… is from page 19 of Virgil Storr’s, Stefanie Haeffele’s, and Laura Grube’s 2015 book, Community Revival in the Wake of Disaster [2] (citation and footnote omitted; link added):

[Young-back] Choi argues [3] that [Joseph] Schumpeter and [Israel] Kirzner agree on three points, “(1) that there exist in the economy unexploited opportunities, (2) that the role of the entrepreneur consists of exploiting them, and (3) that traditional economic theory is flawed in leaving out the existence of unexploited opportunities and thereby overlooking the very force that moves the economy….

While Kirzner characterizes this as discovery and Schumpeter describes this as creative destruction, both view the entrepreneur as seeing some possibility (e.g., to profitably combine factors in a particular way) that no one else has identified or attempted to pursue. Both Schumpeter and Kirzner conceive of the entrepreneur as someone who must be willing to be a believer in a world of skeptics.

DBx: Anytime there exists an opportunity for genuine economic profit there exists a market failure – that is, a market failing to improve human well-being by as much as is possible (given the existing scarcity of resources and the array of human preferences). Anytime an entrepreneur earns genuine economic profit, he or she has corrected a market failure – that is, has caused the market to work better than it worked previously. The competitive market process is an incessant series of incidences in which entrepreneurs identify and correct market failures.

Unlike in modern mainstream economics in which the default market standard is a market working perfectly and peopled by rather dull individuals who can only respond to “given” market prices, wages, and interest rates – both currently existing and ‘rationally’ expected – in Austrian economics the default standard is quite different. The default standard for Austrians is a market currently filled with all manner of errors, both of commission and omission, but populated by creative individuals who, although each has knowledge and information only very limited and local, identify opportunities to profit by arranging for markets to work better if never “perfectly.”

The entrepreneur who reduces costs by vertically integrating with a supplier – the entrepreneur who reduces costs by vertically disintegrating with part of her company’s supply chain – the entrepreneur who senses that the supply of wheat tomorrow will be less than is predicted by today’s price of wheat – the entrepreneur who comes up with a new contractual term that better protects his interests as well as those of his counterparties – the entrepreneur who devises a new manner of pricing his outputs in ways that attract more sales – the entrepreneur who innovates in ways that make feasible the production and sale of a better mousetrap – the entrepreneur who…. I could extend this list from now until my dying day.

The entrepreneur – this kind of entrepreneur – is all but absent in mainstream economics. And so when the typical economist identifies (whether correctly or incorrectly) something that he interprets as a market failure – that is, as an opportunity for someone to earn genuine economic profit – this economist’s model contains no one who can correct this market failure. The typical economist then typically makes the mysterious leap to the conclusion that the state (an almost-godlike force in this economist’s worldview), and only the state, must, can, and will – if not obstructed by rubes or ideologues – “solve” the problem.

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