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Quotation of the Day…

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… is from page 84 of the original 1960 Harvard University Press edition of Frank Knight [2]’s collection of lectures, delivered in 1958 at the University of Virginia, titled Intelligence and Democratic Action [3]:

Why have this entrepreneur, this despot and alleged exploiter for his own profit? Why don’t they just work it out on a basis of equity? Or, for that matter, why don’t the laborers hire the capital and the managers instead of being hired as they are? Of course there are reasons. We cannot go far into them here, but the general reason that this system exists is because it is the system on which the parties concerned are able to agree. If the people involved could agree on any other system, there is no law against their having any other arrangement, no impediment whatever to having production carried on, for example, in what is called a producers’ cooperative if the people can make it work. The fact is, they cannot: it has been tried and failed often enough to make that clear.

DBx: If you’re among the (large) group of people who, like Thomas Piketty [4] and his fans, believe that capital grows automatically according to (mysterious) ‘laws’ – that is, if you’re among those who believe that the growth of the capital flow and stock occurs largely independently of what are identified by Armen Alchian as “economic forces at work” [5] – then you naturally see no socially useful role for entrepreneurship or profit. If the plant, equipment, and natural resources with which workers work exist (and in the case of plant and equipment grow) ‘naturally,’ then there is no reason why firms cannot be owned and operated just as well by workers as by shareholders and shareholders’ appointed executives. Entrepreneurs and shareholders in your view are interlopers who profit only by artificially grabbing – with the help of bourgeois laws that protect property and contract rights – that which would otherwise and with greater justice flow to the owners of the hands and backs who perform the actual labor to physically produce goods and services.

If you’re among the (large) group of people who think along the lines sketched out in the previous paragraph, you’re also mistaken. Deeply mistaken. Even so-called “natural resources” require human creativity and risk-taking to become what they are [6]. And such creativity and risk-taking are also required to create every good and service that you consume and each and every bit of the capital tools and services [7] – including workable organizational structures [8] and management [9] strategies [10] – that are used to produce those goods and services and deliver them to you in such abundance that you’re able to take this abundance for granted.

Blindness to this reality has been, and threatens to continue to be, a source of misery and tyranny.