Entrepreneurship: my favorite subject, the alpha and the omega of economics, at once the most fascinating and the least-studied subject by economists! As Pete Boettke explained in his entry on Professor Israel Kirzner, entrepreneurship is the driving force of the market system – and of almost any social system, since markets always grow like weeds even under the most difficult institutional and cultural conditions.
I sometimes say that I have two reasons to be proud to be French (I am also a naturalized New Zealander, and I live in the US of A because, like Alexis de Tocqueville, I view the American spirit as the greatest achievement of mankind):
• The first one is because of the term laissez-faire, which was coined by François Legendre and spread by Vincent de Gournay and Turgot.
• The second one is because of the term entrepreneurship, which is derived from the French verb entreprendre and appeared in the French language as early as the Middle Ages. It became widely used by Cantillon (1725), Belidor (1729), Quesnay, Beaudeau (1769), Turgot and of course Say (1803) in his Traité d’Economie Politique.
Both of these terms have become essential to economics. Contrary to popular belief however, laissez-faire is not an economic doctrine but a moral philosophy, that of letting people choose their own finality - the only moral philosophy compatible with the nature of man. Entrepreneurship is the most important concept of economic science; it is the notion that recognizes that we are not merely dogs maximizing some utility, like particles responding to an electric field, but beings capable of introducing genuine novelty in the universe. Both of these terms are heirs to the Aristotelian-Thomist tradition that sees mankind as endowed with freewill participating in Creation.
That neither of these concepts is endorsed by the mainstream of political science or of economics today is not surprising considering the meaning of science in the 20th century. Science is not about the search for absolutes anymore, it is about relativism. This is especially at work in economics where the logic of choice (and its complement: entrepreneurial discovery) plays a meager role in the way economists understand the world. Statistical inference has become the end all, be all of economics and is now spreading to other social sciences (as anyone could see at the APSA meeting in DC last week).
An interesting example of the way the mainstream understands the concept of entrepreneurship is the Global Entrepreneurship Monitor (GEM). For the past six years, up to 43 national teams and 200 GEM consortium participants have fueled the research surrounding entrepreneurship. The GEM consortium has research teams across the globe and has measured entrepreneurial activity since 1999. The goal of GEM is threefold:
• To measure differences in the level of entrepreneurial activity between countries.
• To uncover the factors leading to appropriate levels of entrepreneurship.
• To suggest policies that may enhance the level of entrepreneurial activity.
While the GEM consortium is helping reintroduce entrepreneurship into the mainstream of economic science, its major problem is that it treats entrepreneurial activity as the act of starting a business firm, with an emphasis on the motivations behind it (opportunity vs. necessity). There is a good reason for this: it is the only visible aspect of entrepreneurship that one can measure (and assuming it is always entrepreneurship). In other words, GEM is a case of the data driving the theory (like the drunkard under the lamp post). This is in addition to the idea that mainstream economics must fit entrepreneurship in the strait-jacket of neo-classical equilibrium theory and thus has to empty the meaning of entrepreneurship to achieve that feat (i.e. treat entrepreneurs as Robbinsian maximizers to use Kirzner’s term).
Because it is primarily an empirical project, GEM will not change the way economists think about the fundamental issue of social adjustments and market processes. GEM has achieved its first goal, establishing very interesting differences in the level of entrepreneurship (i.e. start-ups) among countries and regions but (and this is my prediction), it will never achieve its other two goals. In other words, it will never tell us why, at the end of the day, we should care about entrepreneurship in economic theory.
I have many projects in the wings regarding entrepreneurship. One of them is a Mercatus Policy Primer co-authored with Israel Kirzner, which should be coming out in the next two months or so. Needless to say, I will be very proud of this publication with the greatest scholar in economics alive today!
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