At the Firm’s Rudder: the Entrepreneur

What is the role of the entrepreneur in the firm? Or, put differently – and perhaps more interestingly – what function does the firm provide to the entrepreneur? A simpler version of this question would be: why do entrepreneurs start firms? And what are the market effects of entrepreneurs starting firms? These questions are all discussed in my paper published today in the second issue of the 14th volume of The Quarterly Journal of Austrian Economics. The abstract:

This paper reviews Austrian approaches to the firm and drafts a theory that emphasizes the firm as a market phenomenon. Here the firm is a vehicle for imaginative entrepreneurs to create artificially high factor density, thereby increasing its internal “extent of the market” to support specialization of factors beyond the general level of division of labor in the market. The firm therefore becomes a product of, and prospective catalyst for progressing the market’s overall division of labor, and the firm emerges as an entrepreneur-generated means toward increased efficiency and more roundabout production. It consequently may play a crucial role in the evolution of market structure and, by extension, the development of civilization.

The article is called “The Division of Labor and the Firm: An Austrian Attempt at Explaining the Firm in the Market” and is available for download here.

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