Per Bylund to Baylor

Congratulations to McQuinn Center Fellow Per Bylund for his new position as Research Professor in the Department of Management & Entrepreneurship and the Baugh Center for Entrepreneurship & Free Enterprise at Baylor University’s Hankamer School of Business. We’re looking forward to Per bringing the “Missouri approach” to the great state of Texas.

The New Coasean Entrepreneur

In a recent issue of Small Business Economics (Vol. 40, Issue 2), Siri Terjesen and Ning Wang interview Ronald Coase (gated copy here). One of the topics touched on is entrepreneurship, and Coase seems to “come out” as quite a Schumpeterian. In answer to the question of what entrepreneurship is, Coase states:

Entrepreneurship involves undertaking new business initiatives, such as setting up a new firm, creating a new market, inventing a new product, experimenting a new way of marketing, retailing, or organizing the production line, and bearing the related risks. These are all novel business endeavors, their outcomes cannot possibly be known in advance. Most of these attempts may fail, but the few successful ones help to introduce fundamental changes to the economy, keeping it innovative.

Interestingly, this entrepreneur is distinct from the “entrepreneur co-ordinator” found in his groundbreaking 1937 essay “The Nature of the Firm,” who is simply a manager who supplants the price mechanism in “directing” resources.

Coase further states that (his Schumpeterian-type) entrepreneurship is important, because it:

is the fountainhead of endogenous changes in the economy, bringing about technological, institutional, and organizational innovation and creating new knowledge. Entrepreneurship drives economic evolution, determining its speed and direction.

Coase also echoes Baumol’s (1968) view that entrepreneurship is absent from economics, for which economics suffers:

[It] is unfortunate … that economics remains detached from the ordinary business of life. … economics does not have much to say about entrepreneurship.

Interestingly, Coase emphasizes that entrepreneurship is primarily of indirect importance to economists, since entrepreneurship has a “lasting impact on the economy.” Coase here goes back to the origin of his ideas, which were spurred by Hayek’s lecture series on the structure of production and the business cycle at LSE in early 1931 – when Coase was an undergraduate business student. As Coase has stated elsewhere, Hayek’s view of capital and the structure of production “absorbed” both students and faculty at LSE for months.

Coase shows how his view on this has not changed, stating that “the structure of production provides a framework to understand entrepreneurship.” In fact, states he: “any trace entrepreneurship leaves on the economy can be found in the structure of production” and it is in this sense that entrepreneurship should be considered and perhaps included in the study of economics.

I have quite a few disagreements with Coase, especially the ideological presumption on which he seems to base his view of transaction costs (which I discuss in a paper currently under review for the Journal of the History of Economic Thought), but his views on entrepreneurship as expressed in this interview is right up my alley. In fact, it dovetails very nicely with my own work on the firm as an entrepreneurial vehicle to establish new structures of production.

Though Coase in his answers repeats some of which has already been made available in articles such as the three lectures published in 1988 (Vol. 4, Issue 1), the interview is a good read. The entrepreneurship part is perhaps that which is most interesting.

In Memoriam: James M. Buchanan (1919-2013)

James M. Buchanan (1919–2013)

It is almost two months since economist and Nobel Laureate James Buchanan passed away. There are really only two of Buchanan’s many works that ever made an impression on me: his Cost and Choice, and his and Gordon Tullock’s Calculus of Consent.

The former made an impression because it is very good (in my view Buchanan’s best work), clearly written, and takes a firm stand for economic (i.e., opportunity) cost as opposed to accounting cost. In this book, Buchanan comes across as being quitean Austrian. Or, perhaps, as standing firmly in the LSE tradition. To me, Buchanan on cost is as good as Kirzner on capital. Unfortunately, most of Buchanan’s other works mean as little to me as Kirzner’s. And that’s not much.

The Calculus of Consent was difficult to read while fairly assessing it. Don’t get me wrong – it is absolutely not hard to read. On the contrary! But this is a true classic, a cornerstone of public choice theory, and as such much of its great contributions have been iterated a billion times over in later works (often by less known but more modern scholars). So when I finally got to reading it (in 2008?), it was old news – I already knew pretty much all of it. It was a nice read, no doubt, and it made one heck of a difference when it was first published. But as so many classics, whether fiction or scholarly, you already know most of what’s between the covers before you actually pick it up and read it. (A bibliophile like me still thinks it is a thrill to read a classic just because it is a classic, and seeing how the ideas and/or plot originally unfolded – but it is hard to get excited about ideas that one already knows.)

The rest of Buchanan’s work? Never made much of an impression. I have read excerpts, individual chapters, essays, and several summaries of his works and legacy, yet – though his influence was undoubtedly great – I find it difficult to get excited by his work. I have a bunch of his books in my book case, but most of this collection remains unread. Perhaps one reason is that his thinking doesn’t appear to be radically different from many others’. His economics was not all that different from mainstreamers’ economics, but he made “radically” new applications of this theory.

This being said, it would be an unforgivable mistake to simply dismiss the Buchanan legacy.

Perhaps one thing that I always found a bit troubling with Buchanan, but that I was never able to pinpoint and therefore it remained hidden and implicit until very recently, is what David Levy and Sandra Peart summarize as Buchanan’s “ability to rethink a question from the foundations unencumbered by what he had written on the topic.” I realize this can (and perhaps was meant to) be interpreted as something positive in the sense of being willing to change one’s mind, reassess one’s findings, a sense of open-mindedness. But it can also be quite the opposite.

This “ability” of disregarding what one already knows is something that has always bothered me quite a bit with great scholars and thinkers such as F. A. Hayek and Ronald H. Coase. The former called himself a “puzzler” or “muddler” rather than a “master of his subject,” and the latter claimed his thinking was freer and better by not being constrained by [economic] education. One of course has to be able to reassess one’s conclusions when exposed to new data or better explanations. But this is hardly the same thing as (constantly?) rethinking one’s work and “reinventing the wheel.”

In fact, I would be inclined to think scholars occupied doing the latter have failed in their undertaking. Rethinking should often turn out to be a result of poor original thinking, subpar theorizing, and flawed logic, rather than honest open-mindedness and curiosity. This is not to say stubbornness is an important and unfailing quality; but being stubborn when one is right is not a vice, it is a virtue.

Nevertheless, James Buchanan is one of the great economists and scholars of the 20th century. He should be remembered as such.

Entrepreneurs Do It Themselves

Sometimes a topic opportunity emerges that is simply too good to overlook. This is the case with President Obama’s latest gaffe, which has turned into quite an Internet storm of “memes.” Said the president:

If you’ve got a business, you didn’t build that. Somebody else made that happen

Of course, it is easy to understand what this can mean: without customers there can be no business; without employees there can be no firms; without suppliers there can be no end-products; and so on. These are all true. The interpretation that no businesses are successful without government, often found on liberal blogs, is far more of a stretch. Businesses may transport their goods on public roads, but do they have an alternative? And more importantly: if government didn’t supply roads, would it be impossible to run a business firm? Obviously not. There would be other, non-governmental, means of transportation. Such as private roads.

But if we look closer at the president’s statement, it is obvious that he has no understanding for what Mises calls “the driving force of the market”: the entrepreneur. If a business firm is simply putting different inputs together, then obviously what you do is not unique, novel, pioneering – or independent of the actions of others. In fact, “anyone” could do the same thing and, in fact, “anyone” probably would: why should we expect people not to act on an obvious opportunity to make money?

The problem is that for a generous interpretation of the president’s statement to be true, it must be as entrepreneurless as neoclassical economic theory. As Baumol (1968, p. 66) stated it:

The theoretical firm is entrepreneurless – the Prince of Denmark has been expunged from the discussion of Hamlet.

The president’s view of the market (and the firm) is just as entrepreneurless; there is no Prince of Denmark in the federal government’s Hamlet.

The entrepreneur is the innovator, the organizer, and the one exercising superior judgment to produce value for consumers. Entrepreneurship is hardly just combining existing pieces according to already existing blueprints – it is about creating new pieces, fitting them in new ways, and creating something new. It is about independent and pioneering vision – and taking the step from dream to reality through action. In this sense, an entrepreneurial creation is unique and something we have not seen before. It is consciously aimed for and created, even if it utilizes (previously undiscovered) strengths of others.

So, Mr. President, the fact is: the entrepreneur did build that.

G. F. Handel, Entrepreneur

Handel’s Messiah is perhaps the best-known piece of Christmas choral music, and one of the great contributions to Western culture. Less is known about Handel’s entrepreneurial endeavors, however. The Acton Institute PowerBlog offers some provocative discussion, including this quote from Handel scholar Tim Slover:

The Royal Family, fellow Germans from the same region of Hanover, were staunch supporters of his work, but this did not translate into financial security for Handel, as the Crown only sporadically underwrote his opera seasons. When weddings or other occasions called for it, the Hanovers commissioned music from him, but this was never enough to live on, and, anyway, Handel was no court composer. By temperament he was an entrepreneur. He spent several months of every year striking business deals with theater owners, auditioning and hiring singers, and rehearsing and performing instrumental music, operas, and oratorios. His fortunes rose or fell with the public’s reception of his music, and there were lean times as well as prosperous ones.

For more on entrepreneurship in the creative arts, see Art Entrepreneurship, edited by Mikael Scherdin and Ivo Zander. I also highly recommend Paul Cantor’s fantastic lecture series on “Commerce and Culture.”

The Entrepreneurs’ Princess

Did you catch John Berlau’s piece in Thursday’s WSJ? “Some have asked if Kate will be a ‘people’s princess,’ in the mold of Prince William’s late mother, Diana. But Kate and her family actually embody a noble, if relatively modern, tradition of their own, a tradition of bettering oneself and one’s family while improving the lot of society at the same time. The tradition that Kate and her parents and siblings embody so well is that of entrepreneurship.” The Middletons, of course, are entrepreneurs, founders of Party Pieces, a leading online provider of kids’ party stuff. Does the tale sound familiar?

When Kate was five, her mother, like many aspiring entrepreneurs, saw a niche that could be filled to help others in her situation. As described on the website of the family business, PartyPieces.co.uk, “Carole Middleton founded Party Pieces in 1987 after finding it difficult to source fun, simple party products for her children’s parties.”

Somewhat like successful American firms from Microsoft to Google that had their beginnings in residential garages, Party Pieces started out in a shed in the Middletons’ garden. There, mail orders were taken for boxes with pre-selected party favors to fit a certain theme.

The Middleton’s business really took off with the advent of the Internet, and today, one can go on the web site and order plates, cups and napkins themed from Barbie to the Transformers. If one of the royal duties is to ensure the happiness of subjects, Kate’s family has given her a head start by bringing joy to so many British parents and children.

Welcome to entrepreneurship@McQuinn

This is the new blog of the University of Missouri’s McQuinn Center for Entrepreneurial Leadership.

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