Comments (34)

• Chuck Esposito

  Early in the article there is a reference to a $2 sock purchase at store with millions of dollars of inventory and the comment that "They did it all for me and others like me: consumers ..." Later in the article we find, "The pursuit of self-interest generates this amazing global matrix that benefits everyone." I don't think we can have it both ways, so which is it? Is the entrepreneur "doing it all for the consumer" or doing it because of "self-interest"? If Adam Smith had it right (and I think he did) the answer is, "self-interest."

  Cordially,
  Chuck ESposito
  

  Published: November 12, 2007 8:58 AM

• Ike Hall

  "All profits are yesterday. All losses could be tomorrow."

  Perhaps the best short entrepreneurial truth I've read in a while. Thanks, Jeffrey!

  Published: November 12, 2007 9:00 AM

• Anthony

  Ultimately it is action generated out of self-interest (all action is), but by its very nature, it benefits others.

  Published: November 12, 2007 9:16 AM

• John Crossman

  Jeffrey,
  I got quite excited by the first part of the article but felt very let down with the utopian tub thumping at the end. I would really like to see where you would take you central observations of the economically unaware staff member and the very pithy (already noted above) comment about entrepeneurship. You could still finish with the tribute to von Mises but I feel like you left out some really good thinking in between. If this is just an extract of something much bigger, accept my apologies for my presumptions.
  Regards,
  John

  Published: November 12, 2007 9:16 AM

• Ron

  Chuck,

  I think the answer is "both". Yes, the store owner acts in his own self-interest, but in order to best serve his own interest he must do his best to fulfill the needs of his customers. Self-interest is the catalyst for "other-interest", not the other way around...which is the important distinction.

  Published: November 12, 2007 9:28 AM

• Fundamentalist

  John: "I would really like to see where you would take you central observations of the economically unaware staff member and the very pithy (already noted above) comment about entrepeneurship."

  I just finished reading something that relates to you question in Schumpeter's "Capitalism, Socialism and Democracy." Part II is "Can Capitalims Survive?" and Schumpeter is very, very pessimistic. Not because he wishes it, but for a variety of very astute observations. One of several reasons he provides is that the corporation dulls the intense devotion to property that self-proprietorship fosters. So not only does the person at the check-out counter not care about profits or property, neither does the CEO. As a result, few people are left who care about defending property rights.

  Published: November 12, 2007 9:55 AM

• Fundamentalist

  Entrepreneurs don't get anywhere near the credit they deserve for performing a very difficult job. This is especially true of mainstream econ and I think the reason is their being stuck in static analysis. In static analysis, entrepreneurship looks easy. Since nothing changes, their are no risks, so mainstream econ has not respect for what entrepreneurs do. Dynamic analyis is necessary in order to introduce change, and change is risk. Only Austrian econ effectively addresses time and change. That's why Austrians revere entrepreneurs.

  Published: November 12, 2007 9:59 AM

• Anthony

  There is always the question, of course, of what Schumpeter meant by capitalism. I definitely do not agree with his pessimism with regard to a free market system, and I most certainly disagree that socialism is superior, even if only on paper. It isn't. It is full of holes.

  Published: November 12, 2007 10:46 AM

• Jaq Phule

  "That's why Austrians revere entrepreneurs."

  Here's what I don't get about that. Why aren't there more "Austrian" entrepreneurs? Why aren't they posting on this board? Am I the only one?
  

  Published: November 12, 2007 10:52 AM

• Paul Marks

  A very good and importance article.

  The late F.A. Hayek was fond of pointing out that employees of a corporation (sometimes even high exectutives) had no real idea about the market and did not understand that their jobs could not exist if the company did not make a profit in the way you describe.

  However, F.A. Hayek was also fond (more than fond) of stressing how society evolves without people understanding what is going on, or what their own actions lead to.

  Of course when the market comes under attack this ignorance is fatal.

  When someone is told that most people will be better off in the long term if they join in a "strike" and keep out people who are prepared to work by the threat of violence, or when someone is told that most people can be better off in the long term if the government spends more money or passes more regulations - only knowledge of economics will enable people to understand that these claims are false.

  Ludwig Von Mises was correct - only if the majority of people understand the basic principles of economics can democracy survive in the modern world. Otherwise the fears of the ancient foes of democracy will be proved correct - the people will be convinced to try and vote themsleves prosperity, and civil society is destroyed.

  Published: November 12, 2007 11:11 AM

• Fundamentalist

  Jaq: "Here's what I don't get about that. Why aren't there more "Austrian" entrepreneurs?"

  Entrepreneurs in the US aren't interested in any kind of econ because the small amount of econ they took in school, if they took any, was useless to them, being mainstream Keynesian or neo-classical.

  Austrian econ is a well-kept secret. I earned a masters in econ and learning nothing at all about Austrian econ. I happened to stumble onto it 15 years later by accident on the internet.

  I think Austrians could do a much, much better job of getting their ideas to entrepreneurs. Business people in general are short term oriented by necessity. I think it was Hayek who said the job of the economist is to raise the heads of business people and force them to focus on the long run occasionally. However, most Austrian leaders tend to be academics who spend most of their time talking to other academics or their students. There doesn't seem to be an organized effort to reach business people.

  Published: November 12, 2007 12:26 PM

• Fundamentalist

  Anthony: "There is always the question, of course, of what Schumpeter meant by capitalism."

  I got Schumpeter's book because the historian in the podcast at econliberty.org said Schumpeter's description of capitalism in the book was the best he had ever seen. I have to agree. Schumpeter clearly wanted capitalism to survive, but he saw the seeds of its destruction in several enemies. Actually, much of what he predicted about capitalism 50 years ago has come true.

  Here's one of his most important points, from page 144:

  "For, first, it is an error to believe that political attack arises primarily from grievance and that it can be turned by justification. Politcal criticism cannot be met effectively by rational argument. From the fact that the criticism of the capitalist order proceeds from a critical attitude of mind, i.e., from an attitutde which spurns allegiance to extra-rational values, it does not follow that rational refutation will be accepted...Just as the call for utilitarian credentials has never been addressed to kings, lords and popes in a judicial frame of mind that would accept the possibility of a satisfactory answer, so capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear;"

  I haven't read the chapter on socialism, but so far, he definately champions capitalism over socialism, though he think socialism is inevitable.

  Published: November 12, 2007 12:38 PM

• Andrew

  Business people do what works best for them.

  Under current conditions, what works best for them is to hire lobbyists and to get legislation that helps them and hinders the competition.

  And that is why we are headed for trouble.

  Published: November 12, 2007 12:48 PM

• Jaq Phule

  
  Fundamentalist,

  I understand what you're saying, that AE is hardly known outside the AE circle -- but why is it that Austrian economists do not become entrepreneurs, even in their spare times? I heard Walter Block of all people, in an interview somewhere, denouncing the very *idea* that he or anyone else in the field should want to make large sums of money...
  

  Published: November 12, 2007 12:56 PM

• Aly Snyder

  A good friend of mine is now a manager of a Jamba Juice in California, she called me one day to tell me the absurdity of what one of her employees (a 25 year old shift lead) was complaining to her, "Why can't we get hours? The government has all this money, I'm sure they can afford it."

  When my friend tried to correct her and said Jamba pays its employees, not the government, she was asked, "Well, how does Jamba get money then? Are we really having this conversation? God, how dumb are you?"

  The average Californian voter?

  Published: November 12, 2007 3:20 PM

• Kevin B

  Question: "The average Californian voter?"

  Answer: "Arnold Schwarzenegger"

  
  - Kevin (San Diego, CA)

  Published: November 12, 2007 3:34 PM

• Anthony

  Aly, if that is a general attitude then it is no wonder that we are where we are right now...

  Published: November 12, 2007 6:39 PM

• Anthony

  Fundamentalist, is Schumpeter there referring to some sort of dialectical relationship between capitalism and democracy (ie systematized rent-seeking)?

  Published: November 12, 2007 6:51 PM

• billwald

  I thought the essay might be about something important, like do-gooders and politicians who like to preach about "drunk drivers cost . . . or pot smokers cost . . . ." Or Libertarians who complain that "taxes cost . . . " without ever considering the other side of the balance sheet, the services provided with the tax money.

  Published: November 12, 2007 8:25 PM

• Peter

  Poor billwald, still suffering from wooly-headed socialist belief after all his years reading this site! You can lead a horse to water ...

  Published: November 12, 2007 10:12 PM

• Anthony

  Actually, there have been many studies by libertarians on these so-called 'services', and the inefficient manner in which they are delivered. So the argument holds no water. For those 'libertarians' who want state services but don't want to pay taxes, nor would they pay for them in a free market, they are just leeches, and not libertarians at all.

  Published: November 12, 2007 10:36 PM

• Fundamentalist

  Anthony: "is Schumpeter there referring to some sort of dialectical relationship between capitalism and democracy (ie systematized rent-seeking)?"

  I don't think so. In context, he seems to be saying that rational arguments about capitalism won't influence people who have already made up their minds about it based on subjective values. In other words, all socialists care about is abolishing private property and distributing wealth equally. Capitalism can't do that, so they don't care what else capitalism can do.

  Published: November 13, 2007 8:12 AM

• Bruce Koerber

  Another way to understand entrepreneurship is to see it as part of the human operating system. It is always present, either in a latent state or an active state.

  With that in mind it is not so amazing to think that it is always occurring. Those who are active entrepreneurs are like the ones who have to climb to the mountain peak or to find the missing artifact. It is an inherent quality in humans, and those who are active in the market provide a great service to humankind since entrepreneurship is what potentially leads to prosperity.

  It is the alertness of entrepreneurs that drives the economy. If the signals are not distorted by interventionists the chances of correct entrepreneurial discovery are significantly greater.

  Published: November 13, 2007 9:00 PM

• IMHO

  "It was at this point that I realized that we were on two different planets. She works for the company as a worker. The store makes a contract with her to show up and do certain things. She does them. She gets paid for this. That's the beginning and end of her economic role in the matrix of exchange."

  In an effort to give someone an idea of what it would be like to become an entrepreneur, I allowed them the use of some of my booth space in which to sell their inventory. All they had to do was pay their vendor's fee and show up. I don't know what I was thinking!

  Unaware of Austrian Econ at the time, I did not understand that because her mindset was more socialist in nature, that she would try to make me responsible for everything, while at the same time thinking "What's mine is mine, and what's yours is mine."

  Despite my repeated warnings to her to have her inventory prepared well in advance of the show, she called me two weeks prior to the festival to tell me she had not even begun to prepare her inventory and to see if she could buy supplies out of my stock. I said no. Then she asked me if I would pick up supplies for her. I told her to get her own supplies.

  She angrily complained that I had sufficient space to prepare my inventory, while she did not. My patience had begun to wear thin. I was not about to turn over the use of my studio to her. In the end, she paid someone to prepare her inventory for her, which added greatly to her costs.

  She felt she had the right to dictate to me about the booth, because she had paid a fee...but that fee went to the show operators, not to me. She was unable to wrap her head around that.

  She asked me if I would take care of all her financial transactions and then at the end of the day pay her. Since she was allowing returns, her credits would have been my responsibility. Between the sales tax and the credit charges, it would have been a nightmare. When I told her that she had to take care of her own transactions, she hung up on me.

  At the end of the show, rather than thank me for providing her with a low-cost way to sell her inventory, she instead angrily complained that her sales did not cover all her costs. There was no consideration given as to how much I had laid out so that she would have a place to sell her work.

  It was as though she wanted to play at being an entrepreneur; but without taking on any of the responsibilities, expenses or risks. What she really wanted was to be an employee.

  Needless to say, I'll never do that again.

  Published: November 14, 2007 8:40 AM

• jeffrey

  IMHO, that is a great story and one I've seen again and again. My whole experience suggests that the only people who know anything about business are those who have done business from the ground up: all expenses and all risks are theirs. People who just dabble in business invariably want socialize costs and privatized rewards. It's very strange. Also, it seems like you can't quite help people to see the truth. It only makes them angry.

  Published: November 14, 2007 8:54 AM

• Anthony

  Is this the result of a bad education, I wonder?

  Published: November 14, 2007 9:18 AM

• Vladimir Dzhuvinov

  The “public” is so economically illiterate about the market not because of education, but because their workplaces speak the language of a centrally planned economy. Employees come to experience the market in an unbalanced way: all their productive life is shaped by the centrally planned economy of the corporation, their participation in the market is only as consumers. It is no wonder that when their material wellbeing gets threatened, some choose to attack the market, demanding from government restrictions on liberalism and more protectionism.

  Yes, I find this sad. Very few people understand that the real gap causing the growing income disparity is the gap between the market and the corporation. And the only real way to close it is for corporations to become more like their market environment, by adopting mechanisms from it.

  Published: November 14, 2007 10:26 AM

• Fundamentalist

  Jaq: "...why is it that Austrian economists do not become entrepreneurs, even in their spare times?"

  Good question! Could be the general gulf between academia and the real world that exists in every discipline. A few years ago I read an article in a science mag that recommended professors hire a business person to help launch their new venture. It seems that academics in all disciplines, but mostly the sciences, launch about 10,000 new business ventures each year. Most fail quickly; the rest remain small and then end when the academic grows tired of the work.

  Actually launching a new venture requires very different skills than writing about it. It also requires a degree of focus for an extended period of time that academics seem to lack. For example, I used to know a business prof at the U of Okla who was constantly launching new ventures. They rarely got off the ground because he was teaching, heading several professional organizations, and launching new ventures constantly. He was best at lauching a new venture, getting it past the conceptual stage, then selling it.

  Published: November 14, 2007 12:31 PM

• Fundamentalist

  IMHO: "It was as though she wanted to play at being an entrepreneur; but without taking on any of the responsibilities, expenses or risks. What she really wanted was to be an employee."

  Great story! I'm not sure what causes this attitude, but I suspect it is a difference in the way children are raised. My father's generation had to fend for themselves, largely because families were large and parents couldn't spoil children. My generation (baby boomer) has had fewer children per family, usually just one, and those kids get spoiled something awful. Parents make up for every mistake the kids make, so the kids don't ever learn anything about cause and effect. Even as adults they see every problem as someone else's fault and they take no responsibility for anything that happens.

  Published: November 14, 2007 12:44 PM

• IMHO

  Fundamentalist

  "I think Austrians could do a much, much better job of getting their ideas to entrepreneurs."

  I think that getting the message out there is only half the battle. The real problem is finding someone willing to accept it. And when you find that someone, shaking out the cobwebs left behind by liberal or neocon thinking can be quite time consuming and frustrating. It is an undertaking to be admired.

  "I'm not sure what causes this attitude, but I suspect it is a difference in the way children are raised.

  I am also of the "baby boomer" generation, and I think that for many of our parents it was a case of "I want my kids to have it better than (or to have more than) I did."

  It is because of that line of reasoning that I believe children no longer work for their allowances, no longer wait until Christmas or their birthdays for that special gift, are dissuaded from working while they attend high school and college. As a result, when they find themselves out in the real world, they have no business acumen, lack self-control and self-determination. They look to the State to provide them with everything their parents gave them. And like Little Red Riding Hood who finds herself ensnared by the wolf dressed in her grandmother's clothing, they eventually find themselves in the clutches of the State. A rather "Grimm" ending.

  Published: November 14, 2007 2:28 PM

• Anthony

  "And the only real way to close it is for corporations to become more like their market environment, by adopting mechanisms from it."

  Hmm what do you have in mind?

  Published: November 14, 2007 2:54 PM

• IMHO

  Jeffrey,

  Also, it seems like you can't quite help people to see the truth. It only makes them angry.

  First of all, thanks for the kind words.

  I have found that when you look deeper, what you really find is not anger, but fear. It can be frightening to think/act outside one's comfort zone. For many, the assumption of risk is outside that zone.

  I think that's why so many people are sucked into those "get rich quick" scams. They're touted as low-cost ways to start businesses and even offer "money-back guarantees." People see these "opportunities" as being low risk, requiring very little investment. Bascially, the individuals running these scams are simply exploiting the fear of assuming risk.

  Published: November 14, 2007 3:16 PM

• M E Hoffer

  "Employees come to experience the market in an unbalanced way: all their productive life is shaped by the centrally planned economy of the corporation, their participation in the market is only as consumers. It is no wonder that when their material well being gets threatened, some choose to attack the market, demanding from government restrictions on liberalism and more protectionism."

  This seems to be a pretty good encapsulation of Hayek's point, in his book "Constitution of Liberty", when he called Employees: a threat to Liberty.

  Chapter 8, I believe..
  

  Published: November 14, 2007 10:24 PM

• Fundamentalist

  Has anyone read Dr. Tom Stanley's books on millionaires? His latest was The Millionaire Next door. In one of them he has interviewed accounts of millionaires about how their children do when they grow up. These accountants all agreed that 9 of 10 millionaires don't pass on their values to their children. The 10% who do live in middle class neighborhoods and make their kids work for what they want.

  On the subject of employees, maybe business people should consider training their employees in capitalism. Some poor performance is related to unjustified grievances on the part of the employees because they don't understand how business and free markets work. In addition to training in the job, training in basic economic facts may do away with unrealistic expectations on the part of employees and result in more satisfied and productive workers.

  Published: November 15, 2007 8:05 AM