Of eggheads and entrepreneurs

Technovorion.

9 (1989) 3-4

Elsevier Science Publishers

3 Ltd. England-Printed

in the United

Kingdom

EDITORIAL

Of eggheads

and entrepreneurs

Entrepreneurial enterprises account for more than 50 percent of the new employment opportunities in the economy since 1982. Emphasizing this point in his 1985 state of the nation address, President Reagan dubbed this decade the Age of the Entrepreneur, establishing the term ‘entrepreneur’ as a buzz-word for the eighties. Indeed, Reaganomics. or as many prefer, supply-side economics, is predicated on establishing economic incentives that will induce people to become producers as well as consumers. Those who, like Steven Jobs (founder of Apple Computers) and Donald Burrs (founder of Peoples Express), introduce and successfully promote new products or services, become folk heroes, while new tabloids cater to the popular taste for get-rich-quick schemes and otherwise revel in the glories of entrepreneurship. Despite the Mittyesque flavor of this recent emphasis on entrepreneurship, these success stories are healthy signs of a reawakening of individual action in an era that has been dominated by collective approaches to solving social and economic ills. Nevertheless, the increased attention paid to entrepreneurs in the workaday world has had a disquieting effect upon economists who model economic behavior. The popular hue and cry painfully exposes the embarrassing fact that entrepreneurs have virtually no role, certainly no central role, in the theoretical models that dot the contemporary landscape. How can the science that purports to explain market behavior neglect the main economic actor in the drama of capitalism? If the question is intriguing, the answer is complicated by the inevitable twists and turns of intellectual history. Economics is a social science that has long coveted the precision of the physical sciences. Therein lies the story of its development. While the entrepreneur was an integral part of the theory of markets for a brief period in the 18th century, since the publication of A.A. Cournot’s Researches into the Mathematical Principles of the Theory of Wealth (1838). orthodox economics has emulated rational mechanics (a system of thought that views the economy and its parts as a well-oiled, frictionless machine turning out myriad goods and services with predictable efficiency). The analytical language of rational mechanics is mathematics. Applied to economics, mathematics brings precision and the promise of greater predictive power. Long ago seduced by this gainful promise, economics struck a Faustian bargain in which it sacrificed its ‘soul’ (i.e., the ability to explain) for a glimpse of the future. Despite the original promise of mathematics, our crystal ball is fogged by unrealistic expectations. Given the state of the art, mathematics lends itself more to

4

Editorial

static economic models than to dynamic action. Economic statics represses change, whereas dynamics is change; and change is the province of the entrepreneur. In a phrase, the entrepreneur has been a casualty of analytic progress. The relationship of machines to output is inanimate, whereas the relationship of the entrepreneur to the economy is primarily (though not exclusively) animate. Entrepreneurs are called upon to make decisions and to act decisively in matters affecting people as well as things. They are buffeted daily by doubts and uncertainties, financial difficulties, resource scarcities, myopia and misinformation. In the abstract realm of economic theory, these ‘frictions’ are regarded merely as imperfections in the (machine-like) model, and are therefore set aside so as not to impede a solution. The challenge before economists in the Age of the Entrepreneur is to find a way to integrate entrepreneurship fully and explicitly into economic analysis. One of the ironies of modern economics is that its practitioners recognize the vital role of the entrepreneur in everyday conversation but ignore this role completely in economic analysis. It is time to bring theory and practice into closer conformity. Some contemporary economists are leading the way. Nobel laureate T.W. Schultz (University of Chicago) asserts that there is an element of entrepreneurship in each of us, whether we profess to be business people, investors, students, laborers, or homemakers. Schultz defines entrepreneurship as “the ability to deal with diswhich suggests that, given incentives, people use their talents to improve equilibria,” their respective situations in the face of change. Israel Kirzner (New York University) defines entrepreneurship as “alertness to profitable opportunities,” and argues that the best way to promote this vital human characteristic is to keep all markets open and free from entry barriers. Before we can breathe more life into economic theory, we must resolve a major issue of methodology. Is the function of economics to understand the foundations of economic life or to predict the course of future events? Concern with prediction has led us down the road we are currently on. A more concerted attempt to improve understanding should open new avenues for theoretic progress. Albert N. Link Robert F. Hebert Robert

F. Hebert

neurial

Studies at Auburn

Director boro.

is the Benjamin

of the industrial

Technology

They are co-authors

recently published

and Roberta

University.

Albert

Russell Foundation N.

Link

is Professor

Program at the University

of The Entrepreneur:

in its second edition

Mainstream

by Praeger Publishers.

Professor

of Entrepre-

of Economics

of North Carolina

and the

at Greens-

Views and Radical Critiques,