In the Introduction to his new book, The Capitalist and the Entrepreneur (published as a Mises Daily), Peter Klein tells us of his path to Austrian Economics, as well as his pleasant encounters with Murray Rothbard and Israel Kirzner. He also tells us of the basic thrust of his book:
“The essays collected in this volume reflect my efforts to understand the economics of organization, to combine the insights of Williamson’s “transaction cost” approach to the firm with Austrian ideas about property, entrepreneurship, money, economic calculation, the time-structure of production, and government intervention.”
Here, Klein is referring to the recent Nobel Laureate, Oliver E. Williamson. In his Mises Daily Williamson and the Austrians, Klein relates the Williamson analysis:
“Building on Coase’s (1937) transaction-cost or “contractual” approach, Williamson argues that the firm is best regarded as a “governance structure,” a means of organizing a set of contractual relations among individual agents. The firm, then, consists of an entrepreneur-owner, the tangible assets he owns, and a set of employment relationships — a realistic and thoroughly Austrian view.”
Klein tells us how chapters 1 through 3 outline and apply a distinctively Austrian theory of the firm, centered around the Austrian analysis of economic calculation. Jorg Guido Hulsmann has called Mises’ formulation of economic calculation theory a “Copernican Shift”. In this light, Klein more firmly placing the theories of the entrepreneur and of the firm on the foundation of economic calculation theory, would seem to be a very important development.
In chapter 4, Klein analyzes the implications for the theory of the firm of the Austrian emphasis on the heterogeneity of capital. For a primer on this emphasis, see Jim Fedako’s article The Austrians versus the Mainstream Potter and His Wheel, in which he writes this wonderfully epigrammatic passage:
The standard view is that capital is clay, ready for the potter to reshape it in a moment’s time. In contrast, the Austrian view takes the current structure of capital as a given, something that the entrepreneur must take into consideration when formulating his plans. If an entrepreneur wants to change the current structure of capital, he will wield dynamite and dozer, not water and wheel.
In previewing chapter 5, Klein tells how he aims to challenge the Kirznerian concept of entrepreneurship with a more fundamentally Misesian concept:
Management scholars, and some economists, are familiar with Israel Kirzner’s concept of entrepreneurship as “discovery,” or “alertness” to profit opportunities, typically seeing it as “the” Austrian approach of entrepreneurship. Kirzner, Mises’s student at NYU, has always described his approach to entrepreneurship as a logical extension of Mises’s ideas. However, as I argue in chapter 5, “Opportunity Discovery and Entrepreneurial Action,” one can interpret Mises differently. Indeed, I see Mises’s approach to the entrepreneur as closer to Frank Knight’s (1921), a view that makes asset ownership, and the investment of resources under uncertainty, the hallmark of entrepreneurial behavior.
Focusing on uncertainty with regard to entrepreneurship would seem rather more Misesian, given that Mises defined the entrepreneur as follows:
“The term entrepreneur as used by catallactic theory means: acting man exclusively seen from the aspect of the uncertainty inherent in every action.”
Human Action, Chapter 14, Section 7
After previewing the final two chapters, Klein writes about why he writes Mises Dailies, and not just for scholarly publications.
“I think scholars in every field, particularly in economics and business administration, have an obligation to write for the general public, and not only for their fellow specialists. Ideas have consequences, as Richard Weaver put it, and economic ideas are particularly important.”
This dovetails with the following passage of Mises’, which I will never get tired of quoting:
“Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”
Human Action, Chapter 38, Section 6
