Entrepreneurial Market Process Research Articles

Malcom McLean, containerization and entrepreneurship

Does the entrepreneurial market process reflect an equilibrating or disequilibrating tendency in the allocation of resources? We address this question by utilizing the case of Malcom McLean, who pioneered and introduced container shipping to international trade. We argue that Schumpeterian and Kirznerian entrepreneurship are distinct, yet complementary activities that drive the market process towards an equilibrating tendency. By realizing containerization as a lower cost method of shipping goods internationally, we argue that McLean acted simultaneously as a Schumpeterian and Kirznerian entrepreneur, illustrating that these two notions of entrepreneurship are different segments of the same equilibrating market process. Containerization had a disruptive effect on previous methods of ocean shipping, but its adoption was introduced through an act of arbitrage, namely by redeploying existing resources, such as cranes, ships, ports, and storage facilities from lower-valued uses to perceived higher-valued uses. In the process, McLean was able to realize previously unnoticed profit opportunities by correcting previously existing inefficiencies in intermodal transport.

Malcom McLean, Containerization and Entrepreneurship

Does the entrepreneurial market process reflect an equilibrating or disequilibrating tendency in the allocation of resources? We address this question by utilizing the case of Malcom McLean, who pioneered and introduced container shipping to international trade. We argue that Schumpeterian and Kirznerian entrepreneurship are distinct, yet complementary activities that drive the market process towards an equilibrating tendency. By realizing containerization as a lower cost method of shipping goods internationally, we argue that McLean acted simultaneously as a Schumpeterian and Kirznerian entrepreneur, illustrating that these two notions of entrepreneurship are different segments of the same equilibrating market process. Containerization had a disruptive effect on previous methods of ocean shipping, but its adoption was introduced through an act of arbitrage, namely by redeploying existing resources, such as cranes, ships, ports, and storage facilities from lower-valued uses to perceived higher-valued uses. In the process, McLean was able to realize previously unnoticed profit opportunities by correcting previously existing inefficiencies in intermodal transport.

On the Impossibility of Intellectual Property

The concept of intellectual property (IP) has been variously criticized as incompatible with natural rights and detrimental to the dissemination of innovations. In this paper I argue that it can be criticized on an even more fundamental level—namely as a praxeological impossibility. More specifically, it is suggested that since ideas are not economic goods, but preconditions of action, and since physical goods transformed by ideas become as heterogeneous (and thus as intellectually unique) as the individuals who enact such transformations, no economic goods can be meaningfully designated as appropriable in virtue of embodying the objectively definable value of one’s intellectual labor. In view of the above, I subsequently suggest that IP protection laws constitute an exceptionally arbitrary and thus exceptionally disruptive form of interventionism directed against the very essence of the entrepreneurial market process.

Coase and transaction costs reconsidered: the case of the English lighthouse system

What is Coase's understanding of transaction costs in economic theory and history? Our argument in this paper is twofold, one theoretical and the other empirical. First, Coase regarded positive transaction costs as the beginning, not the end, of any analysis of market processes. From a Coasean perspective, positive transaction costs represent a profit opportunity for entrepreneurs to erode such transaction costs, namely by creating gains from trade through institutional innovation. We demonstrate the practical relevance of entrepreneurship for reducing transaction costs by revisiting the case of the lightship at the Nore, an entrepreneurial venture which had arisen to erode the transaction costs associated with regulation by Trinity House, the main lighthouse authority of England and Wales. By intervening into the entrepreneurial market process, Trinity House would pave the way for the nationalization of the entire English and Welsh lighthouse system. By connecting our theoretical contribution with an empirical application, we wish to illustrate that Coase's theoretical understanding of transaction costs is inherently linked to an empirical analysis of market processes. [ABSTRACT FROM AUTHOR]

Regulation Without the State: The Example of Financial Services

There are frequent calls for financial markets to be more actively regulated by state agencies, such as the Financial Conduct Authority or the Prudential Regulation Authority. They reflect neo-classical, market-failure approaches to economics, which suggest that the market does not maximise welfare if certain conditions do not hold and that government action is required to move the market towards the welfare-maximising position. But we cannot know whether government regulatory action will move us away from or towards the welfare-maximising position unless we also make unrealistic assumptions about behaviour in regulatory agencies. The neo-classical, market-failure approach therefore takes us down an intellectual rabbit hole. It is instead possible to think of regulation as part of the set of services provided by the market, rather than something that to be done to the market ex-post. The discovery of regulatory organisations is part of the entrepreneurial market process. Regulatory institutions evolving within the market continue to evolve, despite the attempts by government agencies to regulate markets in very detailed ways. Modern examples would include the International Swaps and Derivatives Association (ISDA), whose record during the financial crisis was faultless. There are disadvantages arising from private regulatory bodies: they can encourage cartelistic behaviour and may prove less effective where the economic activity in question gives rise to widespread social costs beyond market participants. However, we should reject market failure analysis and operate under the assumption that the market can provide regulatory services because they are valued by market participants. Where statutory regulation is used, it should generally be voluntary with products not regulated by the statutory regulator being clearly identified as such.

Visions of entrepreneurship policy

Purpose The purpose of this paper is to present and compare alternative theoretical frameworks for understanding entrepreneurship policy: targeted interventions to increase venture creation and/or performance. The authors contrast the Standard view of the state as a coherent entity willing and able to rectify market failures with an Individualistic view that treats policymakers as self-interested individuals with limited knowledge. Design/methodology/approach The authors draw on the perspective of “politics as exchange” to provide a taxonomy of assumptions about knowledge and incentives of both entrepreneurship policymakers and market participants. The authors position extant literature in relation to this taxonomy, and assess the implications of alternative assumptions. Findings The rationale for entrepreneurship policy intervention is strong under the Standard view but becomes considerably more tenuous in the Individualistic view. The authors raise several conceptual challenges to the Standard view, highlighting inconsistencies between this view and the fundamental elements of the entrepreneurial market process such as uncertainty, dispersed knowledge and self-interest. Research limitations/implications Entrepreneurship policy research is often applied; hence, the theoretical rationale for intervention can be overlooked. The authors make the implicit assumptions of these rationales explicit, showing how the adoption of “realistic” assumptions offers a robust toolkit to evaluate entrepreneurship policy. Practical implications While the authors agree with entrepreneurship policy interventionists that an “entrepreneurial society” is conducive to economic development, this framework suggests that targeted efforts to promote entrepreneurship may be inconsistent with that goal. Originality/value The Individualistic view draws on the rich traditions of public choice and the entrepreneurial market process to highlight the intended and unintended consequences of entrepreneurship policy.

The Lighthouse Debate and the Dynamics of Interventionism

Coase’s publication of “The Lighthouse in Economics” (1974) sparked a polarizing debate over his claim that government intervention is not necessary for the existence of a private lighthouse market. The purpose of this paper is to reframe this debate by asking the following question: why was nationalization the outcome of lighthouse regulation? We answer this question by utilizing the Austrian theory of interventionism to illustrate how regulation of the lighthouse market distorted the entrepreneurial market process. We argue that the nationalization of the lighthouse market in England and Wales was a result of prior government failure to exclude private lighthouses from the market, not a failure of the entrepreneurial market process to privately provide lighthouses.

On the relationship between inequality and entrepreneurship

Research SummaryWe reexamine and explore the modern view of inequality against entrepreneurial market process theories, which leads us to three key assertions. First, we question the validity of income inequality as a proxy for true inequality (i.e., inequality of individual well‐being), observing nonlinearity between the two constructs. Second, we explore the entrepreneurial microfoundations of growing and shrinking inequality in market societies, arguing that individual inequality is primarily the outcome of abnormal gains from disequilibrating creative destructive processes. These shifts are temporary, however, as equilibrating (arbitraging) entrepreneurship competes away monopoly profits. Growing inequality trends, then, are seen primarily as the result of increasingly large, but also shorter, waves of creative destruction. Finally, we reconsider the issue of the injustice of inequality through this market process lens.Managerial summaryWe contribute three arguments to the debate over economic inequality. We are (or ought to be) concerned over differences in individual well‐being, not income. Studies of income inequality can be misleading. We argue that a key and so far overlooked source of economic inequality is entrepreneurship. Disruptive entrepreneurship (via innovation) redistributes economic resources away from the present industry, reallocating them in a more unequal redistribution, with the successful disruptor capturing an unequal share of resources. Imitative entrepreneurship, however, tends to mitigate this inequality, competing away abnormal profits while expanding new products’ diffusion among consumers. Finally, we observe that economic inequality may not be as unjust as previously thought, and we caution against corrective policy that might inhibit entrepreneurship.

Introduction: Symposium on William Easterly’s The Tyranny of Experts

With his books The Elusive Quest for Growth and The White Man’s Burden, William Easterly significantly changed the terms of the debate over the role of government and foreign aid in addressing poverty and underdevelopment. It is important to stress, however, that Easterly’s work is not just a critique of efforts at development planning due to perverse incentives, bureaucratic bottlenecks, and errors in information. Rather, his writings contain a deep understanding of the role of the entrepreneurial market process in lifting individuals out of poverty and producing a social order of freedom, dignity, peace, and prosperity. Development follows from a society of free and responsible individuals who participate in a market economy based on profit and loss; who participate in a political regime governed by principle, not privilege; and who live in a society that exhibits neither discrimination nor dominion. Easterly is one of the clearest voices in economics today for how the free enterprise system is a catalyst for human betterment. In The Tyranny of Experts, Easterly develops the argument regarding the importance of liberty, freedom, equality, rights, and democracy for human flourishing in great detail. In doing so he indicts the Western aid establishment for promoting autocrats, rather than merely tolerating them, in their efforts to engage in development policies. The technocratic approach to development, Easterly contends, fails to appreciate that the main source of the tragic poverty that exists throughout the less developed world is a direct consequence of the unchecked power of governments. This unconstrained power allows the political elite to act in a manner which runs counter to the interests of the poor who lack basic rights. Development occurs, Easterly argues, by unleashing the potential of individuals through the recognition of their rights to their persons and their projects. The bottom-up, spontaneous, uncoordinated actions of the multitude of Rev Austrian Econ (2015) 28:405–406 DOI 10.1007/s11138-015-0327-7

Entrepreneurship, and the entrepreneurial market process: Israel M. Kirzner and the two levels of analysis in spontaneous order studies

The science of economics is born out of the puzzle that the coordination of economic activities presents to our imagination. The solution to that puzzle is the entrepreneurial market process. Israel Kirzner has argued that the market economy operates with ruthless efficiency to coordinate economic activities and realize the gains from social cooperation under the division of labor because of the institutional framework within which it operates, namely private property rights. Kirzner, however, is suspicious of economic analysis that doesn't limit its analysis to an examination of processes within that framework, but instead attempts to apply that analysis to the evolution of the framework itself. These are the two-levels of analysis in spontaneous order studies. This paper presents Kirzner's arguments for maintaining a strict dichotomy between the levels of analysis, and then challenges his argument with a discussion of the positive political economy of endogenous rule formation.

Entrepreneurship, and the Entrepreneurial Market Process: Israel M. Kirzner and the Two Levels of Analysis in Spontaneous Order Studies

“Economics,” Ludwig von Mises (1966, 252) famously wrote, “in speaking of entrepreneurs, has in view not men, but a definite function.” The entrepreneurial function is to be the driving force of the market economy. The entrepreneur acts on the basis of changing circumstances in market conditions to produce the accommodating adjustments in exchange and production. The ceaseless quest for profits by those eager entrepreneurs drive the market system toward realizing the gains from trade and the gains from innovation. The relentless pursuit of profit is in this Misesian analysis of the market process the critical factor in how markets work. Profits and losses are ever-present features of a functioning market economy only because of changing circumstances that result in discrepancies that require adjustments.

Corruption and Competition: Toward Economic Theory of Corruption

Why corruption persists in governmental organization? While corruption is a problem of private sector as well as governmental sector, economic experts rather attempt to solve corruption in governmental organization. Moreover, economic literature sometimes defines corruption as a problem of the state. In this paper, we argue that the reason for persistence of corruption in governmental organization is the lack of monetary calculation within bureaucratic management and lower intensity of political competition in comparison with entrepreneurial market process. Market process serves as a means of feedback for efficient organizational arrangement.

Historical Foundations of Entrepreneurial Market Process Theories

What are the historical foundations of entrepreneurial market process theories? Within the marginal revolution, economists laid down rigorous microeconomic foundations for market analysis. While the Cambridge school and the Lausanne school attempted to provide a theoretical apparatus that would explore the market mechanism within a static partial equilibrium market analysis and implicitly dynamic general equilibrium market analysis, the Austrian school attempted to provide a theoretical apparatus that would explore the market mechanism in a more dynamic way. The Austrian school, unlike the Cambridge school and Lausanne school, thus provided a sound theoretical background for developing entrepreneurial market process theories that reject the Mengerian theory of imputation.

THE ROLE OF ENTREPRENEURSHIP IN THE MARKET PROCESS: A SIMULATION STUDY

We review the major existing theoretical propositions of several economic schools of thought on the role of entrepreneurship and its equilibrating vs. disequilibrating effect in the economy. We then introduce a cooperative game theory model of the market process in which we provide formal definitions of creation and discovery entrepreneurship, and employ a computer simulation of this model that allows us to visualize and analyze the dynamic entrepreneurial market process through time. Based on this formal analysis, we suggest important refinements of existing theoretical propositions regarding the economic nature of entrepreneurship that can help build stronger micro-foundations for entrepreneurship theory.

Corridors, Coordination, and the Entrepreneurial Theory of the Market Process

Daniel Klein (Klein 1997, Klein and Orsborn 2009 and Klein and Briggeman forthcoming) and Israel Kirzner (forthcoming) have been engaged in a debate concerning how economists should understand and use the terms “coordination” and “economic goodness”. Klein and Briggeman (forthcoming) contend that Kirzner suffers from excessive ambition scientifically. The authors claim Kirzner’s reliance and identification with “the Misesian image of science” threatens to discredit his more sensible contributions (e.g., market processes are driven towards progress by competitive entrepreneurial discovery). We offer a response to Klein and Briggeman’s claim that loose, vague and indeterminate forms of economic reasoning make for a more robust political economy. In doing so, we also explain the theoretical context surrounding Kirzner’s theory of the entrepreneurial market process. While we agree with Klein and Briggeman’s critique of scientism and formalism, we emphasize the nature of the debates over market theory and the price system that Kirzner was engaging in order to understand the reasons behind his methods and the theoretical insights they provide. Rather than the source of his failure, we view Kirzner’s “excessive ambitions” to provide a scientific foundation of the market process as the source of his great success as an economic theorist.

Teorie podnikatelského objevování

The aim of the paper is to introduce Kirzner's theory of entrepreneurial discovery as a complement and an alternative to the mainstream theory. In the first and the second sections, the author explains the main influences of Ludwig von Mises and Friedrich August von Hayek's works on entrepreneurial theory. Section three analyzes pure entrepreneurial profit and logical construction of theory as a complement to mainstream theory. To introduce the entrepreneurial market process as an alternative to mainstream theory, the fourth section begins by explaining Kirzner's approach to the critique of the possibilities for economic calculation in the system of public ownership of the means of production and his theory of monopoly. The last section is a conclusion.

Computable Entrepreneurship

The mathematics of “computable economics” proves that entrepreneurship policy is unlikely to succeed if it presumes policy makers can replace the unplanned results of the entrepreneurial market process with ex ante judgments about which enterprises are best. It is mathematically impossible for policy makers or their assignees to make the required computations of opportunity costs. Some business professors dream of finding a grand algorithm that will allow them to guide entrepreneurial decisions and to judge in advance which decisions are good and which bad. The logic of computable economics, however, reveals this dream to be a form of magical thinking.

Podnikatelství a konkurenční tržní proces v Rakouské škole a v díle J. A. Schumpetera

The aim of this paper is to introduce the market process as a central concept of Austrian economics as opposed to the general-equilibrium approach of the neoclassical school. In the first part the author shortly reviews the theme of entrepreneur and understanding of entrepreneurial function in the history of economic thought. In the second chapter the formation of the Austrian view of the market as an entrepreneurially driven process and simultaneous emergence of criticism of mainstream theory is explained. The chapter three describes the Austrian understanding of the market process based upon twin concepts of sheer ignorance and entrepreneurial discovery. The last chapter introduces the entrepreneurial market process theory of Schumpeter. Schumpeter's theory is subsequently compared with Kirzner's approach. The author also surveys and compares modern discussions about market process within the Austrian school of economics.

An Austrian model of the entrepreneurial market process

An Austrian model of the entrepreneurial market process