 Well, I'm really delighted to be here at the Mises Institute for the 30th anniversary Mises U conference. I have not had the privilege of attending all 30 of the conferences. I've only attended 28. I missed the first two, but I've made everyone since 1988. I'm hoping to be at the 31st conference unless Tom Woods arranges for me to have that accident that he was talking about last night. Tom did say his father was a teamster, so he probably does know some guys. Now because this is a special event, the 30th conference, I want to begin with a personal statement of some of my most deeply held values, which are that you work hard for what you want in life, that your word is your bond, and you do what you say, that you treat people with dignity and respect, and that you pass these values on to the next generation. I want you to know that the only limit to your achievements is the reach of your dreams and your willingness. Wait a minute. Is this from Michelle Obama's speech? I said I wanted authenticity from the heart. I need a new speechwriter clearly. So I want to talk to you this afternoon about entrepreneurship. I'm going to build on previous lectures on valuation and pricing and capital theory and try to use them to introduce an Austrian concept of entrepreneurship in a little bit more detail. Now many of you are, I'm sure, interested in entrepreneurship already. Many of you are practicing or prospective entrepreneurs. You know, entrepreneurship in our culture has become kind of a big deal. You know, there are lots of books on becoming an entrepreneur. We encourage young people to pursue entrepreneurship as a vocation. We have TV shows about entrepreneurship. We often think that the path to economic prosperity in the developing world is for these countries to embrace entrepreneurship and to raise their minimum wage, as Tom was saying last night. You know, being an entrepreneur is kind of a status symbol. Such that having an entrepreneur in your corner is like a big deal. I mean, if you can show that entrepreneurs are on your side, even in public life, supposedly this works to your advantage, and you can even eliminate the middleman and just be an entrepreneur yourself. Oddly, despite the interest in popular culture, in business practice, and even in many parts of academia, in entrepreneurs and entrepreneurship, the economics profession has not really gotten on the bandwagon. Okay, so entrepreneurship occupies a very strange place in sort of conventional economic theories and literature. You know, if your view of how the economy works is expressed like this, maybe it's not a surprise that you don't have room to incorporate the creative, dynamic, charismatic entrepreneur into your theories. In fact, I did a little experiment to see how often entrepreneurs and entrepreneurship were mentioned in some of the leading economics text books. And I looked through some of the books that I had readily at hand in my office. And in most of the books, in almost all of them, I couldn't even find the word entrepreneur in the index. I mean, this is a photo I took. I think this is Varian's Intermediate Economics Microtext. I mean, the word entrepreneur or any of its cognates does not even appear in the index. I mean, so I'm not claiming, I'm not merely claiming that entrepreneurship is not central to contemporary theories about the economy. I'm claiming it isn't even mentioned. The word does not even merit a mention. Now, this is very different from the picture of the economy. We get from the Austrians. We get from Mises in particular. Mises wrote in Human Action that it is impossible to eliminate the entrepreneur from the picture of a market economy. The various complementary factors of production cannot come together spontaneously. They need to be combined by the purpose of efforts of men aiming at certain ends and motivated by the urge to improve their state of satisfaction. Mises concludes, in eliminating the entrepreneur, one eliminates the driving force of the whole market system. So entrepreneurship is not merely an add-on for Mises. Entrepreneurship is not just another applied topic that you might study in your third or fourth year of your major. Rather, entrepreneurship is central to the very operation of the market system itself. I would even put it this way. Entrepreneurship for Mises is a very general aspect or feature of the market economy. It's central to everything that goes on in a market context. And by the way, as we'll see and as I hope to convince you during the next few minutes when when Austrians like Mises discuss entrepreneurship, they do not mean only self-employment. They don't mean just startups or high tech firms or high growth firms or businesses that are going through an IPO or whatever. Certainly, many of those phenomena are manifestations of entrepreneurship. But entrepreneurship in the Austrian understanding is much more general and much more fundamental than just startup companies or Silicon Valley firms or mom and pop operations or whatever. So let me try to put this in the context of what we've learned already just last night and today. So think about the Austrian understanding of production. Austrians begin going back to Karl Manger's day as Joe Salerno described this morning. And even as Tom Woods mentioned last night with the notions of, you know, the notion of purposeful human action, which involves combining inputs into outputs, right? Using means to achieve desired ends. So inputs are things like original factors, natural resources and labor, intermediate goods, machines, factories, technologies and so forth. Those things are used. They're combined in various ways to produce final goods or outputs, the goods and services that are consumed directly by the user. Now, in a complex industrial economy and indeed even in a highly simplified world like the Crusoe economy discussed by Professor Herbner, there are many possible factor combinations. There's more than one way to skin a cat. In other words, if we take even a relatively simple kind of consumer good like, you know, the famous yellow pencil of Leonard Reed's SAI pencil, we realize there are lots and lots of ways to produce pencils. Even if we consider a very standard pencil that's yellow and is able to perform certain functions, we can produce it using different kinds of inputs. We can use different kinds of wood or even plastic or metal of the body of the pencil. We can use different kinds of graphite or lead for the writing instrument. We can use rubber or plastic, a different kinds of metal to hold in the eraser. And of course, we can source these components for many, many different places all over the world. We can use a more labor intensive or a more capital intensive method of production. We can automate the processing of pencils. We can have hand produced pencils and specialized pencils and so forth. So there are thousands and thousands of possible combinations of factors that can be used to produce a particular set of economic goods. So from the point of view of economic efficiency, the question becomes, well, which of the many factor combinations is the most effective? Which is the least costly? Which is the most efficient? As we'll see tomorrow in Professor Salerno's lecture on calculation and socialism, this is a problem that a socialist economy cannot solve, but a problem that in a capitalist market economy is solved every day with ease. Right? So we want to transform inputs into outputs in the most efficient manner. We recognize that production is not instantaneous. Production takes time. Meaning that we have to make commitments now to acquire and combine and transform productive resources in particular ways. But we have to wait some period of time before we get to consume the final output. OK. Now, several speakers have also have already touched on the Austrian concept of imputation, the fact that going back to Karl Manger and as worked out by Manger's successors, the Austrians recognize that valuation goes from consumer value to the value of factors of production. The reason that certain kinds of wood and graphite and rubber and so forth are valuable on the market is because they can be combined to making to producing pencils, which are valuable to consumers. We're willing to pay, we're willing to exchange other goods and services, including money for the use of particular pencils. Now, I want to go into a little bit more detail about exactly how the values of these factors are computed. So others have already mentioned the concepts of marginal product and marginal revenue product. Professor Herbner used the term marginal value product, which is a perfect synonym for marginal revenue product. Rothbard uses the term marginal value product. Most people today use the term marginal revenue product. That's the one that I'll use. So how does this imputation process work? Well, let's begin by assuming that factors of production are partly substitutable across lines of production. In other words, the wood that is used to make the number two pencil could also be used to make a boat or it could be used to make a tool or various a picture frame. There are lots of other things that we could produce using that wood. Same thing for the other materials, right? The Austrian economist Ludwig Lachmann referred to this characteristic as multiple specificities. So assume that factors of production have multiple specificities, meaning there's not a single factor that is just sort of generic that can be used equally for everything, like Play-Doh, you can mold it in anything that you want or like the stuff that you feed into a 3D printer, you know, some kind of goop and then the 3D printer can shape the goop into different little objects. So productive factors are not like goop that can be made into anything, but nor are they typically so specialized that they can be used only to produce one thing. Rather, there's some range of substitutability within production processes or among different production processes, but it's not unlimited. So marginal product is the amount of output that would be sacrificed if we used one fewer units of irrelevant input. Marginal revenue product is the amount of money revenue that can be attributed or imputed to use the Austrian word in English to one service unit of a factor. The discounted marginal revenue product is the money revenue attributed or imputed to one service unit of a factor discounted by the social rate of time preference, i.e. the pure rate of interest. In other words, the producer is asking, well, if I use one unit fewer, one fewer unit of wood or graphite or rubber, how many fewer pencils do I get? How much less revenue do I get from selling those pencils? And then how do I discount that back to the present to compensate for the fact that I have to purchase the materials now, but I'll only get the revenue from selling the pencils in a month's time or a week's time or a day's time or however long it takes to produce those pencils. So the discounted marginal revenue product establishes the entrepreneur's maximum willingness to pay for one service unit of a factor. And as we'll see in just a moment, given multiple entrepreneurs competing against each other for the services of these factors and a crucial point, absent uncertainty about future market conditions, the price of a factor will tend to equal its discounted marginal revenue product or DMRP. OK, now there are certain exceptions to this principle based on factors that have idiosyncratic characteristics. I'll show you an example of that in just a moment. But just to look at a simple case, right? Suppose that we're producing some good or service, call it pencils, and this good or service is produced with three inputs, call them A, B and C. Suppose that the entrepreneur knows if you combine four units of A with 10 units of B and two units of C, you get output that is worth $100 on the market. You get stuff that you can sell for 100 bucks. OK, however, if you lost one of your units of A, if you took away a unit of A, in other words, you combined just three units of A with 10 units of B and two units of C, you would have output that's worth only $80 on the market. Right, so ignoring discounting for the moment, how much revenue have you lost if you had to give up one unit of A? Well, you would have given up $20 of revenue. So the marginal revenue product of a unit of A in this particular factor combination is 20 bucks. OK, so how much would an entrepreneur who currently has three units of A be willing to pay to get one more? Well, if if if somebody has a bunch of units of A lying around and says, hey, I'll give you a unit of A for 50 bucks, the entrepreneur is thinking, OK, well, that's going to add $50 to my cost to buy that fourth unit of A. It's only going to add $20 to my revenues. That's a losing proposition. Right, I'm going to that's going to take $30 out of my net revenues. Because I wouldn't pay $50 for that unit. I wouldn't pay $40 or $30 for that unit. Now, if somebody offers me unit of A for five bucks, I'll gladly take it because I can get $20 of additional revenue from spending five more dollars on input that adds, you know, $15 to my profit. So I'd be willing to pay up to but not beyond 20 bucks for an additional unit of A if I'm starting out with 3A, 10B and 2C. OK, so notice that the marginal revenue product of a factor depends on how you're currently using that factor in combination with other factors. It depends on how many units of the factor you currently have. Which, of course, is analogous to the Hungarian treatment of diminishing marginal utility, right? The marginal utility of a gallon of water or a service unit of an automobile or whatever depends on how many units you already possess and what other things you're consuming in combination and so forth. So there's a strong analogy there. So by the way, to be technical, this is a case of nonspecific factors, meaning there's some other use for that extra unit of A besides this one, right? And the factors can be used in variable proportions. Now, you can imagine a case where you have nonspecific factors that can only be used in particular fixed proportions. They sometimes use the example in textbooks of left shoes and right shoes, right? If you have two left shoes and two right shoes, an additional left shoe is not really very useful unless you have another right shoe to go with it, right? So imagine that the way you produce these pencils, you know, you got to use a certain proportion of capital and labor and each capital good has to be used, each input has to be used in a particular proportion. So you can get $100 of output from using 4A, 10B and 2C. And if you give up a unit of A, so you're producing your use of A by 25 percent, you also have to reduce your use of B and C by 25 percent, right? So you'd use seven and a half units of B and one and a half units of C and that would give you $75 worth of output. Well, notice that the marginal revenue product of A is now 25 bucks rather than 20 bucks. OK, so that fourth unit of A that I'm contemplating becomes even more valuable when it has to be used in precise proportions with the other inputs that are also involved in production. So again, I would pay no more than $25 for this service unit. And in a world where entrepreneurs are competing against each other to acquire units of factors, we would expect the equilibrium price of this factor to be $25. OK, there's some particular cases. What Rothbard calls an indispensable factor or a non-isolable factor. What he means is a factor to which we cannot impute a value independent of the values of other factors. For example, suppose one unit of A, two units of B and three units of C gives you output you can sell for 200 bucks. If you take away a unit of A, you have no A, only B and C. You have a pencil with no eraser. And imagine nobody would ever want a pencil with no eraser. You can't sell any of them so your revenues are zero. Right in a case like that, the marginal we would not expect the marginal revenue product to correspond exactly to the price. Because if you take away one unit of A, you've basically lost all your output. OK. But for factors that are isolable, in particular factors like in the first case that can be used that are not purely specific and can be used in variable proportions, the prices of those factors on the factor market are determined by their discounted marginal revenue products. Now, we've made some heroic assumptions in doing this kind of analysis. For example, in particular, we've assumed that these prices are determined in some kind of equilibrium state, something like what Mises and Rothbard call the evenly rotating economy. Right, a state of affairs, an imaginary state of affairs in which, you know, there is the passage of time, there is production and consumption, but there's no uncertainty. Everyone knows exactly how many pencils are going to be demanded in the next you know, the next period, what those pencils will sell for. So everyone knows the discounted marginal revenue product of particular factors. Right, and there's a kind of equilibrium price that's established on the factor market where each factor earns exactly its discounted marginal revenue product. By the way, it's also true that business owners get some additional income, right, owners of firms, owner managers of firms get a return equal to an implicit wage, in other words, to the extent that managing an enterprise requires some effort, some labor effort, and that the owner could, if he or she were not operating this business, be employed somewhere else, earning a wage equal to a discounted marginal revenue product. Then the owner has to be compensated, has to have enough of a draw from the firm's income to compensate for the loss of wages that could be earned in some alternative activity. Capitalists, those who lend money to the firm will still earn an interest return, but there's nothing else. There are no profits, there are no losses, because profits and losses do not exist in this equilibrium evenly rotating economy. Right, there's nothing left over for an entrepreneur to claim as a residual profit because everything's been paid out to factor owners in terms of discounted marginal revenue products or consumed as an implicit wage or paid to lenders in the form of interest. What happens outside the evenly rotating economy, i.e., in the real world? Well, in the real world, entrepreneurs do compete for factors. Right, they've bid against each other for the use of wood and graphite and rubber and for the services of pencil assemblers and pencil designers and pencil transporters and pencil testers and whatever other kinds of labor are used in the pencil production process, but they compete for the use of these factors based on their knowledge and beliefs about the present. Right, what technologies for producing pencils will actually work? How productive can you be when using inputs in a certain way? How well do those pencil machines work? How hard will a pencil labor toil to produce pencils? What resources are out there? What are the stocks of available resources? And more importantly, they're bidding for factors based on their beliefs about the future. How many pencils will consumers actually want once we get them produced? So what revenues will I actually be able to achieve on the market when I bring my output, when I offer my output to sale? Remember, that is not known at the time that production commitments have to be made. It's only revealed later because production takes time. And of course, some entrepreneurs might be wrong. Sometimes they get it right. And they are willing to pay for factors no more than what those factors will actually eventually bring in in terms of marginal revenue. Some entrepreneurs are very shrewd and are able to acquire factors of production on the cheap at prices far below the eventual realized marginal revenue products. And so they earn a residual. They earn profit. Sometimes they're wrong and they pay more for factors of production than those factors will eventually be worth. And so some entrepreneurs are successful and earn profits. Some entrepreneurs are unsuccessful and earn losses. Some entrepreneurs earn both profits and losses, depending on the project or the or the time of day or the year. Having to come across this interesting article about the many Trump ventures that we've seen over the years. And they have a list, a nice list of some Trump ventures that have made a lot of money like the Grand Hyatt Hotel, Trump Tower in New York, the TV show, The Apprentice, Trump Tower Chicago. But I was also interested in the list of Trump failures. Does anybody remember Trump Airlines? Back in the 80s, he bought a bankrupt East Coast airline, tried to turn it profitable. It failed. There was Trump Vodka, Trump Casinos, the board game, Trump the Game. It's kind of like Monopoly, but it's but only Trump properties. Trump Magazine, who can forget biting into a delicious Trump steak? GoTrump.com was some kind of a travel website, apparently. Trump University, we've all heard about a lot from the Clinton campaign. But look, you know, so why is it that some entrepreneurs are good at anticipating the future and make money? Some entrepreneurs are not so good at it and don't make money or lose money. Some entrepreneurs make money some of the times and lose money other times. Well, it's because of the basic fact of uncertainty about the future. OK, when entrepreneurs are purchasing factors of production, which way they will then combine in different ways in anticipation of potential future revenues, those revenue streams are not known. They're not exogenously given their imaginations, their anticipations, their guesses. Now, for successful entrepreneurs, they're educated guesses. They're based on reason and analysis and valuable intuition and insight into the market. OK, but it's not something that's given, sort of, you know, it's not something you can estimate mathematically. It's not something you can look up in a book. It's not something that some economist or forecaster can tell you with precision. Entrepreneurs are bearing uncertainty as they make there, as they act in factor markets to try to acquire resources and combine them, right? Mises explicitly describes or conceptualizes entrepreneurship as the act of bearing this fundamental uncertainty. So if you like, we could describe entrepreneurship in the broad sense as uncertainty bearing. Mises says the term entrepreneur as used by economic theory means acting man exclusively seen from the aspect of the uncertainty inherent in every action. OK, now, in this sense, I mean, all human action is entrepreneurial. Right, I believe David Howden used the example this morning of people showing up to hear the lecture and that shows that you value the lecture. The lecture ranks higher on your value scale than sleeping an extra hour and much higher on your value scale than talking to David Gordon and so forth, right? But we can actually make that story a little bit richer by saying, look, when you made the decision to get out of bed this morning, when you made the decision to walk in here and sit down, you didn't actually know whether Dave Howden's lecture would be any good. Right now, maybe you've seen him on YouTube or you've attended one of his classes or you've read his books and articles and you're just really pumped about it and after the lecture, you thought, oh, man, this is so awesome. I gained so much knowledge from the Howden lecture. I sure am glad I didn't stay in bed. We'd say, well, you earned some kind of a profit, right? You got benefits that exceeded the opportunity cost of that hour. And we can't measure those profits with a number. It's a kind of psychological thing, right? But you could also, by analogy, imagine that I'm sure this would never happen. But but somebody might have, you know, about halfway through Dave Howden's lecture said, oh, my gosh, when is this going to end? This is awful. I wish I was still in bed asleep. I hope Howden's not listening to this. You know, we would say that person earned some kind of a loss, right? The value of what they got is actually lower on their value scale than the opportunity cost of staying in bed. So in everyday life, we're sort of pursuing profit and trying to avoid loss in every decision that we make. OK, but that's not if we're interested in sort of describing the market economy and explaining how different industries work. And that's not a particularly interesting or important form of entrepreneurship. Right, we might rather be interested in entrepreneurship in a narrower sense. OK. So at this point, it's worth just briefly mentioning that what Mises has in mind by uncertainty is not the same thing as what your finance professor will describe as risk. OK, so uncertainty is not the same thing as risk. Risk refers to a state of the world in which you don't know what's going to happen in the next minute or the next hour or the next day or year. But you can describe it. It's a pretty well known problem. For example, rolling dice. OK, as the dye leaves my hand, I don't know what number is going to come up. But if it's a normal dye and it's not rigged, you know, some have it's a six sided dye, I know that there are six possible outcomes. The probability of any particular number coming up is one sixth. You know, in a betting situation, I can calculate what's my anticipated return on betting so many dollars on a three. Do I want to do that based on my risk preferences and so forth? You know, the probability that a new business will be successful. The probability that I'll have some major I'll experience some major life event is not something that you can really describe in the same way as rolling dice. What's the probability that during Mises you, for those of you who are single, you will meet the person of your dreams and fall madly in love and spend the rest of your life with this person and cheer bliss? What's the likelihood that that's going to happen tomorrow at Mises you? I mean, you might have some ideas about that. But, you know, you can't tell me, well, the probability that I'll meet this type of person is one sixth and the probability I'll meet this kind of person one eighth. There are no probabilities that you can attach to that, right? There are many situations where we can't even write down the set of all possible things that could happen tomorrow. It's sort of totally open ended. I say, I say, right, tell me right now all of the things that can happen to you tomorrow and the probability of each so I can calculate the expected value. It's kind of a nonsensical. It's a nonsensical question. So the American economist Frank Knight was famous for distinguishing between probabilistic risk and sort of deep or fundamental uncertainty. Right. The latter referring to cases where we cannot sort of describe the problem using formal mathematical language. Rather, we have to deal with decision making under uncertainty using our intuition, our gut instinct, or what the Germans call or Mises called understanding. It sounds better in German, the German word for stay in. It's usually rendered in English as understanding, but it's kind of deeper than that. It's like a very deep understanding of particular particular circumstances. OK, that's what the entrepreneur relies on in making decisions. Now, Mises actually used the language of his younger brother, Richard von Mises, a very famous mathematician and probability theorist. The younger von Mises distinguished between what he called class probability and case probability, which are roughly analogous to what Knight called risk and uncertainties. You can Google that later on your own and read what Mises said about class versus case probability. It's the same idea that in situations of uncertainty or case probability, we cannot rely on formal models of decision making. The decision maker rather has to rely on this kind of, you know, sort of tacit knowledge, tacit understanding that cannot be articulated in numbers or equations or what have you. OK, so there's also a different way to understand entrepreneurship, different way to conceptualize entrepreneurship, kind of a narrower sense or a more commercial sense, right? This is the act of combining and recombining productive factors in pursuit of money profit under conditions of uncertainty. OK, as Ludwig Lachmann put it in his book on capital theory, we are living in a world of unexpected change, i.e. true uncertainty. Hence, capital combinations or resource combinations will be ever changing, will be dissolved and reformed. In this activity, we find the real function of the entrepreneur. So to the Austrian economist Lachmann, the real function of the entrepreneur is this constant combining, dissolving, reforming of combinations of productive factors in pursuit of money profits. OK, now the reason I call this entrepreneurship in the narrower sense is because it's sort of excluding the entrepreneurship that you exercised in your decision to come to Dave Halden's talk, right? And the reason is if we're trying to understand economic conditions, if we're trying to get a handle on how the world works, we want to understand new products and new industries, why capitalist countries are more productive than socialist countries and so forth. You know, the probability of you falling in love, your decision to come to the lecture or not, no offense, it's just really not that interesting. It's not that important for sort of making the economy go. It's the decisions of, you know, the Donald Trumps and Peter Teals and Steve Jobs and, you know, Andrew Carnegie's of the world that really make the economy go. And we're just sort of empirically more interested in studying those kinds of decisions than we are kind of everyday entrepreneurship, OK? Notice that critical to this notion of entrepreneurship as, you know, commercial action under uncertainty is that it requires resource ownership. The entrepreneur has to take possession, has to take control of productive factors and actually put them to the market test. In other words, entrepreneurship is not a purely cognitive or conceptual activity. So you and I could sit around tonight, you know, during the social hour and talk about how much we like Leonard Reed's SAI pencil and we can talk about different ways that you can make pencils nowadays and, you know, maybe you could use a 3D printer to make these really awesome pencils out of out of goop. And man, wouldn't it be great if we did this and that? And yeah, here's all the different ways we could do it. Think how much money we could make. Man, that would be awesome. Have one more drink, go back, go to bed. You know, I would say no entrepreneurship took place that evening, at least at that table, right? All that happened was chit chat, talk, speculation, right? So, you know, formulating a business plan, thinking about how you might earn money, imagining possible future states of the world. You know, those might be kind of pre-entrepreneurship activities, but there's no actual entrepreneurship until money is on the table. The entrepreneur must always have skin in the game. OK, otherwise, entrepreneurs could never lose. Right, if entrepreneurship is sort of a cognitive act and then you can find some other fool, some other sucker to bear the uncertainty for you, well, then you could never lose money because you didn't put anything up in the first place. OK, entrepreneurial profit can never exist without the prospect of entrepreneurial loss, which means that the entrepreneur has got to have skin in the game, by definition, to be an entrepreneur. OK, but there's just just terminology. The term that Frank Knight used for this act of putting resources into play and testing your expectations on the market is the same word that was used by Mises and one that has been used by other famous scholars like me. And that word is judgment. So what Knight meant by judgment was, you know, commercial action under uncertainty in conditions where you don't have kind of a formal set of decision rules to follow, but rather where the entrepreneur must rely on this kind of intuitive sense of future market conditions. Now, again, we talked about the Trump failures, right? I mean, Trump's still around assuming he's actually solvent, which maybe he's not, right? It must be the case that the amount of money he made with his successes exceeds the amount of money he lost with his failures. Why? Because the market is constantly engaged in selection between more and less successful entrepreneurs, right? People who try entrepreneurship but are just not very good at it, you know, who systematically overpay for factors of production, meaning they systematically pay more in factor prices than what those factors will eventually yield in discounted marginal revenue product will lose money, right? And eventually they're, you know, accumulated cash horde will dwindle to nothing and they won't be able to find a venture capitalist or a banker or an angel investor who's willing to give them any more money. And eventually they can't be entrepreneurs anymore. They have to become something else. Maybe they're able to learn from their mistakes, but if they're not able to learn, eventually they'll be sort of selected out. Whereas those who, you know, systematically tend to be good at making these kind of judgments will acquire, they'll learn profits, they'll be able to reinvest and acquire more capital. Their businesses will grow, their portfolio of activities will expand, and they will continue to be entrepreneurs and to be highly successful ones. OK, but the market, entrepreneurs are always competing with other entrepreneurs and with consumers and so forth in the sense that their judgments are always subject to the market test. And that places a kind of discipline or constraint on entrepreneurs' ability to engage in the market. If you want to see a visual of this process, here's a diagram that I have found useful over the years. I mean, this is my own sort of way of thinking about entrepreneurship in the Austrian sense, right? It begins with the subjective attributes of the entrepreneur, the entrepreneurs' preferences, you know, value scale. The entrepreneurs' belief about the future, the entrepreneurs' interpretation of, you know, the data that are already at hand, data of the present and the past and so forth. So those things are fully subjective there in the mind of the entrepreneur. Now, the objective conditions of reality are important as well, right? The prices that have been paid in the past, scientific and technical knowledge, you know, how many workers are out there, what kind of skills are necessary to make pencils and so forth. You know, that's objective information, but of course it must be processed by the entrepreneur. It must be grasped and understood and interpreted by the entrepreneur, right? So based on the entrepreneur's interpretation of these objective data and the entrepreneur's subjective knowledge, beliefs and so forth, the entrepreneur decides to act, right? And of course acting here could mean deciding not to start a company or introduce a new product or make an investment, right? But the entrepreneur decides to take some action on the marketplace based on some imagined future, right? In my mind, I see a future world in which pencils sell at Walmart for 3.99 each and I sell a million of them and I have this much revenue and that's way more than I'm planning to spend now on factors. I'm going to have this big wad of cash left over. That's the vision that's motivating me to start buying wood and rubber and hiring pencil workers, OK? So if that vision inspires me to become a pencil maker or expand my pencil operations or introduce a new pencil to the market or whatever, I do it. But then time passes and at some point there's an actual future, right, which may or may not correspond to my imagined future. If the actual future is at least, you know, is as good or as close to as good as what I imagine, then maybe I will be profitable and then I can just cash out and spend the money and buy a yacht or run for president or I can, you know, reinvest the earnings and go back into making other kinds of pencils and so forth. But if my if reality turns out to be very different from my expectations, I may go bankrupt, OK? So one of two things can happen when the actual future differs from the imagined future, either the entrepreneur can learn to do better or the entrepreneur will be forced to exit the market, OK? So there's either learning sort of treatment effect or a selection effect. And then this process, you know, sort of repeats itself, OK? On a way to use a baseball analogy, you know, I'm talking about entrepreneurship as a kind of, you know, in terms of Austrian style subjectivism. But as they say, reality bats last, OK, I can have all the subjective beliefs and expectations that I want. I can have various kinds of judgment about the future and my ability to bring about that future through acting. But if I'm wrong, I'm not going to be able to continue to engage in these kinds of actions. It's only if I'm proven right by reality that I'll be successful and able to continue in my endeavors, OK? So just a few things to sort of wrap up. What entrepreneurship is not? Because we hear about this a lot and, you know, sort of our everyday lives. Entrepreneurship is not small business management, per se. OK, now, many successful entrepreneurs or less successful entrepreneurs are small business owners. So, yes, you are acting as an entrepreneur when you are owning and operating and managing a small business, but that is not the definition of entrepreneurship. OK, those who combine and recombine productive resources under conditions of uncertainty, taking responsibility for those decisions with skin in the game and so forth, may be operating very large businesses as well as small ones. They're also entrepreneurs. OK, again, you know, starting a new company is an entrepreneurial act. But it is not the entrepreneurial act, according to the Austrians, right? I mean, maintaining an existing company is also entrepreneurial in the sense we've been discussing, deciding to shut down a company can be an entrepreneurial decision and so forth. Now, there are a lot of characteristics of flesh and blood successful entrepreneurs, such as charisma and creativity and effective leadership and so forth that we associate with entrepreneurship, but which are not necessary conditions of acting as an entrepreneur, right? I mean, some entrepreneurs are dull and, you know, think like engineers, no offense, and are not great leaders, but they're good at exercising judgment under uncertainty about, you know, future market conditions. OK, Mises recognized and there's a very insightful passage in human action. Mises recognizes that the way the word entrepreneur is used in ordinary language is often in association with these kinds of personality traits. We might say, oh, you know, that Steve Jobs, he was so entrepreneurial, he was always thinking of something new and he was always doing something different and wearing a black turtleneck and jeans and so forth. That's, you know, entrepreneurship. And Mises said, gosh, it would be nice if we had a different word for successful business people. Besides the word entrepreneur, because technically speaking, entrepreneurship just means combining and recombining resources under uncertainty. Mises suggested the word promoter. A promoter is a very successful entrepreneur who is charismatic and so forth. And, you know, Mises said, look, the concept of promoter, that's not a praxeological category. It's kind of a more loosely defined historical phenomenon. But wouldn't it be great if we could use that word instead for people like Steve Jobs? Unfortunately, that word didn't catch on. I also want to point out that, you know, two of the great contributors to to economics and in many ways to the Austrian tradition in particular are also associated with research on entrepreneurship, specifically Joseph Schumpeter on the top and Israel Kursner on the bottom. They both wrote about entrepreneurship, but they defined it in a in a different way than Mises and a different way than what I've been doing. Schumpeter described entrepreneurship as innovation or novelty. Kursner defined entrepreneurship as alertness to or the discovery of preexisting profit opportunities. And I would argue that neither of these is fundamental to entrepreneurship in Mises sense. I mean, for Kursner in particular, under uncertainty, there are no profit opportunities to be discovered. Profits don't exist sort of sitting out there waiting for someone to find them. Profits and losses are manifest are the results of uncertainties more successful or less successful action under uncertainty. So I don't find the concept of alertness or discovery to be particularly useful in understanding the entrepreneur. And finally, entrepreneurship is not something you can learn in school or in a lecture, even a very good lecture like the one you're listening to now. You can learn about entrepreneurship, but you're not going to walk out of here knowing how to be an entrepreneur because I can't teach you how to exercise good judgment under uncertainty because that's tacit. It's intuitive and so forth. And needless to say, entrepreneurship is not something the government can really create or direct or stimulate for reasons that we'll discuss later in this week. Thanks very much.