 It's the end of a long day. I'm sure you're all very excited, but also a little bit tired So I will endeavor to deliver the kind of me more the content that you're accustomed to At Mises you This talk is on entrepreneurship and as you'll see within the Austrian tradition entrepreneurship is a central topic It's a day one topic right not the kind of sort of applied Issue that might come up at the end of the week in in a conference of this nature So at the end of the top by the end of the talk I hope you will see the central role that entrepreneurship plays in a market economy as conceived within the Austrian tradition So I want to start by talking about a famous entrepreneur an entrepreneur that you that you all know Namely the great Steve Jobs Right, so Steve Jobs is one of the most influential entrepreneurs of the late 20th century He along with several colleagues built Apple computer from a literal garage startup To be what is as of today the world's largest company by market capitalization So the most valuable company in the world is What was formerly called Apple computer and is now simply Apple? There's some I'm a great admirer of Steve Jobs for the work that he did though You know, I'm not a user of Apple products myself and I have some complaints about the way Apple does things. However, I Think Steve Jobs. There's no doubt that Steve Jobs was a genius at marketing. I Think he's one of the greatest marketing entrepreneurs of modern times if not ever I mean, some of you may know he was famous for at the annual Apple developer conference, right? giving a Presentation of the latest Apple device the latest Apple features and he really was an absolute master At getting people excited about Apple products and services that were that were on the way This these are some scenes from the Conference in 2000 and was 2006 when Steve Jobs introduced the iPhone Okay, so if you've never watched it I would strongly urge you to go back and watch the Apple show the Apple meeting at which the iPhone is introduced to the world For the first time there had been some buzz that something like this was on the way but no one knew exactly what it looked like or how it would work and The presentation is a literal masterclass at new product marketing So he starts by describing the kinds of handheld Communication devices or phones as we used to call them right that were popular at that time and for consumers There were a little small handsets By companies like Nokia and for the business market there were handsets like the ones that you see here Blackberries were the most famous But there were a lot of devices that had a little screen on the top Sometimes black and white sometimes color and then a physical keyboard at the bottom And they could connect to the internet at much slower speeds than what we're used to today But if you as you watch the presentation, he goes through he describes some of these devices and he points out Their most important weakness Namely that you only use the keyboard some of the time when you're you know thumb typing a message If you want to watch a video or a movie or play a game You only have a tiny little bit of screen Available to you because so much is taken up by the keyboard. How do you solve that problem? Well, he says we've developed a totally new kind of keyboard a touch keyboard and the whole that you know What we now know is a sort of multi-touch kind of a screen where you can swipe and pan and scroll and all that He he describes a screen of this nature and he says we've created a virtual keyboard in the crowd gasps You know and and then he says well, but but how can you use it? How will you type on this virtual keyboard? Will you use a stylus remember a lot of devices had a stylus at that time? And he gets out the stylus and pokes it around and you can he says you know a stylus is no good You lose it. It's cumbersome to use, you know What if we could make use of a pointing device that humans have been using for? Thousands of years one that you all carry with you every day, you know your finger I mean right now this seems sort of mundane to you guys, but this was revolutionary at the time And he says you know what what I'm going to present to you is a device and you know finally after like 30 minutes of big teas He shows a picture of the iPhone and you know more gasp from the crowd He says what if we had a device a single device you could hold in your hand that is an iPod Everyone knew what an iPod was at that point It's also a phone and it's an internet capable device, you know Da da da da da we've combined all of these into one thing and here it is and he shows the picture of the iPhone I mean it really is worth your time just to see a Technique for presenting a new product to the market one that ultimately as we know was not only extremely successful As a product, but you know really revolutionized the way that we interact with our devices the way that we interact with each other For good and ill and so you know, how do we as from a sort of a you know third-party perspective? How can we understand what was going on that day and around that time when the iPhone was being developed? Well a very common way To understand new products that enter the market and change the market is to think of them as you know filling a sort of gap Right, it's as if there were a gap in the market Meaning that consumers would be willing to pay a certain sum of money for a device that has these kind of characteristics And that some of money would more than cover the cost of producing that device But the device doesn't exist No entrepreneur has produced it and offered it to the market, right? So in doing what Steve Jobs and his colleagues did in bringing the iPhone to market in 2006 2007 Was filling a gap in the marketplace and earning a lot of money of course from successfully filling that gap It's a little bit like you know, you you walk down the street and there's some money on this on the ground Right and the first person who notices that that money is sitting there, you know, and can reach down and pick it up at a cost less than What the money is worth and the cost of basically zero, right is sort of exploiting that opportunity for gain and Pocketing the money as a result Okay, so many people understand entrepreneurship as searching for Identifying and trying to fill these market gaps. There's a product or service that could be offered. It is not currently offered I'm gonna be the first one to offer it Okay, it's easy to understand this kind of gap filling idea in the context of financial arbitrage or other kinds of arbitrage Right, so if you imagine the gap occurring at a certain point of time, but across space You know here in Auburn, you can you know apples are selling for a dollar each and over in Atlanta apples are selling for a dollar fifty each Well, there's a profit opportunity from buying apples in Auburn and trucking them over to Atlanta and selling them in Atlanta Right, you might have had a class where you know, your professor is talking about markets and equilibration where You know an example like that was discussed and of course as you buy apples in Auburn You're sort of driving up the price And then as you sell the apples in Atlanta, you're driving down the price by increasing the supply and eventually the price is sort of Equilibrate and where there is no longer a gap in the market to be exploited Okay Now a problem with understanding this idea of entrepreneurship is filling a gap When it comes to the introduction of new products and services relates to time Okay, so in the Apple example we could imagine we could imagine a case where you know right now What is today July 26 7th, whatever today is? 2023, you know the that I can see online the apples are selling for a dollar in Auburn and a dollar fifty in Atlanta It's not exactly like that with the iPhone because when the iPhone was being developed Right and re and money was being spent on R&D expense and hiring workers and buying materials and creating factories and so forth the profits that would be earned from selling iPhones Did not yet exist right those profits were in the future So if you understand what Steve Jobs did as filling a gap in the market It's like sort of an intertemporal gap and that gets a little bit more confusing to think about Now if you view the future as sort of already existing We're getting into David Gordon philosophical territory here, right? If you imagine that the future is already written and it just sort of unrolls like a carpet or a tapestry Right the future hasn't happened yet, but sort of philosophically we can imagine that the future already exists It just hasn't yet occurred you could say okay. Well, you know here We are in 2005 or whatever with our little flip phones, right and you know 2008 or 9 is like in there somewhere, right? The iPhone is in a piece of that carpet that hasn't yet been unveiled But it eventually it will be so what Steve Jobs and his colleagues did is a kind of intertemporal arbitrage Right, they realized that you know, here's what we have today People would be willing to pay a lot more for a thing like that that will exist tomorrow so we'll go ahead and start building it now and You know by by recognizing that gap in the market and filling it We were able to change the world and make ourselves, you know, you know what load of money in the process, okay? Well, that sounds reasonable and I mean You know, we all wish that you know you probably have played that game if you know if you had a time machine What would you do? You know some of you would go back and you know try to meet Socrates or or Jesus or whatever I would of course go back to around 2004 and start building an iPhone or something That's just like an iPhone before Steve Jobs had ever had the idea The problem is when we look even at a great entrepreneur like Steve Jobs We see not only world-changing successes like the iPhone But quite a few failures as well so if you if you know your business history, you know that Steve Jobs was forced out of Apple in the Late 90s he was kicked out of Apple and replaced by a CEO who had been the CEO of PepsiCo The board was not happy with his performance as CEO. He got he left. He eventually started two companies One that is mostly forgotten was called next which was a computer company with a Unix based kind of a system That was supposed to revolutionize business computing the next has been largely a failure another company that he started You have heard of a small company called Pixar that he later sold to Disney and then while Steve Jobs was out of Apple Apple was busy innovating with other new products like something called the Newton Which is a which was a primitive hand-held Computing device offered in the mid 2000s late 2000s to first decade of the 2000s And you know, it's kind of like a proto smart phone An early attempt at creating smart phone It was a massive failure in the business and consumer markets because if you think about it You know the idea of a wireless device that was like a little mini computer that you could write on Even they had a handwriting recognition with a stylus. I mean that sounds kind of cool But at that time the supporting technology wasn't in place, right? There was no high speed. There was no Wi-Fi There was like 1g or 2g or something. It was too slow There was only a black and white screen that there wasn't enough processing power or memory For a handheld device to be capable of doing the kind of things that people wanted to do Okay, so my point is if we try to interpret successful Entrepreneurship as filling a gap in the market then how do we interpret unsuccessful entrepreneurship? I Mean, maybe it looks like there wasn't a gap ever to begin with or you thought there was a gap and it turned out It really wasn't a gap or I mean, it's just so hard to Explain the ordinary phenomena of what business people do with this idea of entrepreneurs filling gaps Well, I mean what's missing from the story of the iPhone or for that matter the next or the Newton, right? Why is it that sometimes these efforts prove successful for the entrepreneurs and their teams other times? They're unsuccessful Well, what's left out of the standard story is come on some of you know what I'm about to say Uncertainty Right there is uncertainty associated with the passage of time Meaning that Entrepreneurs have to make decisions. They have to commit resources. They have to make investments hiring workers purchasing factors of production building factories doing R&D Trying to get IP or whatever today in anticipation of Benefits that that will only accrue in the future and may not occur at all Right, nobody knew for sure when Steve Jobs was starting with the iPhone whether it would work It might have been a flop like the Newton or the next Okay, so the future does not unfold in a predictable manner but rather there is a Fundamental uncertainty associated with the future the universe is open-ended. That's what makes human action in Mises sense of purposeful behavior possible. Okay, let me quote the great Mises himself He says the term entrepreneur as used by theory by economic theory means Acting man exclusively seen from the aspect of the uncertainty inherent in every action Human action in Mises sense involves making decisions without certain knowledge of the future consequences Right employing means in pursuit of ends without knowing for sure whether the those ends will actually be realized Mises says in using this term Entrepreneurship one must never forget that every action is embedded in the flux of time and therefore involves a speculation Okay, the capitalists the landowners the laborers are by necessity speculators So is the consumer in providing for anticipated future needs Right, so all of us are entrepreneurs in a loose sense Right in that we take actions today whether it's consumption or how we deploy our own labor going to school etc In anticipation of some benefit will receive in the future but without knowing with certainty whether that benefit will be realized Mises quotes an old. I mean an aphorism that you've probably never heard of but apparently it was quite common in Mises day There's many a slip twix cup and lip That means like you're picking up a cup to take a drink and you might like spill some or drop it or whatever Okay, that was cool back then Professor Hoppe and his talk last night. I don't know if you caught this He said we can we can describe purposeful human action whether it's the what he called us, you know So there's instrumental action We was talking about where people are interacting with nature and then there's communicative Action or discursive action where people are interacting with other people But he pointed out that unlike in the physical world where you have these natural naturalistic predictable laws Right when you mix this chemical compound with this chemical compound the atoms don't get to think about whether they want to combine or not Right. I mean they behave according to Regular laws that we can discover through observation and experimentation Whereas our interactions with other people are not like that and often whether natural means will achieve our Ends is unknown to us at the time we act. So he called that entrepreneurship last night He said we can think of this as an entrepreneurial element of human action now one difference between that kind of entrepreneurship and what we might think of as you know sort of commercial profit-seeking market-based entrepreneurship is that the benefits and costs are kind of subjectively perceived We may not be able to attach numbers to them Whereas the commercial entrepreneur acting in a market setting has you know money profit as money monetary revenues and and Monetary cost that can be compared as we saw in the earlier lecture on money But but you can't think of all human action, you know dealing with sort of the attempt to earn a profit and avoid a loss Right you want subjectively perceived gains and accept an excess of the subjectively perceived costs And you want to avoid the reverse right so there is a kind of we can understand purposeful human action in me's a sense as Being entrepreneurial in this very broad manner. Okay Again, we can also think of entrepreneurship in a more narrow kind of commercial sense Right so imagine that there are specialized individuals and groups there in individuals and groups in the market who specialize in Purchasing or renting factors of production paying Prices today Combining those factors to production to produce goods and services that will be offered to consumers in the future Okay Hoping that the revenues that are received in the future will exceed the costs that are incurred in the present Taking into account discounting and things like that Yeah, combining and recombining productive factors in pursuit of money profit and Trying to avoid monetary loss. That's a that's a more narrow kind of commercial market-based definition of entrepreneurship as a subset of the more general definition I like the formulation from Ludwig Lachman who was a German Economist and sort of a fellow traveler of the Austrian school. He said we are living in a world of unexpected change I either is uncertainty in the world. The future is not unrolling like a tapestry or a carpet 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 Okay, so the real function of the entrepreneur as conceived here is not identifying gaps Because gaps don't exist gaps exist only in our minds Because the future is not yet realized the future hasn't yet occurred and is influenced by our choices and the choices of other people Okay Why does this matter? Why is this important? Why is this a day one topic at Mises you? Okay, because according to Mises he says it is impossible to eliminate the entrepreneur from the picture of a market economy You can't have a market economy without entrepreneurship Okay, Mises says the various complementary factors of production cannot come together spontaneously You don't just wake up on one morning if there's an iPhone right somebody's got a consciously and purposefully Aim at producing this thing using their knowledge using their cognitive faculties using their volition Having control of resources and so forth. Okay, 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 purposeful human action in eliminating the entrepreneur one Eliminates the driving force of the whole market system. I mean try that in a small town. Okay So you already have heard a little bit and you will learn more about the Austrian approach to production Okay, so production is a process of combining inputs into outputs using scarce means Right to try to achieve desired ends. Dr. Rittenauer will have a talk tomorrow on Austrian capital theory And the whole concept of the stages of production you might have seen this before this diagram was introduced by Hayek and And is also used extensively by Rothbard in the production sections of man economy and state Sometimes people refer to this as the Hayekian triangle Okay, the idea is that the value of goods and services increases throughout the production process Okay And production takes place not instantaneously, but in various stages Right, so the challenge for the producer is to figure out right What is the value of the early stage? Factors and the intermediate products that have not yet been transformed into final products that can be sold on the market Okay, the Austrians famously Austrians developed a famous explanation for how to value intermediate factors of production and early stage factors The theory of so-called theory of imputation. Imputation is the English word for the term that was introduced by Friedrich Wieser imputation is the idea that the value of Factors of production whether they're originally factors or intermediate intermediate goods is Determined by the value of the final goods and services that those factors will be used to produce Okay, it's it's sort of the opposite of the Marxian view That final goods and services have value because they're made with things that had value Right labor is valuable So the amount of labor that goes into the production of a good or service Determines the value of that good or service the Austrian said no the causal chain goes the other way around Okay, it's only because the final goods are valuable that the factors used to produce them are also valuable And they're valuable according to how much they contribute to the production of those final goods and services And how much those finer final goods and services are valued By the market now in order to figure all this out Right in order for the entrepreneur to figure out. What is the best combination of inputs to try? Right to produce the desired outputs The entrepreneur has to be in a world of money with money prices as the other Dr. Klein pointed out before and The entrepreneur compares the value of the factors measured in money with the expected anticipated hoped for value of the final products also measured in money using a process that Mises called economic calculation and Dr. Salerno will give you a more detailed discussion tomorrow of how economic calculation works I've also used a term myself that is used by Mises I've tried to popularize it the notion that entrepreneurship in this sense involves judgment a certain kind of decision-making faculty Um, you can think of judgment right judgment is Purposeful deliberate thoughtful decision-making about the future in a world of genuine uncertainty Right or to put it another way in a world We're sort of like a formal mathematical model of what will happen in the future if I do this or that is not available to us a Formal decision model that can be incorporated into an algorithm is not available because of uncertainty about the future Yet entrepreneurs still have to sort of peer into that uncertain future and make decisions about what to do in the present And they do this by trying to imagine possible future states of the world using their access to tacit knowledge Exercising some subjective interpretation about those possible futures and how likely they are we have all kinds of you know Common language to describe this kind of decision-making. We sometimes call it instinct or intuition or gut feeling Right, you know, I've got this sort of gut feeling that this thing's gonna work out I can't exactly Mathematize it or parameterize it But I have a feeling a strong feeling that this is going to work Well, the Germans have a great word for this for stay in which of course I cannot pronounce as well as our speaker from last night who I can't say it in the Hoppean fashion But for staying it's you this word is usually translated in English as understanding But it's like a sort of a deep fundamental Gut instinct kind of an understanding Mises puts it this way He says the real entrepreneur is a speculator a man eager to utilize his opinion About the future structure of the market for business operations promising profits This okay, here's a great Characteristically me Sessian phrase that you have to say many times to be able to say it without stumbling. I might stumble this Specific anticipative understanding of the conditions of the uncertain future defies. Sorry, that's a type of defies any rules and systematization Actually, I actually did that pretty well It can be neither taught nor learned the entrepreneur sees the past in the present as other people do But he judges the future in a different way By participating in the entrepreneurial process of production the entrepreneur is exercising a judgment rendering a judgment about future market conditions he or she is exercising judgment in Engaging in entrepreneurship, and I want to note that this judgment is manifest in ownership or control of resources There's a property rights dimension to entrepreneur that is sometimes left out of other kinds of accounts Mises uses the term the capitalist entrepreneur Excuse me a term also used by Rothbard to to emphasize the fact that the entrepreneur Acts by engaging with property with with capital goods. The entrepreneur is an owner of capital because ownership gives the ultimate Has is accompanied by the sort of ultimate decision authority about how those resources or how that property Will be used bringing the capitalist the theory of the capitalist and the theory of the entrepreneur together in a unified format would be a great book project and Maybe you could find a book in the bookstore The title of which might lead you to think the author has done exactly that so I mean think of it this way You know a taxi driver who is an employee of yellow cab company is not an entrepreneur in Mises sense Because the entrepreneur is you know has a con. Sorry that the driver has a contract To receive a wage in exchange for providing labor services driving the car whereas an uber driver Right who participates in the platform that allows the matching of riders and drivers if the uber driver owns the vehicle and is responsible for the care and maintenance of that asset then the Uber driver is a business owner Right is the uber driver the uber driver's relationship to uber is that of an independent contractor or You know that of a platform participant just as you and riding in an uber are a platform participant The uber driver is not an employee We've seen in several jurisdictions like recently in California attempts through legislation to force contributors to platforms to be treated like Employees and receive you know unemployment insurance and have a minimum wage and meet all these labor requirements. That was quickly dropped in California once California journalists realized that this would also apply to them that freelance journalists would also be classified as employees But I want to emphasize what the entrepreneur is doing right is buying or renting Property factors of production capital goods in the present Deploying them in pursuit of profit in the uncertain future Okay, and this is hard because capital goods like characters in a Disney reboot are very diverse or heterogeneous Okay, there are lots of different ways that you could produce a particular good and service lots of different factors or inputs that could be combined This diversity or heterogeneity Makes it far from obvious. What is the best way for the entrepreneur to pursue this particular objective? Okay, I thought I might get a bigger laugh out of that, but End of a long day. Okay, so How do we get from this to entrepreneurial profit and loss? so Mises and Rothbard They use a kind of a if you want to use this language a kind of a modeling technique a technique for theorizing where they imagine a world in which uncertainty is absent and They try to think through what would happen in this world without uncertainty. What would we expect to take place? So it's kind of like it Mises calls it an imaginary construction or an imaginary Construct and if you if you imagine that people are sort of acting They're making decisions in a sense. I guess it's not really human action, but it's something that looks like action They're making decisions. They're buying and selling they're working and they're you know starting companies and doing all that In a world with no uncertainty. So everybody knows exactly what will happen in the future Everybody knows all the future market prices and market conditions and so forth, you know What would we expect to happen in that kind of equilibrium? Condition that equilibrium state, okay What we would expect that? Each factor of production would earn a price like a wage or a rental price Equal to it's discounted marginal revenue product discounted marginal revenue product What is what is it? What is that or dmrp, right? So the the marginal revenue product of a factor or input is the additional revenue The seller will obtain from using one more unit of that input or factor like one more hour of labor If I hire an employee for one additional hour, how much is that worth to me as a seller? Well, that depends on how much stuff that worker will produce How many more widgets or whatever will that worker produce say that worker will produce 10 more widgets in that one hour How much is that worth to me? Well, I also need to know the selling price of the widgets so if widgets sell for $2 each and Hiring another hour of labor will produce 10 more widgets that produces 20 more dollars that adds $20 to my bottom line So if I could hire that worker and pay that worker $15 that would be a win for me, right? I pay out 15 I get something that's worth 20. I'm adding five bucks to my bottom line right if that worker can only produce $10 worth of revenue and With that additional hour and I have to pay $15 for that additional hour. Well, then I'm losing money, right? I wouldn't want to do that So no producer would pay more than the marginal revenue product If there's time preference we can add a discount factor for the use of a factor of production You'd like to be able to pay less Right, but if you imagine that the different producers are competing against each other right for the use of these factors It's not likely that I'll be able to obtain a factor for much less than what that factor is worth to other producers Okay, so if for a particular type of labor the disk forget about discounting for a minute the marginal revenue product is $20 we would imagine that in equilibrium producers sellers Entrepreneurs would be paying $20 per hour for that type of labor and that would generate exactly $20 worth of revenue for the for the producer everybody breaks even we're all good, okay What about people who own firms and operate firms well, they would also earn some kind of a financial return Because they have an opportunity cost Right if I'm the owner of a widget shop a widget factory You know, I want my net revenues to include a little piece left over for me Because if I were not in get if we're not if I were not running the widget shop I could go, you know work as a manager for some other entrepreneur and earn, you know, $50,000 a year So my gross profit needs to include at least $50,000 to keep me from shutting down and going to work for another company Okay, so so owners of firms would earn a return to compensate them for the cost of their time and labor in running the firm okay Capitalists those who lend money to the firm would earn a return based on based on the interest rate Right. So if the firm borrows money, it will pay that money back at a premium. So those who lend money Capitalists will earn an interest return so there will be three different types of Finance of economic return in this hypothetical equilibrium state Okay, all those who provide factor services to the market laborers landowners and so forth will earn a return Equal to their discounted marginal revenue product owners of companies will get a return to compensate them for their opportunity cost of labor Lenders will get a return equal to determined by the interest rate and That's it There are no other net returns or net losses in other words There are no economic profits or economic losses in this hypothetical equilibrium world You say wait a minute, but I thought entrepreneurship was all about trying to explain profit and loss Well in order to explain profit and loss we have to drop this assumption that everybody knows what's going to happen in the future Okay, so outside this equilibrium state outside the evenly rotating economy of Mises and Rothbard What entrepreneurs are doing is they're competing with other entrepreneurs for the use of these factors The problem is nobody knows exactly what the factor is worth at the time this competition is going on Right, so I make a bid for so many hours of somebody's labor because I believe they can produce this many widgets Which I think I can sell at this price But those prices don't exist today those prices will only exist in the future Right other entrepreneurs who have different opinions about what might happen in the future are willing to pay more than me or less Right, so entrepreneurs are making bids for factors based on their beliefs their expectations their knowledge Right about the present, right? How do you actually make widgets the technical engineering? Specifications for widget production and they might differ in their knowledge about that They have knowledge and beliefs about how much labor is out there and where they can find the inputs that made in so forth But more importantly they have these beliefs about the future What will be future demand for my product, right? Will people actually buy the iPhone or not? Who knows? You know, what will what about institutional conditions? What if the government decides to regulate my iPhone out of existence shortly after I introduce it? I've got to try to imagine what I think the government will do What do I think other firms will do right? I mean it was It was not at all obvious in 2005-6 that you know Microsoft Blackberry Nokia other big tech firms Google was not a player at that point Who knew whether they would come in and duplicate the iPhone or which of course now has happened because you have the Android Ecosystem which is you know in many ways similar to the iOS ecosystem The point is that the actual discounted marginal revenue product the value of the factor to the entrepreneur Considering using it is not known at the time that decision is made So the result of which is some entrepreneurs will end up later on earning profits and others will end up learning earning losses Okay, if I correctly anticipate what the value of these factors will be I can make more accurate bids I can sort of get factors on the cheap Compared to my rivals who don't realize that this device will be beloved by consumers and that the marginal revenue product Is really high, but not everybody knows that so I'm able to acquire these resources In a way that I have profit left over and if I over estimate the marginal revenue product of the resource Then I overpay and I end up, you know having revenues that don't cover all my costs The point is profit and loss can only exist outside of this equilibrium state profit and loss can only exist under conditions of uncertainty Okay, so common confusion interest returns are not profit Implicit wages from business owners are not profit those things can exist in the evenly rotating economy But actual economic profit and loss cannot okay now there you know if you go out and read, you know, whether it's academic textbooks or You know popular media or you know entrepreneur magazine or you watch Shark Tank or whatever There are a lot of you know different ways that entrepreneurship can be conceived besides the Misesian conception Right, so some people think of entrepreneurship as a kind of a personality trait an entrepreneur is someone with a lot of charisma or creativity or Persistence, you know someone who has a lot of hustle a real hustler a mover shaker as an entrepreneur I mean, it's not that entrepreneurs in the Misesian sense cannot have those Characteristics, but these characteristics are not essential to the Misesian understanding of entrepreneurship You know also in popular discourse We associate entrepreneurship with certain kinds of firms and certain kind of industries and certain kinds of people You know startups or small business. That's entrepreneurship But once the company has existed for a certain amount of time then it's you know The founder is not an entrepreneurship and not an entrepreneur anymore, but just a manager You know then you get into this question of at what point did Steve Jobs flip? You know teenage Steve Jobs was clearly an entrepreneur Tim Cook is not an entrepreneur in the same sense, but you know like what's the magic crossover point? Some people associate entrepreneurship only with tech or only with you know Angel capital or venture capital funded businesses Maybe you know, there's a particular technique like if you use lean startup method then it's entrepreneurship But otherwise it's not and again, I want to emphasize this is very different from the Misesian notion of Entrepreneurship as obtaining and combining productive factors in anticipation of profits that you hope to obtain in the uncertain future In the academic literature in some of the practitioner literature, there's a notion of Entrepreneurship as the pursuit of what they call opportunity One of the first academic entrepreneurship programs was set up at Harvard Business School and the founder a guy named Howard Jacobson famously defined entrepreneurship as sorry Howard Stevenson Defined entrepreneurship as the pursuit of opportunity beyond resources controlled So this idea that entrepreneurship is when you're not bound by the stuff currently under your control But you just sort of you dream big and you go for it Okay, so you find a lot of that in the practitioner literature and even in some of the some of the academic literature Especially as a result of the influence of Israel Kershner It was one of the most important late 20th century Austrian economists and he's best known for his theory of Entrepreneurship as what he calls discovery And it goes back to the idea I started with at the beginning of the lecture that Entrepreneurship is about identifying these gaps and sort of trying to fill these gaps in the market There's some problems with this understanding of entrepreneurship even from a theoretical point of view Ultimately comes from Hayek who says Hayek who tries to explain Competition as a process of discovery. He says competition. Hayek says competition is important Primarily as a discovery procedure whereby entrepreneurs constantly search for unexploited opportunities That can also be taken advantage of by others Kershner elaborating on this insight Says that entrepreneurship is alertness to changing buying and selling possibilities relevant new information and Potentially worthwhile goals hitherto unnoticed as well as toward Potentially valuable available resources the entrepreneur notices a price discrepancy before others do Now okay, you can understand at one level okay You notice that apples are selling an Auburn for a dollar and in Atlanta for a dollar fifty If you're the first to notice that you might jump in and try to earn that profit even there you might not get it Because you might be wrong about what the price in Atlanta is by the time you get the apples to Atlanta The price may have fallen So you may end up losing money. Okay, but it's really hard to understand this notion of entrepreneurship as discovery of gaps to Entrepreneurship that involves the future Right, there's there's no uncertainty in this discovery notion Yeah, so the way I like to think that entrepreneurs aren't really discoverers. They're more about entrepreneurs more about creation Entrepreneurs are creating a future that doesn't yet exist not being alert to a future that already exists You know if profit is understood as the result of successful discovery It's hard to understand loss and Entrepreneurship involves loss just as much as involves profit Entrepreneurs have to own capital in the Misesian view the discovery view abstracts away from capital ownership You know for Mises Mises does use the term the market process But he doesn't mean the process of discovering discrepancies in the market caused by gaps Which is the way Kershner uses that term by market process Mises means the process of different entrepreneurs competing against each other by putting their judgments to the market test So the process is a process of competition among entrepreneurs Not the discovery of some pre-existing gap by a given entrepreneur. Okay, so I want to conclude with By elaborating a little bit on the relationship between Entrepreneurship or entrepreneurial judgment and ownership because this has been an important theme of my own research as I said before that judgment under uncertainty is manifest in ownership of resources the purposeful deployment of Productive resources now judgment in this sense can be exercised by more than one person Right a group can own something a you know five dentists can own A dental practice and the five of them jointly exercised the function of entrepreneurial judgment Within a large organization where you have multiple sort of organizational or managerial layers If a lot of delegation is a lot of discretion is delegated to lower level managers and employees You can think of this sort of original judgment being held by the owners who then delegate a lot of proximate decision authority to subordinates Who can you know exercise something that sort of looks like judgment on behalf of the owners? If you're really interested in this you might look at a paper that I published in 2021 with some co-authors called ownership competence Which makes the argument that Owning is also an economic function that some individuals can perform that function better or worse And that we can describe ownership as a kind of capability or competence That can be used to explain differences in firm performance why some firms perform well other firms perform badly So finally, okay, can you have entrepreneurship and judgment outside the market? I say no you cannot Okay, yes, of course there are state actors there are government officials and You know judges and bureaucrats and so forth who might describe themselves as entrepreneurs Why created a new government program? Right. We we marshaled resources to put a person on the moon or at least to have a good studio fake of a person on the moon You know The way I would approach that is to say yes There are certain behaviors that non-market actors can engage in that look like entrepreneurship They might involve buying things and selling things, but ultimately they're taking You know that behaviors is outside the full context of the market And so it's not real entrepreneurship the ultimate decision makers the decision makers are not the true owners of the resources that they commandeer and Deploy they're just agents on behalf of the people or the citizens or or other property owners from whom they have extracted those resources There's a lot of literature now trying to claim that you know the state is really the prime mover behind entrepreneurship and innovation I have some stuff. I've written that exposes some weaknesses in this view Mariana Mazzucato an Italian Economist in the UK is the most famous current proponent of this view. Okay, I'll leave you with this Can AI engage in entrepreneurship? My answer is no But many people disagree with this view Right it has to do with what you you know if you put it this way if you think that human action in Mises sense is Nothing but the firing of neurons in a certain pattern if you have a purely materialist view of Human behavior then you would say well. Yeah, and maybe we haven't figured out how to do it yet But some you know chat GPT 26 or whatever will be able to engage in entrepreneurship I think Mises would say the answer is no That an algorithm cannot exercise the ultimate responsibility Associated with judgment under uncertainty only a human actor can perform that function So we'll wait, you know a few decades and see if I'm proven right on that score