 One of the issues that often comes up this week, particularly when discussing political economy or libertarian theory, people often ask, well, that's a really interesting theory, but that could never work in practice. Right? I mean, how could you really have free markets doing X, Y, or Z? Or if we didn't have the government doing this, how could we possibly survive? And probably you've attended several talks already this week that have addressed these kinds of objections, providing some examples of how things might actually work in practice. What I want to do this afternoon is address sort of a similar question, but about Austrian economics more generally. In other words, people often say, boy, you Austrians are really into your theory. You do praxeology. You have all this deductive reasoning. You spin out these long sort of complicated ideas. You write these ridiculously thick books. I mean, who could possibly get through all these pages? And there's, you know, in human action, there are some historical illustrations, but this is really a theory book. And man economy in state is almost entirely a theory book. Is there anything practical that you can get out of Austrian economic theory for day-to-day life, and in particular for business, for commerce, for management, and so forth? Now I teach in a business school, and I teach principles of Austrian economics to business students and to business professionals, to executives, all kinds of practitioners, members of the community, and so forth. And I've found that business professionals are very receptive to the theories and concepts and arguments provided by Austrian economics. In fact, I would argue that Austrian economics is even more of a practical subject than other kinds of economics. Right? Why do I say this? Don't think about how Austrian economic theory differs from the economic theories you get in most of the textbooks, most of the university classrooms, analyses on TV, and so forth, sort of mainstream neoclassical economics. Well, as we've already discussed this week, the Austrians have a particular way of approaching markets and prices that is causal and realistic. Right? We're not using mathematical equations to try to solve for some kind of equilibrium conditions. We're trying to explain the actual prices and other phenomena that we observe in the market and trying to explain them using in terms of cause and effect. Right? Why did these prices go up? Why did this industry succeed while some other industry did not? Why was this entrepreneur more successful than some other entrepreneur, and so on? We have this very practical emphasis on firm and resource heterogeneity. One of the first things you learn in your intro undergrad econ class is, well, let's start with a model of identical consumers and identical producers engaged in perfect competition. You know, okay, 18 and 19-year-old freshmen, their eyes will glaze over a little bit, but they will dutifully take notes and regurgitate this material back to the professor on the exam. But try doing an executive MBA seminar and say, well, let's imagine a world of identical homogeneous firms. By the way, we'll make it an infinite number of them so we can do all this in the limit and make the math work out. I mean, they're already out the door at that point. Austrian economics emphasizes that people are different, that firms are different. Resources are different. We don't have schmoo capital, as Roger Garrison was describing it. We talk about actual discrete goods and services that are used by producers to make stuff. We point out that the attributes of resources are not given by their objective characteristics, but by the way they are perceived subjectively by consumers and by entrepreneurs. The value of a machine to an entrepreneur is not determined by its physical characteristics, but by its place in the entrepreneur's subjective production plan. Anybody who's been an entrepreneur, anyone who has tried to use productive resources to make goods and services to sell to consumers will know exactly what this means. Business firms are not mathematical abstractions. We don't have one equation that represents the firm, right? Rather, we regard firms as bundles of heterogeneous resources. And if you go to a factory or a service business, what do you see? Bundles of heterogeneous resources, machines, inventory, workers, managers, and so forth. Okay, we discussed a little bit already on Monday the role of the entrepreneur in the Austrian system. Joe Salerno has described how entrepreneurs use economic calculation to plan and to evaluate the results of their actions. So the emphasis on uncertainty, on entrepreneurial judgment, on the importance of ownership of resources, the critical role of financial markets in the economic system, right? Again, these are all things that make perfect sense to business professionals, to business students, business practitioners, where they wouldn't say the same thing about the way, about the economics that they learned in some of their textbooks. So what I want to do in the next few minutes is just walk you through a series of examples or illustrations of some practical business and managerial topics in which Austrian economics provides some unique insight. Let's start with cost. Cost is a little bit, can be confusing in mainstream treatments of economic production and profit and so forth, right? So what you typically get in an economics course is some sort of, it really comes from Alfred Marshall, this kind of cost curve analysis of the firm's behavior, right? So for a given production technology, given prices of inputs, right? Firms can calculate an average cost curve and a marginal cost curve. And depending on market conditions, the firm will try to maximize its profits by producing where marginal revenue is equal to marginal cost and so forth. Most of you are familiar with this kind of analysis from courses that you've taken or maybe other things that you've seen. The problem with the standard approach to costs and by extension profit maximization is the idea that costs are exogenous. In other words, that costs are fixed and external to the firm. The plant manager wakes up in the morning and looks to see, ah, what is the price of labor today? What's the price of this particular input? What's the price of that input? And then he sort of calculates, oh, well, if I produce 25 units, my costs are going to be $500. If I produce 26 units, my costs are going to be $520. Let me compare that to my marginal revenue and decide what I want to do, how much I want to produce, okay? So the idea is that firms and managers are kind of responding to costs. Now, where do these costs come from, right? What determines the costs? Tom Woods referenced this briefly in his opening talk on Sunday night, right? Of course, we cannot explain firm behavior. We cannot explain market outcomes starting with the assumption that costs come from somewhere else. Because we need first to explain, well, where do these costs come from? Because costs are prices, right? Cost is another word for the price that the producer pays in the market for goods and services, or that we as consumers pay for things that we consume, right? We all understand, you know, how much did it cost to buy that Big Mac? Well, that's the market price of Big Macs. And that's, I exchanged that many dollars for a Big Mac in the market. We say, well, but what's the price? What are McDonald's costs to produce those Big Macs? Well, that's the price that is paid in the market for beef and hamburger buns and fast food workers and electricity and so forth, right? So costs are just prices as seen from the producer's point of view. And the key sort of Austrian subjectivist point is that all costs ultimately are opportunity costs. All costs are opportunity costs, meaning that, you know, when we say, well, it costs McDonald's so many dollars to produce this many Big Macs, what we mean is McDonald's or someone in the economy is not enjoying the benefits of some other goods and services that could have been produced and sold, had the hamburger meat, the cows, the feed for the cows, the land on which the cows graze and so forth, and all the other ingredients not been used for something else, right? So costs are values foregone. What we need to try to figure out is how do we translate these values foregone into dollars that represent the accounting costs that are paid by producers, OK? So a few things to think about here. You know, first of all, the entrepreneur sometimes has control over individual factor prices. So, you know, if I'm just a mom and pop operator, I set up shop here in Auburn, Alabama, and, you know, I want to, I'm just a food truck. I'm going to make hamburgers. I buy hamburger meat. You know, I may not be able to exercise much bargaining power over the price that I pay for hamburger meat. It's kind of a generic commodity. There are lots of people in Auburn who want to buy hamburger meat. And it's not like I can go down to Walmart or Kroger or the local grocery store and say, yeah, you know, two ninety-nine a pound is a little high for me. I would you take one fifty, right? I mean, if you say that at Kroger at Walmart, you know, they will call security to have you escorted out, OK? But now it may be that I'm buying from a small vendor. Maybe I'm buying organic grass fed beef from this one farmer. And we actually do sit down and negotiate over the price. And of course, if I am a large buyer, if I am the McDonald's Corporation, right, assuming I'm not vertically integrated and I don't own my own cows, I have a lot of buying power in the market for beef. In fact, it's the small farmers who feel like, you know, they're sort of taking the price that is set by McDonald's rather than McDonald's having to take the price of beef as being given somewhere else. OK, so many times the entrepreneur actually can influence the price that is paid for some or all the inputs and thus have influence over the cost that is paid by that entrepreneur, right? But all entrepreneurs can influence the prices of their inputs indirectly through their choices of production methods. OK, so just as we say, look, when I Peter Klein go to Walmart to buy a tube of toothpaste, I don't bargain, right? I just sort of take the price as given either by toothpaste or not. But of course, if lots of consumers decide they don't like a particular brand of toothpaste, the demand for that toothpaste will fall. Walmart will realize lower revenues from selling that toothpaste and they'll decide, you know, they might they either have to lower the price or get rid of that product altogether, right? So of course, an individual consumer may not have a lot of influence over the price of toothpaste of a tube of toothpaste. But of course, it's still the case that the price of toothpaste is set by the supply and demand for toothpaste. Likewise, a mom and pop operator, you know, the guy who operates a little food truck may not be able to influence directly the price of hamburger meat by trying to bargain with a large meat supplier. Right, but I could always choose to use a different kind of meat. I could choose to locate in a different area. I could choose to sell chicken sandwiches instead of hamburgers. I could use, you know, I could sell tofu burgers. I could switch to an organic or non-organic or grass fed or whatever. Right, there are lots of different ways that I can make sandwiches or burgers or food or however we want to define the product that I'm selling. And thus, I am exercising some influence on the price of my inputs in this indirect fashion. OK, so in other words, the prices of factors are determined in markets for those factors, just as the price of a consumer good is determined in the market for that consumer good. And we can use the causal realistic principles of pricing to explain factor prices, just as we explain other prices. Great source on this is a book by James Buchanan called Cost and Choice, which provides a very sort of forceful critique of the neoclassical cost curve approach, which starts by assuming exogenous cost and then goes on to derive firm behavior. OK, you know, cost sounds boring, except for your accountants in the room. You're boring anyway. Normal people think that cost is pretty boring. But actually, if you think about it, cost accounting is really central to Austrian theory. Think about Mies's argument on the impossibility of rational economic planning under socialism. It's usually described as, you know, Mies is showing why socialism doesn't work because you don't have private property. And so social planner doesn't have any way to know if it's more you know, if it's more rational or efficient to build a railroad here or build a railroad there or not build a railroad at all and so forth. But really Mies's argument about socialism is not essentially about socialism. The impossibility of rational economic planning under socialism is just an application. It's really a cost accounting argument. It's really an argument that rational economic decision making requires the use of numbers, right? You have to have some way to estimate what is the total cost of, you know, choosing course of action A versus course of action B so that I can compare A and B as a producer, right, as an organizer of production. And I can't add up heterogeneous units of factories and machines and tools and workers to come up with a meaningful, aggregate number. I need some unit of comparison. In other words, I need prices. If I add up, you know, I can calculate my total cost in money of this production method versus my total cost in money of that production method and decide what's the least costly method of production. I mean, this Mies's point is that, well, the socialist planner, this is impossible under socialism because you don't have private property for factors, therefore you don't have markets for factors, therefore you don't have prices for factors, therefore you can have no meaningful cardinal numbers to stick into your computation. But essentially what Mies's is saying is that in a market economy, you need prices for resources, prices for factors of production so that entrepreneurs can calculate costs and revenues. OK, it's really an essay on cost accounting. There's a really good section on this in Mies's little book, Bureaucracy, which is not one of his most highly read books, but it's one that I would recommend. I mean, for one thing, it's short, it's easy to read, and it contains a nice summary of some of Mies's major arguments, particularly on this point. He has this great way of expressing the calculation problem. And it's something like Mies's says, you know, in a capitalist economy, by means of their prices on the market, resources, factors, it's like they're shouting out to the entrepreneur, use me or use me here. Don't use me, use me there. And he says, you know, under socialism, the factors of production are mute. OK, they don't speak because there are no prices in which they don't have prices. But it's a very nice summary of the calculation argument in a way that I think is actually a little bit clearer than the summary you get in his book on socialism or even in human action. In particular, it's in the section where Mies's distinguishes what he calls profit management from bureaucratic management. And Mies's is talking about large complex organizations with multiple subunits or subsidiaries or divisions. And he points out that, you know, in order to manage a large complex organization, a certain amount of decentralization or delegation is required. Mies's says, look, under capitalism, you know, the central managers of the firm can say to each subsidiary or each subunit, look, we'll give you a lot of discretion to manage your affairs as you see fit. We will look at the net contribution to total profit made by your division or your subsidiary and evaluate you in that light. Right. So if it's, you know, imagine that the Mies's Institute were a for-profit organization, you might have a book publishing subsidiary and a online education subsidiary and a merchandise subsidiary. Each one can have its own income statement, right? Its own statements of profits and losses and the central management can use those divisional income statements to decide, you know, should we really be even really be in the book publishing business or not? Well, book publishing is not contributing very much to our bottom line compared to doing online education. Therefore, we should shift more of our activity from books to online education. Mies's says, well, could you use this kind of a system in a government setting? So for example, take the police department. So the police department has, you know, beat cops on the street who are patrolling the street and it has detectives who investigate solving other kinds of crimes and their public relations, things that the police department does and so forth. How should the police department allocate its resources across these different activities? How do you evaluate the effectiveness of these different activities? Well, you can't use profit and loss, right? Because the goods and services, if they are valuable, that are produced by the police department, they're not bought and sold in markets. So there's no there's no market price for policing services. And so there's no way to know whether a particular activity is contributing to the bottom line or not, because there is no bottom line, right? The police department does not produce things that it then sells on the market. There's no market test. I mean, it's like, you know, imagine that you said to police in downtown Atlanta, you know, your compensation is going to be based on the number of arrests you make. And each division will get more resources and will get rewarded based on how it meets this criterion and promotions for individual officers will be based on this performance criterion. OK, I mean, you can imagine the result that you would see, we see this already, right? We all know, you know, be extra careful not to speed when it's near the end of the budget cycle or end of the month, you know, when don't speed through certain little communities where they're known to be profit maximizers, revenue maximizers, right? Mises doesn't claim that policing is illegitimate or that, you know, the government, he doesn't even claim that the government shouldn't provide police services, but he says they can't manage their operations in this decentralized fashion that private entrepreneurs can because they don't have profit loss signals, there's no market test. OK, Mises recognizes that even in a private company, you have some challenges, for example, how to allocate overhead cost among different activities, but this is something that, you know, entrepreneurs are figuring out as firms compete with each other. There are some interesting recent work on accounting principles from an Austrian perspective, for example, there's a Thomas Taylor article, because it's 15 years old now, talking about accounting practices as kind of social constructs or social conventions, and he offers a kind of Hayekian evolutionary argument for how particular conventions come to be established, like activity-based costing or EVA and so forth. There are a lot of new accounting practices that come into fashion. And Taylor says we can explain these as attempts by market participants to come up with reasonable social conventions that allow them to solve certain kinds of coordination problems. You know, I spoke on Monday and I guess all of you were there because it was a because it was required on entrepreneurship. So I don't need to say much more about that. But just to remind you that, you know, in in a kind of a long run equilibrium state, we still have earnings for factors. We have interest payments to capitalists, but we don't have entrepreneurial profit and loss because there's no uncertainty. Right. But on a day to day basis, in the real world, entrepreneurs earn profits and losses based on their ability to anticipate future prices and market conditions. And the unique role of the entrepreneur is to arrange the factors of production under uncertainty, which is not quite the same thing as innovation or discovery, but rather it's something that implies ownership and judgment. Now, this is extremely practical because that's exactly what resource owners do. It's exact. This is exactly how entrepreneurs behave. Just to remind you, right, Austrian economics helps us to see what profit is not. OK, so profit is not interest. Profit and interest are both financial returns to business owners. I mean, they're dollars. Right. If I'm a business owner, I get these dollars in my pocket after I've paid out all my factors. And, you know, they're maybe to me, a dollar is a dollar. But analytically, we understand that there can be different sources from those dollars, right? So to the extent that, you know, part of that business income comes from the fact that when I pay for my factors, I'm paying a discount relative to their marginal revenue product because I'm paying them upfront and I'm only receiving the returns from selling my output later. And so I'm getting an interest return, right, to compensate my factor owners for time preference, right? Basically, I'm lending them some money ahead of time before they've produced something that I can actually sell and I get an interest return for doing so, right? But that's that's different from the part of my business income that comes from being able to buy some factors at prices that are below their realized discounted marginal revenue products. And I get losses to the extent that I pay for factors more than what I will eventually get a discounted marginal revenue product. And again, to see this, you can imagine a world in which there is no uncertainty about the future, but you still have the passage of time and time preference. So business owners would still earn interest in the evenly rotating economy. But there would be no profits and losses, right? So, of course, income in an economic sense is not exactly the same thing as income in an accounting sense, right? Accounting income includes profit, interest and the entrepreneur's implicit wage. So when we talk about profit in an economic sense, we're thinking of profit as a functional category as a reward to successful uncertainty bearing. But you don't see that on the income statement. OK, accounting majors, there's just net accounting income. There's total revenues minus total costs. Analytically, you have to try to conceptually separate that net income into interest, implicit wage and profit. But those things don't show up as line items on the income statement, right? Profit is not an automatic return to capital, which some people seem to think. Some economists seem to think, oh, well, if you have capital, you know, capital is like a banana tree, produces a certain number of bananas per year, just automatically. So if you own some capital, it just sort of spits out some interest. That doesn't make any sense. I think Roger Garrison had some discussion of that. And profit is not a markup over production costs. Is this what people think? Oh, well, the way you make money in business, I'm going to produce whatever I'm going to produce books. And, you know, here's how much it costs me to produce a book. I add 15 percent and send it out into the market. And that's where my income, that's where my profit comes from. Now, I mean, look, sellers are free to add whatever markups they want to goods and services they sell. That doesn't mean anybody is going to pay that, right? The price that's paid is determined by supply and demand. The actual market price depends on supply and demand. Of course, the seller can post whatever price he or she wants, but that doesn't mean that's the price that you will actually receive for selling your goods and services. OK, I just briefly talk about business strategy. There's lots of literature on this by economists and by other kinds of scholars. You know, strategy is really about inter-firm performance differences. Why do some firms perform better than others? And the dominant approach to business strategy is what is often called the positioning approach. Derives mainly from the research by Michael Porter. And essentially, it's neoclassical monopoly theory or neoclassical industrial organization economics sort of flipped around. So in standard neoclassical monopoly analysis, it's explained that monopoly is harmful because there's inefficiency and dead weight loss and so forth and perfect competition in which firms don't earn any profit is better from society's point of view. Well, Porter took that conventional analysis of monopoly and competition and said, OK, but what if I'm the monopolist or I'm a would be monopolist? Right? I don't care about efficiency. I don't care about social welfare. I care about making a bleep load of money. OK, and if monopoly theory says, well, when you have barriers to entry, then you have a downward sloping demand curve instead of a horizontal demand curve and their monopoly profits to be made. I'm like, yes, I want that. OK, how do I create barriers to entry? Porter says, oh, well, you know, you should do things like try to get patents on the technologies that you use or the products that you sell. Try to differentiate your product from that of rivals so you can get some monopoly power, you can try to engage in predatory conduct, try to drive your rival out of business so then you can be left as the winner in the market. I mean, so the idea in Porter's strategic positioning approach is that the way to make money is to outmaneuver your rival, you know, kind of like in a like in a military conflict, outflank your rival and drive your rival into the ocean, you know, through your advertising and your product differentiation and so forth, intellectual property, etc. There's not much role for Austrian concepts like uncertainty and entrepreneurship and actual competition as opposed to textbook, perfect competition in those kinds of models. Now, in recent years, there's been some challenge or critique of the Porter approach by what is sometimes called resource-based or capabilities approaches or theories to strategy. We'll say that, no, really, why some firms perform better than others is because those firms have better resources and better capabilities or competencies than their rivals. OK, so when you hear people talk about the core competence of an organization, a company, this is the kind of thing that they have in mind. So it's different from Porter in that instead of emphasizing, you know, trying to gain monopoly power, you're trying to acquire critical resources that other firms don't have and use those to attract customers to your products as opposed to those of your rivals. Now, in many ways, I think this is an improvement over the Porter approach. But it's still essentially based on neoclassical competition theory with just just focusing on factor markets rather than product markets. OK, so the idea is under perfect competition, there will be no unique resources or capabilities. All firms would be able to produce exactly the same thing. So firms are trying to create or exploit some kind of friction or imperfection in the factor markets where you can get a better resource or a better combination of resource than your rivals. Well, Austrian economics offer some some additional insight into strategy that is particularly useful. One is to focus on the role of the entrepreneur. Right, entrepreneurs differ in their ability to engage in production, to appraise and combine resources in anticipation of profits and so forth. Right, so the superior financial performance of companies is ultimately attributable to the superior entrepreneurial judgment of entrepreneurs who are responsible for those companies. OK, remember, entrepreneurial judgment can be better or worse. It can be it can be good or bad. It can be strong or it can be poor. Right, and when entrepreneurs are good at what they do, they earn profits as opposed to losses. OK, so and there's an emerging literature, academic literature in what's called strategic entrepreneurship, which is trying to take the insights from entrepreneurship theory and apply them to business strategy, trying to explain, inter-firm performance differences in terms of differential entrepreneurial judgment or differential quality of entrepreneurial judgment. Another advantage of attractive feature of this approach for us is that it places the emphasis where it belongs on subjective consumer preference. Right, what entrepreneurs are trying to do is anticipate the needs, desires, wishes, beliefs of consumers. So Apple is one of the great companies of the late 20th century. And Steve Jobs is a great entrepreneur. But, you know, there's a famous statement attributed to Steve Jobs that has that I think has been very misleading to people who study entrepreneurship and strategy. And that's you might remember Jobs supposedly said, you know, well, at Apple, we don't do we don't do marketing research. We don't do we don't do surveys, focus groups, because the consumer doesn't know what he wants until we tell him. In other words, we're so innovative. We we introduce these brand new things into the market and then everybody wants them. Right, but we can't ask people in advance. How do you think do you how much would you be willing to pay for for X? Because they've never seen an X before. OK, I mean, some of this is a little exaggeration on Steve Jobs's part. Right, but this kind of reasoning has led a lot of people, especially in the tech sector, to think, well, look, I mean, consumer preference really doesn't matter. It's about introducing the coolest, techiest, geekiest, most awesomest thing app or piece of hardware or service. And then, of course, it's going to go viral and I'm going to become a bazillionaire. OK, but of course, that's silly if you think about it for even five seconds, because of only a very tiny fraction of the apps and products and so forth that are introduced actually do become profitable, let alone become highly profitable. So, yeah, in hindsight, it's easy to look at Apple products and say, well, hey, they just pushed the market in a direction that it never would have gone otherwise, right? But I mean, if consumers just if consumers didn't like those products, then it wouldn't be the case that they wouldn't have been successful. Steve Jobs cannot just create demand on his own. He, like every entrepreneur, is trying to anticipate what consumers will ultimately be willing to do. OK. A brief note because students often ask about this, you know, what about game theory? So a lot of research and strategy, especially research and strategy that's done by economists, emphasizes game theory as kind of a tool for formalizing strategic interaction. Most of you have you've seen the prisoner's dilemma and other kinds of examples where game theory is used to understand interaction. You know, as Austrians, should we reject game theory as a tool for understanding strategy because of various objections to use of mathematics that that that you know already? Well, I want to give a qualified answer to this and say that. Used properly, a little bit of game theory, in my opinion, can is perfectly legitimate. Right. As long as we restrict ourselves to, you know, sticking to our core principles like. You know, that that utility is ordinal rather than cardinal, that we don't make interpersonal comparisons of well-being and so forth. So really, if you think about it, the standard kind of prisoner's dilemma analysis can be done in a pretty qualitative and ordinal way. Right. You actually don't need numbers to put in the little cells of the prisoner's dilemma to solve for the Nash equilibrium. You just need it to be the case that for this player, this payoff is higher than this payoff and this payoff is higher than this payoff. You just need a series of ordinal relations and they could be really subjective in the minds of the decision makers. Right. Now, how useful that is to analyzing a particular case depends on the circumstances, but simply writing down a little prisoner's dilemma matrix and putting numbers in there to represent the rank ordering of the players does not violate any Misesi and precepts about subjective utility or ordinality and so forth. Now, if you a lot of things that game theorists will then do, like, you know, try to add up these numbers over time through repeated plays or add some risk and then calculate expected values and so forth where the cardinality does play a role and we should be wary of doing that. Right. But the kind of intuitive logic of some of these games, I think, is not on its face objectionable in any way. In fact, I mean, sometimes trying to analyze strategic interaction using game theory can help us kind of think more systematically about what about the problem at hand, you know, again, keeping in mind that the whole point of using these kind of models is to show that there's an interdependence between joint actions and outcomes. In other words, you know, my sort of well-being is not only determined by the choices that I make and the actions that I take, but also the actions that other people, my competitors, my customers, my suppliers, others with whom I interact, are also making. Right. Of course, the same thing for, you know, for Apple. Apple's profit is not only determined by the entrepreneurial judgment of Steve Jobs or Tim Cook or whoever, but also by the actions of other entrepreneurs who are also exercising entrepreneurial judgment. There's an interdependence of judgment and action that explains the profits and losses that are experienced by different companies. Okay. Again, thinking about the characteristics of these firms, what are their objectives? What are their capabilities? You know, what's the sort of the timing of the interaction? What do certain people know and when do they know it and so forth? You know, and even Nash Equilibrium per se is not objectionable from an Austrian point of view. Again, as long as we're keeping things at a kind of a conceptual and, you know, ordinal level, I think using game theory is perfectly fine. Let me let me wrap up with some comments on the theory of the firm before we stop. As I mentioned before, in a lot of economics textbooks, the firm is represented by a production function. You guys don't know what I mean by a production function. Y is equal to F of X1, X2, X3, X4 or however many inputs you have. Y is output. And then you can, you know, you can use calculus on this production function to derive costs and so forth. You know, again, any any any business professional is going to look at production functions and cost curves and just laugh. I mean, it's not like you could hire yourself out as a consultant after taking a couple of economics classes as your university and say, oh, I'm going to go I'm going to go to Apple or or Xerox or General Motors or whatever and say, hey, if you'll show me your production function, I can do some math on it. Let me see your cost curves and I'll tell you how to maximize profit. Draw this curve, draw that curve. Here's where they cross. Yeah, I'm done. Here's my consulting bill. You know, pay me ten thousand dollars. I mean, again, this would be a call security. You know, this would be a security kind of moment. They would throw you out right away. That analysis is completely useless, you know, to actual managers, right? Austrians don't view the firm as a as an equation, right? But but again, in terms of resources, tangible and intangible or assets that are owned by those entrepreneurs who own the firm, right? What is a firm? A firm is a capitalist entrepreneur. Walter Block used that term capitalist entrepreneur. Or it could be a team of capitalist entrepreneurs, plus the assets that they own, right, the alienable assets. In other words, assets that you can buy and sell in markets. The reputation is not an alienable asset, for example. That's what a firm is. Firm is a is an entrepreneur or an entrepreneurial team, plus the resources or assets that are owned by the entrepreneur or entrepreneurs. Ownership conveys authority. Right. You have the right to decide how these resources will be used in particular context. Again, a firm as in this sense is not the same thing as a production function or a production process. A firm can own multiple production processes. Multi-divisional firm, multi-product firm or actually a firm could not own any, cannot control any production processes on its own, but could contract with other firms to jointly produce different goods and services. And I have a paper that on firm size that you might find interesting. I published in 1996 using Mises calculation argument to explain the limits to firm size in terms of sort of the language that we used before. I'll let you check that out if you're interested. Something else that Austrian economics helps us to see is it gives us some insights into organizational design. So by organizational design, I mean things like within a firm or within a company, how are decisions made, who has authority to make certain kinds of decisions, how are people compensated and motivated or incentivized, how is performance evaluated? I mean, you can already see, for example, an analogy between how decision authority is assigned and the notion of property rights in a market economy. Right? So I have authority over the property that I own. Within an organization, if my boss delegates some decision authority to me, it's kind of like I have property rights. I don't exactly have property rights because the boss still owns the building and owns the machines that I'm using and owns the desk at which I'm sitting. But I have this little realm of authority within which I can kind of make my own decisions without a lot of oversight. And that, you know, giving me that sort of pseudo property right gives me incentives the same way that real property rights give you incentives to take care of the things that you own. You can put a Hayekian spin on this and say, well, you know, the decision to decentralize, to delegate decision authority to lower levels of the hierarchy can be explained in terms of tacit knowledge, Hayek's concept of tacit knowledge. Great article on this by two non-Austrian writers, Michael Jensen and William Meckling, it's called Specific and General Knowledge and Organizational Structure, is one of my favorite Austrian articles, even though it's not explicitly Austrian that they do they do discuss Hayek. And they argue that, look, you know, in a large organization, the people at the top don't have all of the knowledge that's necessary to make good decisions throughout the organization. People at lower levels of the hierarchy have knowledge that is important and useful and that knowledge may be tacit. The term they use is specific, difficult to articulate, difficult to transfer explicitly up the line. So therefore it makes sense to give decision authority to people who already have the necessary specific knowledge. In other words, to have sort of a flattened hierarchy or to use their language, a co-location of decision rights and specific knowledge. It's a very Hayekian argument for a particular kind of organization that's looser and more decentralized. I need to stop. I'll just mention that it's possible to go too far here. Some Austrian economists, I think, have said, well, we're for the free market. We don't like authority and hierarchy from the government. Therefore, we don't like authority and hierarchy in the private sector either. And all firms should be, you know, organized along sort of principles of the sharing economy. And everybody should be an independent contractor. We don't need any large companies or or private large private companies or essentially status. I don't accept that line of argument at all. I've got an article you could look at came out two years ago called Why Managers Still Matter, arguing that the flattening hierarchy is kind of a myth. But you can talk about we can talk about that in the Q&A. So to summarize, Austrian economics is useful for management. It's different from other kinds of economics. And it's causal realism, its emphasis on resource heterogeneity, the role it gives to demand and the consumer and the central position played by the entrepreneur. I mean, it's qualitative theory. Austrian economic theory is qualitative, but it can be useful to people like forecasters who are engaged in the business of trying to anticipate quantitative relationships. But ultimately, at the end of the day, right, management is not praxeology. Principles that are useful to managers are not the same thing as, you know, Mises, apedictically true laws. Because ultimately, management is more of an art than science. But just as, you know, the theory of color is useful to a painter, understanding Austrian economic theory can be very useful to the manager. OK, thank you.