 OK, everyone, let's get started. I'm Klein number two at home, so it makes sense that I would be Klein number two here as well. Now, the previous Dr. Klein pointed out that the Austrians have a different view of money than most mainstream economists, that rather than treating money as sort of a separate add-on to the basic analysis of the market system, Austrians integrate monetary theory into their discussion of prices and markets. It's the same thing with entrepreneurship. As I mentioned last night, most economics conferences would not treat entrepreneurship at all. If they mention entrepreneurship, it might be as some sort of applied topic at the end. But the Austrians treat the entrepreneur as a central actor in the economic system. So the entrepreneur plays a very different role in the Austrian understanding of the market than the entrepreneur plays in conventional understandings of the market. Now, of course, entrepreneurs and entrepreneurship are receiving a lot of attention nowadays, much more so than was the case when I was your age, right? I mean, everybody knows who entrepreneurs are, Jeff Bezos, wealthiest person in the world, I guess by some measures, the wealthiest person who ever lived is known primarily as an entrepreneur, right, as the founder, more as the founder of Amazon, I guess, than the CEO of Amazon. Actually, if you look at the most recent Forbes list of wealthiest people in the world, I mean, you got Bezos, there's Bill Gates as an entrepreneur, right, Warren Buffett's an investor, but you've got, oh, Carlos Slim, I guess is kind of an entrepreneur, sort of a rent-seeking entrepreneur. Actually, you've got a lot of rent seekers up there, too. But you've got Larry Ellison, there's Zuckerberg, Larry Page, Sergey Brin, the Koch brothers are on there, but a lot of these individuals, particularly the younger ones, if I asked the person on the street, who is this and what does this person do for a living, they would say, oh, that's Mark Zuckerberg, he's a famous entrepreneur who started Facebook, right? There are lots and lots of books out there, the top 10, 25, 50, 100 books you need to read to be a successful entrepreneur, huge publishing industry and entrepreneurship stuff, you can get entrepreneurship training, you can sign up for lots of different programs, short programs, medium programs, you can get undergraduate degrees in entrepreneurship, you can even get a PhD in entrepreneurship to mention one completely randomly chosen example. So we do see a lot more interest in the phenomena associated with entrepreneurship, being a good Austrian, I instinctively want to go to the data because we're so quantitative, right? If you look at a Google engram, which of course is the most scientifically objective way to assess the influence of different ideas, you find that the language of entrepreneurship really has taken off in the middle of the 20th century and especially entrepreneurship itself, this is through 2008, which is the most recent data I could get, you see a huge surge of interest in books about entrepreneurship. Unfortunately, we haven't quite caught up to works about politicians, but hey, politicians trending down, okay? Entrepreneurs trending up, so hey, maybe that's a good sign. Here's the thing that's odd, as I mentioned previously, I mean, despite the fact that everyone out on the street knows what an entrepreneur is and could name several famous entrepreneurs and could probably tell you why it's good that we have these entrepreneurs, why it's important that entrepreneurs are out there doing their thing and how we wouldn't have many of these wonderful goods and services that we take for granted in the modern era if it were not for these bold, decisive, risk-taking entrepreneurs, economists for the most part have absolutely nothing to say about this, right? If you look at the index in the typical mainstream economics textbook, this is Varian's intermediate micro for those who wanna check this out, you'll notice that the word entrepreneur isn't even in the index, right? So I mean, I'm not claiming that, well, mainstream economics doesn't give as much attention to the entrepreneur as would really be warranted. It doesn't even mention the word. I mean, the concept is completely absent from the standard treatments of markets and prices and exchange and production and so forth. The late economist William Baumall, I taught at NYU, famously described the entrepreneur as the specter which haunts economic theory. Spectre is like a ghost, right? It's like, economists, if you sort of press them, I mean, because economists are people too. Mainstream economists, sort of people. If you ask them who Jeff Bezos is, that they get and sort of somewhere in their deep, deep in the recesses of their hearts, they understand that the entrepreneur is a thing and that entrepreneurship is important and it's good that we have entrepreneurs, but they don't have any kind of analytical language for treating entrepreneurship and they have no conception of how to incorporate entrepreneurship into their conventional models, their equilibrium-based models of markets and prices. This is obviously not the case for the Austrian school. As Mises put it in human action, it is impossible to eliminate the entrepreneur from the picture of a market economy. Mises likes the word impossible, right? Not only is economic calculation under socialism impossible, you can't even create a picture of a market economy without the entrepreneur. It's impossible to do that. The various complementary factors of production cannot come together spontaneously. They need to be combined by the purposive efforts of men aimed at certain ends and motivated by the urge to improve their state of satisfaction. In eliminating the entrepreneur, one eliminates the driving force of the whole market system. Imagine any complex good or service, take your smartphone out of your pocket and look at it. Is it possible that the microprocessor and the smart touch-sensitive glass and all of the electronics that connect to networks, the plastic, the design, that all of those factors of production just poof just sort of magically and spontaneously and on their own decided to combine themselves into an iPhone 10? Okay, no, obviously it takes human effort, it takes human intent, it takes design, it takes purpose as Mises puts it, for somebody to figure out, hey, I can take a little bit of this and a little bit of this and a little bit of that and combine them in certain ways and produce a new thing that is more valuable than those ingredients or inputs would have been if they had just been left on their own, right? So when Mises says the entrepreneur is the driving force of the market system, he doesn't just mean, like his Viennese colleague, Joseph Schumpeter, that well the economy normally is doing just fine with that entrepreneurs, but every once in a while they show up and like push the economy to a new higher level and then they go away and it just runs on its own. No, Mises says the entrepreneur is the driving force of the market on a day-to-day ongoing basis. The mundane aspects of production are under the supervision of are coordinated by, are imagined and executed by an entrepreneur, okay? So this is obviously a very central aspect of the market. Notice entrepreneurship is a very general feature in Mises' understanding and applies to all aspects of economic activity and entrepreneurship is not restricted only to technology startups. Yeah, technology startups are coordinated by and imagined by and executed by entrepreneurs but not only those things, right? It's not just startups, it's not just tech companies, it's not just high growth firms, gazelles or whatever is the trendy term of the moment. No, entrepreneurship applies to all aspects of the market economy. Now, as a lot of you probably know, the Austrians have a sort of distinctive way of thinking about this whole process of production, right? Production is about transforming factors or inputs into valuable outputs. So you've got original factors, land and labor and nature-given factors or factors that don't need to be reproduced. Then you've got intermediate factors of production, machines, tools, equipment, inventories and so forth and then you've got final goods and services that we consume. So most of you have probably seen a picture like this triangle, right? Sean Rittenauer is gonna discuss Austrian capital theory in more detail tomorrow. This is the famous sort of Hayekian triangle or the, I guess this is the Garrisonian interpretation of the Hayekian triangle because Hayek actually drew it flipped vertically. But it's this idea that production involves combining inputs into outputs but this is a process that is complicated, right? In a complex industrial economy, there are lots and lots of different potential factors and there's an almost infinite number of possible ways to combine them and then maybe to recombine them to get a particular set of outputs, goods and services. And again, Sean will give you more detail tomorrow about some of the Austrian notions of the production, the structure of production and how interest rates affect the structure of production and so forth. But the thing I want to, what's essential to remember here is that in the Austrian understanding, production is not instantaneous, right? Production takes time. You start today with some factors, some inputs and you start combining them into, to produce a good or service that will only become available tomorrow which you'll then take to market and try to sell the next day. Okay, so production and consumption are not timeless, they're not instantaneous. You've probably heard of the famous Austrian theory of imputation which holds that contrary to the classical economists and to Karl Marx and even some people today, it's not the case that goods and services are valuable because they use valuable inputs, right? Famous labor theory of value that Marx embraced, right? It's not the case that goods and services command a high price on the market because very valuable inputs are used to produce them. Rather, as the Austrians pointed out, the process of valuation goes in reverse. It goes in the other direction, right? Because people value particular final goods and services, the inputs that are used to produce those goods and services are also valuable to the producers, okay? And one implication of imputation theory is that the value that goods and service, sorry, the value that productive factors command on the factor markets, right? Depends on the value to consumers of the goods and services that those factors can make, right? We saw this illustrated very nicely over the last week when the US women's soccer team won the championship and most of the discussion was not about the quality of play or about the technical aspects of the game but about the supposed gender pay gap, right? That the US women's soccer players are not paid as much by the US Soccer Federation as their male counterparts. Now, you could certainly have an argument about, this is sort of a central planning thing, right? Is government money and some private sponsorship money that this agency doles out to different players? We could ask how that's done. But it led to a more general discussion of pay disparities. And there was even some, was it Nancy Pelosi? I can't remember which Congress person it was. It wasn't Pelosi. It was somebody else, I think just yesterday complaining that players in the women's NBA, the WNBA make less money than their male counterparts in the National Basketball Association. Okay, why is it that the top WNBA player doesn't make as much as who's highest paid in the NBA? Is it LeBron or whoever it is, right? Well, it's because a lot more people are willing to pay for a ticket to an NBA game than a WNBA game, right? The men's World Cup brings in vastly more money in terms of sponsorship dollars, television revenues, gate admissions tickets than women's soccer. Terrific as the women's soccer matches were, they don't command, those outputs are not as valuable on the market as other outputs, and therefore the factors that are used to produce those outputs don't command a lower wage, a lower factor payment than would otherwise be the case. In fact, it was, what's her name? Rapano, the star who on one of her TV appearances said, well, we wanna make more money as women seem. I urge fans to go out and watch us play and buy our stuff, and I'm thinking, hey, she understands supply and demand, right? She understands imputation, that's the key. Now, because production takes time and we live in a world not of where we sort of know exactly what the future will bring, entrepreneurs have to take into account uncertainty, right? I don't know when I start producing today exactly what market conditions will be in the future when my goods and services are ready for sale, right? That is what generates in the market what is the determinant of entrepreneurial profit and loss. Profits and losses come from the fact that there is uncertainty about the future. What do I mean? Well, imagine a kind of equilibrium state. So those of you who have studied Mises and Rothbard's construct of the evenly rotating economy, you can have that in mind, but really any sort of even a neoclassical kind of equilibrium construct will do for this exercise, right? In this kind of equilibrium where there's no uncertainty about the future, there either is no future or in the ERE the future, there's something that's kind of like a future. There's today, tomorrow, the next day, but every day people just sort of repeat the exact same behaviors as in the previous day. So you can predict with perfect certainty what's gonna happen tomorrow because it'll be exactly like today, right? In a world like that, each factor of production earns a factor price, a wage, if it's labor, a rental price, if it's the use of a machine or land equal to its discounted marginal revenue product, right? So the marginal revenue product is the addition to total revenue to the producer from using one more unit of that factor or service, right? So if I hire one more increment of labor, one more hour of labor, I can produce this much more output. I can then take that additional output to the market and sell it at the market price and that generates a little bit of additional revenue, right? I would not be willing to pay more than that amount for one unit of that labor because then I'd be losing money, right? So I'm willing to pay for the use of a factor up to but not exceeding its marginal revenue product and if you have time preference, you'd have to discount that. But the point is in this equilibrium state, every productive input gets paid exactly equal to its contribution measured in money to output, okay? All labor, all workers, employees are paid exactly equal to their marginal contribution to their employer's revenue, right? Uses of machines and land and so forth. Rental prices are given by their contribution to output on the margin, to revenue on the margin. So everybody earns, every factor owner earns a factor payment equal to this discounted marginal revenue product. People who own firms will earn a kind of a return sort of equal to, they have to have enough money left over to make it worth their while to manage the firm rather than go become an employee for somebody else's firm. So they get a kind of implicit return on their management function. Capitalists who in the ERE still have the passage of time. It's just not, it's kind of fake time because there's no uncertainty about the future. And so they're still borrowing and lending so capitalists can still earn a return for going current consumption in exchange for future consumption. Rothbard actually talks about an additional rent for something he calls the decision-making factor. There's been a couple of good articles. There was an article a few years ago by Vlad Topan in the QJAE sort of challenging Rothbard's notion of the decision-making factor. And then just in the last few months, Joe Salerno published a paper in the QJAE defending Rothbard's position against Topan. I'm actually working on a piece attacking Salerno because I think Topan is actually right. I think this is one of these rare occasions where Rothbard made a mistake and one of the not at all rare occasions where Salerno made a mistake. But the point is there is no economic profit or economic loss in this world. Right, there's no errors because everybody knows what's gonna happen tomorrow. There's no errors about sort of predicting the future. Nobody will overpay for a factor and you can't underpay for a factor relative to its discounted marginal revenue product. So there's nothing left over. There's no residual, right? All the money that comes into the entrepreneur gets paid out to the factors or he retains a little bit for the implicit wage and so forth, pays some interest. There's nothing left over, right? In the real world where we have an uncertain future, it doesn't work that way, right? In the actual world of uncertainty, entrepreneurs are out there acting in factor markets, buying factors of production or renting the services of factors of production, negotiating with the owners of those factors, haggling and so forth, right? Entrepreneurs are competing for those factors, trying to get them at the lowest possible price so they'll have the most left over after they produce the stuff and sell it, right? But they're competing with other entrepreneurs who are also trying to obtain those factors at the lowest possible prices. Again, if everybody had exactly the same beliefs about the future, then those prices would be bid up to the discounted marginal revenue products and again, the entrepreneur wouldn't have anything left over. But not every entrepreneur has the same knowledge, beliefs, expectations. Not all entrepreneurs are equally good at judging to use Mises' word, judging future market conditions, right? So they're basing their bids on their knowledge of the present, you know, technology, what can you actually make? How many physical units of this does it take to get some of that? They have beliefs about their own capabilities, the capabilities of their workers, what sort of stocks of resources are available, but they also have beliefs about the stuff that hasn't happened yet, right? What will consumers be willing to pay when I actually bring my good to market? Now, I can try to make an educated guess, right? I can hire a market research firm to give me some projections. I can ask consumers, but again, they've got to put their money where their mouth is, right? I don't know the actual realized revenues until I take that thing to the market and try to sell it. And of course I don't know if, you know, what the government will have done or legal system or culture. I don't know how competitors will react. So I have to base my bids for factors in the present on my beliefs about what those factors will eventually be revealed to be worth in the future once I can buy and sell my stuff. And not everybody is equally good at this, right? Entrepreneurs who are really good at anticipating the future, who have very good judgment about future market conditions, will be, they will purchase the right goods and services, the right factors and they'll be able to pay lower prices than those entrepreneurs who have poor judgment about the future who think, oh, this thing will sell like hotcakes when in fact it won't. And so if you're really good at doing this, you have money left over, you have profits. If you're not so good at this, you lose money, you have losses. And if you have a lot of losses, eventually you can't do this anymore, right? You run out of money or you run out of other people's money and then you have to go be, you know, an economics professor or something like that. Okay. Now why is it that it's so hard to predict the future? Well, to quote the, if I can refer to that famous theoretician, Donald Rumsfeld, former defense secretary, right? He, Rumsfeld once gave a press conference where he said, talking about military strategy, he said, you know, it's not the known unknowns that get you. It's the unknown unknowns. Okay, it's like, I don't know if he was talking about the, you know, 2003 invasion of Iraq or something by the U.S. You know, well, we knew that there would be some resistance on the ground, but we didn't know exactly how much. That's the known unknowns. But we had no idea that this would happen and that would happen and conditions wouldn't change in this way. And we were totally unprepared for that. And, you know, the whole thing went sideways. So what can we say about these unknown unknowns? Well, it just so happens, right? This is 2019. I got some emails the other day from people who are working on putting together, you know, commemorative books and conferences and so forth to commemorate two very important books on risk and uncertainty that were published in the same year in 1921. One is John Maynard Keynes' book, A Treatise on Probability. Right? So this is published, yeah, thank you. Thank you for that. Is before he became much more famous, of course, as the author of the general theory. And the other was Frank Knight's book, Risk, Uncertainty and Profit, right? Taking two very different approaches to probability, but published in the same year, both very influential. Now, Keynes' approach, now, just stay with me now because I'm about to say something that's gonna confuse you. Keynes' approach is often known as subjective probability theory. And some of you were saying, well, aren't we Austrians, subjectivists? So isn't this our thing, right? But no, what Keynes meant by subjective probability, which is basically the view that you find in most mainstream economics today, is not Austrian style value subjectivism. Keynes' argument was there is no such thing as objective likelihood or frequency, right? Do people just have different preferences or beliefs about probabilities? And they're completely arbitrary. You know, you can't say whether you should like, you know, chocolate ice cream or vanilla ice cream is just your preference, right? Keynes said, well, if you flip a coin, if you think the likelihood of getting heads is 0.5, that's just a subjective belief, just like you prefer chocolate ice cream to vanilla, right? And if somebody comes up to you and says, if you say, well, I believe the probability I'll get heads is, you know, 0.8, and it's like a normal coin, then no one can say you're irrational. They can say, oh, well, that's nice. How nice for you, right? Way to go, speak your truth, okay? So Keynes's view, those of you who've studied statistics, if you've learned something like Bayes' theorem, right? Bayes' law, Keynes's view was essentially these kind of ex-ante probabilities, initial probabilities, people's beliefs about things that will happen are completely arbitrary, like preferences, but then people are supposed to update those beliefs as new information comes out, right? Using Bayes' law or whatever. That's pretty much the view that you get in most of the mainstream textbooks. Frank Knight represented a different branch of probability theory, what is sometimes called the frequentist approach. And Knight's view is based on a distinction between different kinds of scenarios, different scenarios. Knight said, you know, when you're flipping the coin or you're rolling dice, right? It is possible to measure objectively the probabilities that you'll get heads or that a certain number will come up with your rolling dice when you're rolling dice. One way to do that is simply to perform the experiment. Right, if you had no idea what happens when you flip dice, you can't figure it out, you know, you're Keynesian or whatever, right? You could just flip a die 10 times, 100 times, 1,000 times, a million times and just count how many times did it land on one? How many times did it land on two and so forth? And you'll find that in the limit, as the number of throws increases, each of those likelihoods, you know, approximates one sixth. So you can calculate an objective probability by simply repeating the event over and over again. The way insurance markets work, right? The way actuarially fair insurance rates are calculated is by looking at the frequencies with which car accidents or house fires or other events have occurred in the past and then using that to estimate an objective, quote unquote, likelihood of a certain event, a certain risk occurring in the future. That's what Knight called probabilistic risk. Knight said there are other situations where each event in a series of events is so unlike the other events in that series. Each occurrence is unique. You cannot meaningfully bundle them into, you know, a category like each role of the dice, right? A business venture is not the same thing as every other business venture. Lots of things that we do in our personal lives, right? Represent kind of unique idiosyncratic uncertainties for which we do not have an objective probability estimate available, you know, because we can't perform that experiment, right? Will my Peter Klein's new business venture succeed? Well, I can't do that 10 times, 100 times, 1,000 times, a million times under controlled conditions because that's not the way the world works, right? The world just goes in reality. I can only do it once, right? I can try another business venture later, but it's not gonna be exactly the same thing. Market conditions will be different. I'll be different. Circumstances will have changed, right? So according to Knight, there's a distinction between situations where probabilistic risk applies, mathematical calculations of risk, and other situations where you have unmeasurable uncertainty, true deep uncertainty. And Knight argued that the way we human beings handle uncertainty is not just blind guessing or pure subjective whim as in Keynes' approach. It's rather what in everyday language we call intuition or gut instinct or subjective judgment, right? We do have some knowledge on which we can make reasonable guesses about the future. It's just not, we can't do it with mathematical precision, okay? Some of you may have heard the term that Ludwig von Mises uses, which he got from his younger brother Richard von Mises. Richard von Mises was a famous probability theorist who distinguished between what Frank and I called probabilistic risk. The Mises brothers referred to as class probability. They said class probability applies where you have a set of events like flips of a coin or rolls of a dice or houses that might catch on fire. Each one is sufficiently similar to the other elements of the set that you can just look at the frequency with which the hazard appears in that set and then use that to estimate a likelihood that it will happen to any individual member of that set. Okay, what's the likelihood that on this roll I'll get a three? Well, we look at all the times that a three came up in the thousands of rolls and then we use that to come up with one sixth, right? When you cannot meaningfully put different events into a class, then we use a different kind of reasoning what the Mises brothers called case probability. So case probability is where we use intuition or subjective judgment to figure out what we estimate, what we think is gonna happen in the future because each event represents a unique case. Okay, now the point is if everything we didn't know about the future was probabilistic risk, then any entrepreneur would controlling for risk preferences and so forth would make the same kind of rational decision, right? I don't know exactly how much the iPhone 25 is gonna sell for when it comes out in a few years, but here's the probability distribution and on average it's gonna be right here. I can calculate the mean and the variance, anybody with access to that same information would compute the same mean and variance and would make the same rational decision about how much to invest in producing it now or whatever. Okay, however, in reality, we don't face that kind of situation. The future is uncertain rather than risky. Therefore, we need some agents in society who are willing and able to bear those deep uncertainties. We need specialists in uncertainty bearing. Indeed, Mises says the term entrepreneur as used by economic theory, he means Austrian economic theory, means acting man exclusively seen from the aspect of the uncertainty inherent in every action. What's the Austrian short definition of entrepreneurship bearing uncertainty? Not probabilistic risk, not throwing dice, but bearing these deep fundamental uncertainties. Now, in a kind of a sort of a narrower sense, if you wanna think of entrepreneurship in the more conventional sort of commercial sense, we can think about specialized agents who perform the function of buying factors of production and combining them in different ways and producing products that they will sell in the future under conditions of uncertainty. Right, so specialized professional commercial entrepreneurship is uncertainty bearing in the context of combining productive inputs and outputs. As the Austrian economist Ludwig Lachmann put it in his book on capital theory, we are living in a world of unexpected change, unknown unknowns or 90 and uncertainty or case probability. Hence capital combinations, resource combinations will be ever changing, will be dissolved and reformed. In this activity, we find the real function of the entrepreneur. So the real function of the entrepreneur is this continual combining and recombining of productive factors under conditions of uncertainty. That's what entrepreneurs do. Now, in order to do this, they need to have access to money prices. They need to perform economic calculation. The other, Dr. Klein referred to that briefly today and Joe Salerno will talk about it tomorrow in his lecture on calculation. So again, as I said, Mises embraced the word judgment. This is a term that I've used in my own work on entrepreneurship that you can think of judgment as sort of decision making about the future without a formal decision model or a probability distribution function, but rather using intuition or gut instinct or what the Germans call for stay-in, sort of deep understanding. Here's how Mises put it. Mises said, 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 specific, anticipative understanding of the conditions of the uncertain future defies any rules and systematization. It can be neither taught nor learned. That's tough medicine for an entrepreneurship professor. The entrepreneur sees the past and the present as other people do, but he judges the future in a different way, okay? Notice Mises' term, this specific, anticipative understanding. So it's understanding the future, it's anticipating the future, and it's very specific. It's tacit, it's idiosyncratic. It's not something easily generalized. Cannot be systematized in a set of formal rules. Okay, so in my own work, I've expanded this or developed this or tried to elaborate on some of Mises' insights by linking this entrepreneur function to the ownership, the resource ownership function, and elaborating on what Mises calls the capitalist entrepreneur. We'll come back to that in a second. So we often hear that Austrian economists are often associated with the concept of the market process. What is the market process? Well, for Mises, the market process is the following. If entrepreneurs fail to produce in the cheapest and best possible way, those commodities which the consumers are asking for most urgently, in other words, you're not very good at judging the uncertain future, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve the consumers replace them, right? So what Mises has in mind by the market process is this continual pursuit of profit and desire to avoid loss, right? And in fact, those who are good at entrepreneuring accumulate profits and are able to expand their activities, whereas those who are not good at it will suffer losses and eventually be selected out. So it's this process of competition among entrepreneurs that gives us confidence that productive factors in a market system are being allocated to their highest valued uses. And of course, we don't know that this is true under government intervention, right? We can't say that if government agencies, if the Department of Motor Vehicles fails to provide services that are most urgently needed by consumers, it will suffer losses and be eliminated, wouldn't that be nice, right? Subsidies, of course, can mess this up. Some people talk about, you may have heard the expression, well, a market is like democracy, right? Where people vote with their dollars. As Mises pointed out, no, it would be more accurate to say that political democracy or voting is like a poor approximation of the market, right? The market is not winner-take-all. We can all vote for different entrepreneurs by spending money on different entrepreneurs, products and so forth. Also notice, this is a little bit subtle, that what Mises has in mind here by the market process, it's a process of competition among entrepreneurs. It's not a process by which the economy goes from some sort of disequilibrium state towards an equilibrium condition. So this is not about the convergence to equilibrium, which is the way market process, that term is sometimes understood, right? We're never in any kind of equilibrium state, according to Mises. There's this continual, rough and tumble of competition among entrepreneurs pursuing profit and trying to avoid losses, right? So just to emphasize, entrepreneurship is not charisma, creativity, leadership, right? Although many successful commercial entrepreneurs have those attributes. Entrepreneurship is not small business management, per se. I mean, small business managers may be entrepreneurs, but lots of other actors performing this function can be entrepreneurs. It's not restricted to the business of starting a new company, okay? Management of existing resources is also an entrepreneurial function under uncertainty. And to look at the scientific literature, Mises' notion is different from Joseph Schimpeter's, right? Schimpeter thought that entrepreneurship was the act of innovating or introducing new technologies, new production methods and so forth to an economy that was otherwise operating in a kind of static state. Nor is entrepreneurship, in Mises' sense, best understood as something like alertness to or the discovery of pre-existing opportunities for profit created by disequilibrium. That's the formulation famously associated with Israel Kersner. But as I mentioned, also, it's not something you can really learn in school unless you take my classes. Certainly not something that the government can create. You know, if you're still confused about how best to understand what entrepreneurship really is, I can recommend some excellent books which you can find in the bookstore below. And I can certainly say that if you buy the book on the left, the capitalist and the entrepreneur, I guarantee that you will get at least your money's worth. And the reason I can issue that guarantee is you can get the e-book on Mises.org for free. But I guarantee you won't get less than zero worth of benefit out of it, although you might get zero. Okay. Mises also talks about another kind of an economic actor that he calls the promoter, or the entrepreneur promoter. Mises puts it this way. He says, economics also calls entrepreneurs, also uses the term entrepreneur. Sorry, economics also calls entrepreneurs those who are especially eager to profit from adjusting production to their expected changes and conditions. Those who have more initiative, the more venturesomeness and a quicker eye than the crowd, the pushing and promoting pioneers of economic improvement, right? And Mises, he's sort of speaking to his fellow economists. He says, we ought not to use the word entrepreneur to describe those kinds of people. Richard Branson or Steve Jobs or Jeff Bezos. People who are really good at performing the entrepreneurial function. We sometimes use the language, we say, oh, Lou Rockwell is a very entrepreneurial guy because he founded the Mises Institute. I mean, we often use the language of entrepreneurship to describe people who are really creative, who have a lot of initiative and so forth. And that's fine, but notice that's different from the pure economic function of the entrepreneur. I, an academic with no practical knowledge of the world at all, I could go out and try to start some kind of a tech company tomorrow. And of course it would fail miserably, but I would still be engaged in the act of entrepreneurship, right? If I purchase factors of production, rent factors of production, combine them under conditions of uncertainty, take them to the market in the future. And of course I fail. I'd still be acting as an entrepreneur even though I'm terrible at it, right? So Mises says, we ought to use a different word like promoter for people who are not only performing the entrepreneurial function, but are performing it really well. That term didn't really catch on. I mean, nobody uses that term, but maybe we should. These are people who invest a lot of physical capital, not little, or financial capital, not just little basement businesses, people who are particularly alert to potential opportunities for profit, people who are creative and so forth. Notice this is not really a praxeological term. The promoter is kind of a more loosely defined, historically contingent term, maybe closer to Weber's notion of an ideal type, right? We can look back in history and identify people we would describe as promoters, John D. Rockefeller, Thomas Edison, Bill Gates and so forth, but ex-ante it might be difficult to sort of pinpoint them in the crowd. The reason for me bringing this up is because in the many non-Austrians, if you ask them, let's say they've heard of Austrian economics, you say, have you heard of the Austrian approach to the entrepreneur? They'll say something like, oh, yeah, yeah. The Austrian view is that entrepreneurship is about discovery of profit opportunities, right? People who are really alert to opportunities for gain, those are the entrepreneurs. Well, I mean, not according to Mises, that sounds to me more like a description of these promoters. So I think some people in the Austrian literature have taken the concept of the promoter and tried to make it into something else, tried to make it into a pure, functional, abstract praxeological notion, which it isn't, right? Because it's just describing people who are particularly good at doing what entrepreneurs do. Okay, what is the role of government in promoting entrepreneurship? This being Mises University, you can probably anticipate some of the kinds of things that I'm going to say. You know, there are a lot of things that government can do that will make entrepreneurship worse, make it more difficult, make it less effective. I mean, one is sort of macroeconomic factors, like the business cycle, right? You may have heard Austrian business cycle theory described as sort of framed as Rothbard framed it as trying to explain why we have a particular concentration or cluster of entrepreneurial errors at the same time. Right, in the real world of uncertainty, some entrepreneurs are earning profits, some entrepreneurs are earning losses that's going on all the time, but a recession is manifest in a whole bunch of entrepreneurs all making losses at the same time, right? So why is that? Well, Austrian business cycle theory teaches us, right? That credit expansion, most likely by the central bank, you know, leads to kind of distorts the information embodied in interest rates and it leads to malinvestment and you know the whole story and you'll hear more about it this week, right? So credit expansion and highly volatile money prices and so forth make it more difficult for entrepreneurs to perform economic calculation. It goes without saying that government programs to bail out failing companies, big investment banks and so forth, right? It's giving subsidies to Boeing and Caterpillar and the thousands of other companies in the US and elsewhere, right? These things hinder the market process of selecting between the more successful and the less successful entrepreneurs, right? That's why you have one explanation for economic stagnation in countries that have higher levels of intervention of this type, like in Western Europe, for example, is because, you know, in France, for example, it's very difficult to close at a factory because the legal government policy is designed to prevent unemployment and so forth. So it's very difficult to lay off workers or to scale back production. That makes it very difficult for the market process to filter, right? It's not the case as George W. Bush, the second president Bush was reputed to have said, he didn't actually say this, it sounds like something he would say. Supposedly he was at some event in France and he said, well, the reason why the French economy is, you know, not very innovative, it's not performing well is because they don't understand how to do it. They don't even have their own word for entrepreneur. Doesn't sound like something he would have said, but. You know, so there's a lot of other kinds of, it's very fashionable now to have these sort of targeted policies, the government needs to give subsidies to particular kinds of high tech companies. The government needs to spend more on basic science or have a more public funding of R&D on which entrepreneurs can build. We need to give prizes to stimulate entrepreneurial activity or particular innovations, right? These are distortions to the allocation of productive resources in the economy, right? So it represents a kind of malinvestment. It may be that we're over-investing in certain kinds of innovative activities because government policy is subsidizing those activities and taxing or penalizing other kinds of activities. You know, what's the right policy? I get asked occasionally to speak to different groups, even to some government agencies, different countries. You know, what's the best policy to make our economy more entrepreneurial? Well, they don't like the kind of answer that I give, you know, sound money, secure property rights, high levels of economic freedom. Otherwise, don't mess it up, right? The best that government can do for entrepreneurship is sort of not mess it up. And we'll hear a lot more about some of the specific ways that government tries to mess it up in some other talks that I'm giving this week, one on competition and monopoly and antitrust, one on big business and another one on the tech sector. So thanks very much.