 Thank you very much, Professor Gorello, for your most generous introduction. I am delighted to be here at the Summer University. I had the privilege of being here six years ago, and I am overwhelmed by the enthusiasm and the increase in numbers that I see here today. I congratulate Jack Gorello for his wonderful work in this regard. My topic this morning is ethics and entrepreneurship. Everybody knows that the most visible figure in the market economy is the businessman, the entrepreneur. He is the most obvious figure which characterizes the entire system. But in the eyes of the public and indeed of many intellectuals, the entrepreneur is not an ethically sympathetic or appealing character. The entrepreneur is believed to cheat his customers and his workers. He cheats his customers in terms of price and in terms of quality. So it is believed. He manipulates his customers by skillful advertising, misleading them into buying goods that they do not really need or want. He is believed to ruin the environment ruthlessly, exploit his employees and make profits from the sweat of their brow. He is believed to engage in collusion with other employers, with other entrepreneurs to monopolize markets in order to further increase profits at the expense of the consuming public. He is believed to engage in systematic corruption of government officials in this way undermining the democratic system. Above all, even if one were to find, so the general view runs, even if one were to find a rare entrepreneur who did none of these terrible things, nonetheless the profits that he makes, the entrepreneurial profits that he makes are totally undeserved. He has not worked for them, he has not given his capital for them because that is the reward of the capitalist and we distinguish between the entrepreneur and the capitalist so that what he makes, the profits that the entrepreneur makes are without justification. They have no ethical basis through which they can be justified. At best, at very best, what the entrepreneur makes is attributed to pure luck, to good fortune and there seems to be no good reason why the entrepreneur should be the beneficiary of good fortune rather than the rest of society. So that it is believed that that share of national income which is received by businessmen in their entrepreneurial role has no justification and is consequently ethically to be denounced as taking away that which should belong to the rest of society. Can we be surprised, therefore, if this is the picture of the entrepreneur and if the entrepreneur is the central figure, the most visible figure in capitalism in the market economy, can we be surprised then that in the public view, the public perception of the market economy is that it is based upon right immorality. Can we be surprised? I would like to provide a picture this morning which is a little bit different which would permit us to see the role of the entrepreneur in a different light and through that we will be able to see that the entire market economy comes into view, becomes visible in a totally different set of ethical colors. I invite you to join with me in exploring this alternative vision. I must, however, preface my remarks by pointing out that in much of modern microeconomics, particularly in its most advanced mathematical form, the entrepreneur does not exist. If one studies general equilibrium theory, one will find that there is no entrepreneur. Markets are fully adjusted, markets clear, no profits are being made, no pure entrepreneurial profits are being made and if there is someone who is called an entrepreneur, he has no entrepreneurial function to fulfill. In fact, he does nothing which reminds us of the businessman in today's world so that one might perhaps believe that our concern is misplaced, our worry about the role of the entrepreneur and the ethical picture, the negative ethical picture which the public has of him doesn't really matter. Bigger is the market economy, if you wish to understand it in a scientific way, has to be understood as if the entrepreneur in fact played no role. From this perspective, the entrepreneur is there in the market, but he doesn't really make any difference. He seems to be there, he seems to be busy, but in fact what holds the market together is simply a system of interlocking prices which does not depend upon the entrepreneur and therefore one might say, all entrepreneurs may be dishonest, entrepreneurs may be unethical, but the market economy is still a good thing, the market economy should not be condemned on the basis of our ethical questioning of the behavior of the entrepreneur. So one might perhaps wish to argue. I must however emphasize that for myself and for the School of Economic Thought with which I identify myself, namely the Austrian tradition, the tradition that began in Vienna 125 years ago approximately in the work of Carl Menger, I must confess that from the point of view of this tradition, this way out, this defense of the market economy is not available to us because we understand that the entrepreneur is not simply a figurehead, as it were, in the market economy, but in fact entrepreneurship is the driving force without which none of the advantages of the market economy could be achieved. So one cannot say, we will take the advantages, the efficiency advantages, the productivity advantages of the market economy and not worry about the ethical state of the entrepreneur, we, the Austrian School, are not able to say that because for us, the entrepreneur and the entrepreneurial role is essential to the functioning of a market economy. A market economy without the entrepreneur is a contradiction in terms for us and so the problem that we have raised is a serious problem. We cannot brush it away as we might perhaps wish to brush it away were we general equilibrium theorists. As Austrian School economists, we must confront the ethical question, the ethical dilemma, if the entrepreneur is so important and if entrepreneurship seems to be surrounded by so many ethical dilemmas, by so many ethical doubts, how can we defend the market economy? My thesis here this morning will be that it is exactly the opposite, exactly the other way around. It is not merely the case that the entrepreneurial role should give us no ethical embarrassment. It is much better than that. Quite the contrary. It is only by fully understanding and recognizing the entrepreneurial role that we can appreciate the full ethical merits of a market economy. It is only by understanding and appreciating what it is that the entrepreneur does that we will be able to appreciate in turn the subtle but profoundly important ethical advantages which a market system can provide a society with which is not available in any other conceivable social system. Let us consider from an analytical point of view let us consider what is the entrepreneurial function. What does he do? This function is, in a way, mysterious. It's mysterious, as we have already mentioned. It is so mysterious that in standard microeconomics that function has been totally eliminated. It's as if one can do without him. If you study price theory, whether you are studying simple supply and demand analysis along the lines of Alfred Marshall or you are studying general equilibrium theory along the lines of Leon Walras or in its more advanced forms along the lines of Harry De Bruu, no matter how you study microeconomics you will discover that the entrepreneur is not there. The reason why he is not there is because it is difficult to understand what he is needed for. Consider what is the entrepreneur? The entrepreneur buys and sells. That is the essential function. Pure profit. He buys and sells. He buys at a lower price and sells at a higher price. That is what he is trying to do. Sometimes what he buys is exactly the same item at that which he sells. He buys for an exchange and he sells for an exchange. Sometimes he does it so rapidly the buying of the selling that we call it simultaneous arbitrage. Sometimes there is a time gap between the moment when he buys something at a lower price and sells it at a somewhat higher price. Sometimes what he buys and sells are physically different. He buys labour services, raw materials and energy and sells finished products. You might say he has contributed something because he has combined these resources. He has taken the flour and the jam and the heat of the oven and produced a pie. Not so. He has produced nothing. He has bought everything he needs to produce. He has hired the services of a chef to put the ingredients together. He has hired somebody to press the button on the oven. He has done nothing. He has hired the person who does the hiring. He has hired the personnel manager. So he does nothing. He simply buys services and sells the product at a higher price. So he himself contributes nothing. Otherwise he is more than a pure entrepreneur. It is true that in the real world businessmen are of course more than pure entrepreneurs. They do some work themselves. They go to the office and they sit on the telephone. It is true. Sometimes they must shout at their employees. Sometimes they must run around. That is work. But in principle the work that they do could have been hired. So the pure entrepreneurial role is not the work that they do. Sometimes the entrepreneur contributes his own capital. He invests his own funds in his business. And you may say then that some of the profits that he makes are simply the normal return on his investment. That is true. But that is also not the entrepreneurial role. The entrepreneur in principle need have no capital. He could hire all the capital needed. Namely he can borrow it. He can borrow from the investor, produce, sell to the customers, pay off the investor and leave himself with a profit. Pay off the investor plus the investor's interest and leave himself with pure profit. So that the entrepreneur does nothing except buy and sell. Even as I say when he buys factors of production, production services in one particular physical form and sells their output in a different physical form. Nonetheless from a strictly economic point of view he is selling that which he is buying. That which he buys is that which he will be selling. Because when one has in front of us the flour and the jam and the sugar and everything and the heat and the oven, everything you need to build the pie, you have the pie. You have it in your grasp. You simply have to say let there be a pie and there will be a pie. Because you have in your grasp everything. You have purchased everything you need, everything. All you have to contribute is the pure decision. Let these ingredients become a pie. So that what the entrepreneur does is nothing more than buy and sell. Whether that which he buys and sells is in the same physical form or not makes no difference. The entrepreneur buys and sells. And this is where the mystery of the entrepreneur begins. Why should it be possible? Never mind the moral justification. Why is it economically possible for anyone to win pure profit by selling at a higher price that which he buys at a lower price? It would seem to be impossible. Why should anyone sell at a low price that which he too could sell at the high price? Why should anyone buy at the high price that which she could buy at the low price? And do not answer, but there is a difference. There is a delivery gap. There is a time gap or whatever. All of those gaps have been taken into account. Everything is in that pile which is being bought. The entrepreneur buys and sells. And the question is how is it possible economically? Never mind fit morally. Never mind ethically. But how is it economically possible for a gap to exist between the selling price and the buying price? This is the mystery of the entrepreneur. What is his function? Where does it arise from? But of course this mystery is only at the very surface. If one digs a little bit more deeply, the solution to the mystery becomes immediately apparent. The explanation of course is ignorance. The buyer who buys at the high price from the entrepreneur is not aware, does not know where to buy at the low price. Otherwise he certainly would not buy at the high price if he could buy at the low price. The seller who sold to the entrepreneur at the low price is not aware of the higher price at which the entrepreneur will be selling. Because if he or she were so aware, then he would not be selling at the low price. So the entrepreneur's profit is to be attributed to ignorance. And of course this is where the general equilibrium theorist says, Aha, I told you there is no function for the entrepreneur. Because in this case, if it is simply a matter of missing knowledge, then we have been untrue. We have not been honest when we said that everything necessary to sell to the ultimate buyer was in the bundle which we bought from the original seller. Because if knowledge is required, then we should have bought the knowledge too. In which case the price of the knowledge, the value of the knowledge necessary to take us from the original seller to the ultimate buyer, that knowledge too would have been included in the total price paid to the original seller. And of course this is the general equilibrium view. Knowledge, whatever knowledge is needed, is a valuable commodity and there is a market for knowledge. There is a supply of knowledge and there is a demand for knowledge. And there is an equilibrium price for knowledge. Many of us here in this room are in the business of selling knowledge. Many of us here in the room are in the business of buying knowledge. There is a price for knowledge, a market price for knowledge, a market price for information. An enormous market for information. So the mystery which we identified with the entrepreneurial role seems to have been dissipated. And by dissipating this mystery, we seem to have dissipated the entrepreneurial role. There is nothing to do. There is nothing for the entrepreneur to do. When you consider what the entrepreneur has to buy completely, including the necessary knowledge, then in fact what the entrepreneur pays is exactly what he receives. There is no pure profit. This is the general equilibrium view, but it is not my view. It is not the view of the Austrian school, certainly not. And I submit that it is not a realistic and not a true view. There is knowledge and there is knowledge. There is knowledge for which there is a demand and a supply curve. There is knowledge for which there is a market price and which there could be an equilibrium market price. And there is knowledge for which there is no supply curve and no demand curve and no simple market price. And certainly no concept of an equilibrium price. And that is the kind of knowledge which the entrepreneur introduces. And that kind of knowledge cannot be subsumed as one of the factors of production which the entrepreneur buys in order to sell. There are two kinds of knowledge. The first kind of knowledge is knowledge about which one knows. One knows that one needs a certain quantity of specific knowledge. I wish to telephone my friend in a strange city. I arrive at the airport and I wish to telephone my friend, but I don't know how to reach him. I go to a telephone booth and I look up his number in a telephone book or I call the information directory to find out his number. I have searched for knowledge. I have produced knowledge. In order to produce the knowledge I have to spend some time looking up the number in the telephone book, speaking on the telephone to the directory information, that is how to produce knowledge which I knew that I needed. I knew that I needed that knowledge and I knew how to obtain that knowledge. That knowledge is knowledge which the economist can treat as a product in exactly the same way as he will treat a television set or an automobile as a product. One wishes to produce an automobile. One takes together steel and labour and energy and there is an automobile. One wishes to produce knowledge. One takes a telephone book and five minutes of time and a good pair of eyeglasses and one has the knowledge of someone's telephone number. In this way one produces knowledge deliberately in the planful way in exactly the same way as a producer in an economic system produces other products. That is one kind of knowledge. And I will agree that for that kind of knowledge no entrepreneurial role is necessary. The market price of the factors of production which produce that kind of knowledge will tend to be exactly equal to the market value of that knowledge in the consumer market or in the market for other factors of production in which knowledge is necessary. So that there is an equilibrium price for engineering services which is a matter of knowledge. And there is an equilibrium price for the cost of producing engineers. The enhancement of human capital which consists in acquiring engineering skills. That market is a market for which there is a demand and a supply and for which we can think of an equilibrium price. But there is another kind of knowledge, a second kind of knowledge. This second kind of knowledge is a mysterious type of knowledge for which there is no demand. And the reason why there is no demand for this kind of knowledge is that we are unaware that we do not have it. This is what I sometimes call sheer ignorance, absolute ignorance. Not merely do I not know somebody's telephone number, but I do not even know that he has a telephone. Not merely do I not know the telephone number of my friend. I do not even know that I have a friend. That is sheer ignorance. I cannot go about producing the knowledge necessary to reach him. If I don't know that he exists, I don't know that my friend lives in this city. I cannot search for him. If I don't know that he has a telephone, I will not look his number up. If I do know that he is here and I do know that he has a telephone, but I do not see a telephone book and I do not know how to reach a telephone information directory, then I will not, this is knowledge for which I have no demand. If I am locked up in my office building one night, working late, locked up in the office, I come down to the ground floor and I found the outside door is locked. I bang on the door and nobody lets me out. Nobody hears me. Too bad. I lie down on the floor and I sleep until the morning. In the morning I wake up, I see there is a telephone there in the lobby. I lacked that knowledge, but the knowledge that I lacked was knowledge that I did not know I did not have. If I did not know that I did not have that knowledge, there can be no demand for that knowledge. There is no demand curve for this kind of knowledge. There is also no supply curve, but that is a different issue which I will not go into at this point. There is no demand for this kind of knowledge. There is no supply for this kind of knowledge. Therefore there is no standard market for this kind of knowledge. So if I am knocking on this door trying to get out and suddenly I remember, did you notice in the audio-visual before there was someone running across the stage with an electric bulb, that electric bulb in his mind, suddenly while I am banging on the door and my knuckles are sore, suddenly electric bulb lights up in my mind and I remember there is a telephone. That is entrepreneurial knowledge. That is entrepreneurial knowledge. I did not produce it deliberately. I did not set about to produce it. It came to me because I was awake. It came to me because I was not so tired that I didn't have my wits and alertness about me. I noticed there was a telephone. I remember that it was a telephone. That kind of knowledge is entrepreneurial knowledge. Now, when we say that the entrepreneur buys at a low price and sells at a high price, what we are saying is that the people who sell to him have no knowledge that there is anyone who would pay more. If they did, they would search for it. If it paid for them to do so. If the costs of search were sufficiently low to enable sellers to find the highest paying buyers, they would do so. They have no way of knowing that there is any possibility of getting a higher price than what they receive. Similarly for the sellers, they do not know that there is a possibility or how to achieve the possibility of buying at a lower price. Consequently, that kind of knowledge is absolute ignorance. The entrepreneur, he notices. He walks down the street and he sees on this side of the street the price is five. On that price of the street, the price is seven. He buys and he sells. What he buys on this side of the street is labour and raw materials and energy and the use of capital. What he sells on that side of the street is finished goods and products. To buy in order to sell is not a simple matter. There are risks. There are uncertainties. It is not always a matter of buying now and selling now, where you quickly cross the street and without any original resources, you borrow money and buy here and sell there and then you finish up with some profit. It is not a simple matter. Entrepreneurship very often requires bold, imaginative, hard-headed, prudent decision-making with respect to the future. When one takes a decision, when one makes a large scale or a small scale, investment decisions for the future, one is buying now in order to sell in the future and when one buys now and sells in the future, what one sees depends upon one's vision, one's imagination, one's entrepreneurial hunch. One sees something which other people do not see. That is the entrepreneurial vision. And what the entrepreneur does when he makes pure profit is to take advantage of the sheer ignorance which exists in the market, which he to some extent has overcome. And by doing this, he is able to buy at a low price and sell at a high price because why is there a difference? Why is there a low price and a high price? The answer is sheer ignorance. The high price market is not aware of the low price market. The low price market is not aware of the high price market. The individual who becomes aware, he brings people together. The people who would be selling in this market if the price were higher but are not doing so because the price is low. The people who would be buying in that market if the price were lower but they are not doing so because the price is high. These people are brought together. The entrepreneur discovers a way of giving these people a price which these people are prepared to pay. That gap in knowledge is overcome by the entrepreneur's vision, by the entrepreneur's hunch. The entrepreneur has a role. It is a mysterious role. It is not an obvious role. It is not simply the sale of knowledge. It is the awareness of opportunities which other people have not seen. It is alertness to opportunities which other people have overlooked. And the beauty, the real aesthetic beauty, intellectual beauty of a market system is that whenever there have been pure errors of this kind, sheer ignorance of this kind, this ignorance translates itself into market price differentials which have the power to provide incentive and reward for those who notice them. It is an aesthetic matter. Every error of this kind becomes an opportunity to make profit and therefore an incentive to overcome that ignorance. Remember, this sheer ignorance that we are talking about is not a trivial matter. It can be tragic. It can be tragic. Ships passing each other in the night. Here there are thirsty people dying of thirst. Here there are people with plenty of water. And they do not meet each other. They do not see each other because of absolute ignorance. The entrepreneur and the entrepreneurial role is that of linking together those who are mutually ignorant of each other. And this can be a matter of life and death. It can be a matter of prosperity or the exact opposite of prosperity. What is necessary is for individuals in the market to find each other. A market economy is enormous economy. Any economy is enormous. Millions of people with different qualities, different talents. How can these talents be brought together in a cooperative way so that every one of the members of society can take advantage of, not exploit, can take advantage of the willingness of other people and the ability of other people to serve other people? How can this be possible? For that entrepreneurship is necessary. For that it is necessary to overcome pure ignorance. It is not a matter of systematic search. It is more than systematic search. It is a matter of noticing opportunities. And I repeat, the aesthetic beauty of a market economy, for me, consists in this remarkable circumstance that wherever, wherever there is a gap of this kind of knowledge, this translates itself into a market price gap. And this gap in market prices constitutes a profit opportunity. The entrepreneur who sees this opportunity does not have to know, does not have to care about the lives, the satisfactions of the people from whom he is buying and selling. He does not have to. All he needs to do is to be aware that he can benefit himself. By doing so, he will notice those opportunities and in this way he will provide the enormous social benefit of bringing together individuals who might miss each other completely. This is the entrepreneurial role. Now, we have not yet justified the profits that he makes. In the standard mainstream assessment of the ethics of market rewards, the general view is as follows. There are two kinds of, there are two ways in which an individual may obtain gain. One is by deliberately achieving it. I wish to have a comfortable chair. I make it. I take the lumber and I take nails and I take a hammer and I take some labor time and I make the chair. I have a chair and the chair is more important to me than the lumber and the nails in time. So I have gained by deliberate production. There is a second source for gain and that is pure luck. I would like to have a chair. I am walking in the street for hours and I have no chair. Suddenly a bench presents itself to me. How lucky I am, how fortunate I am, I have a chair. In the standard view, my right, my moral ethical title and right to that which I have produced is considered to be far, far more stronger than my right to that which I have found by pure luck. I have been lucky. A chair dropped out from heaven into my lap. How lucky I am. And someone may say, well if it fell down from heaven why should you have it rather than me? The fact that it fell down in your lap has nothing to do with your merit. It fell down in somebody else's lap. Though so that luck, good fortune, is considered to be a very weak reed, a very poor weak basis for ethical justification of gain. However, I believe that if one studies the entrepreneurial role very carefully in which we have presented it here this morning, I believe that one will be forced to recognize that there is a third source for gain, not deliberate production, not pure good fortune, something different. A missing third alternative. What is this missing third alternative? This missing third alternative is discovery. There are 100 people looking for chairs. All of them passed this chair. They didn't see it. I saw it. It did not fall from heaven into my lap. It was there waiting to be discovered. A hundred other people didn't notice it. They were so busy looking over there for the chair that they didn't see it over here. I saw it. And therefore I say it is mine. It is mine not because of good luck. The good luck could have given you the chairs as well as it gave it to me. It is not because I deliberately produced the chair. I did not do so. I came across the chair. I discovered the chair. The chair is mine because my eyes were opened. It's my eyes. My eyes saw it. Your eyes did not. I found it. I found it and therefore I keep it. That is a moral basis for a source of gain which is different from the two categories, from the two criteria which standard theory, standard moral theory, theories of justice have traditionally recognized. I submit that it is important, essential for us to recognize this third moral category. This moral category is the category of that which I have found because I have been alert. I have been awake. I have been a human being who notices opportunities. I noticed the opportunity. You could have noticed the same opportunity. I noticed that you did not. It is mine. If I write a novel based on a brilliant new idea and when you read my novel you say, ah, I was going to have the same idea tomorrow. And you could have had the same idea tomorrow. There is nothing that I have that you could not have. I created it. You did not. It is my novel. My idea. My artistic production. My creation. Discovery, entrepreneurial discovery is exactly of this character. And I would ask you to consider what it is that the entrepreneur does. We have seen what he does. We have seen that what the entrepreneur does is to discover gaps in prices. These gaps in prices exist because of prior sheer ignorance. Because of the sheer ignorance which preceded the discovery. So that what the entrepreneur does is to bring into view that which is already there in a potential sense. There is an opportunity waiting. There are people between who mutually gainful exchanges are available but they are passing each other like ships in the night. And the entrepreneur is the one who notices those gaps and grasps the profit opportunity which they present and by grasping, by the act of grasping that profit he brings together these two sides of the market. Sometimes entrepreneurship takes unusual forms. Take the idea of advertising which we mentioned in passing at the beginning of the talk. Advertising. And entrepreneur advertisers. Sometimes defenders of capitalism defend advertising as the provision of knowledge. The consumer needs information. Therefore advertising makes sense. Yes, but why do we need these flashing lights? Why do we need these provocative pictures which draw the attention of the consumer if it's simply a matter of information? Information can be provided in a typed form which would be provided to individuals free. Why is it necessary to have advertising in the form that we know it in modern capitalism? I would submit to you that what the entrepreneur is doing here is to provide the consumer with a way of noticing that which is available which he might not otherwise notice. It is not simply a matter of information. There is a huge library with a lot of information. You and I go past that library every day. We don't sit in the library and absorb all of the information. It is there. We only look for the information that we know we need and we know it's worthwhile obtaining. The entrepreneur alerts us to the information that is available. He draws our attention to the information that we would like to have. He knows or he thinks he knows if he's right. He may be wrong. He may lose money. But if he is right, he knows that there is something that we would like to know if only we knew that it was there to know. So he draws our attention to it and informs that sometimes we deplore. But he is drawing our attention. This is the fundamental entrepreneurial role of advertising. Now, what about cheating? What about exploitation? What about all those terrible things that we said the entrepreneur does? I say very simply if he does those things he ought to be ashamed of himself. But that has nothing to do with the market system. Sure, people may do terrible things in the market, but the market does not depend on cheating. The market does not depend on exploitation. The market does not rest on any of those immoral things that we have mentioned at the beginning of the talk. I do not say that entrepreneurs do not do these things. They may do these things. No doubt many times they do do these things. Many human beings are sinners. We are all sinners in many ways. We are not defending sin when we defend a market system because we say that a market system does not depend on these immoral acts. It has nothing to do with these immoral acts. The market provides opportunities for immoral acts. That is true. That is true. The market provides many opportunities for immoral acts. But the market system as an abstract system does not require, does not depend upon, does not need any of these immoral acts. It does not need cheating. It does not need manipulation of the consumer to buy things it does not need. What the market economy needs is simply the institutional setting to translate errors into opportunities. That is what the market economy needs. It needs a set of institutions which will transform errors, transform unfortunate lapses, unnecessary lapses into attractive opportunities that people will notice. People will not notice that which it is of no interest to notice. I don't know how many of you have noticed the color of the floor. I have not noticed the color of the floor. And yet I submit to you that if there were a hundred franc bill on the floor, it will be noticed. Don't ask me why. If you're not looking at the floor, how will it be noticed? It will be noticed. The color of the floor was not noticed. Money on the floor will be noticed. We notice that in which we are interested. If you are writing a doctoral dissertation on the color of university floors, you will notice the color of the floor because it will be of interest to you. But to the rest of us who are not writing those dissertations, we do not notice that which is of not of interest to us. There are enormous errors being made all the time which are tragic for the members of the economy. In order to bring those errors into view, they have to be transformed into attractive opportunities, which we will notice. The form in which the market performs this, in which the market does this, is to translate every such error into a pure profit opportunity where one can buy a bundle of resources for a low price and sell the finished product for a higher price. For that, it is necessary to switch on human alertness. It is not merely alertness, it is more than that. It is human imagination, human vision. And of course human vision and human alertness is imperfect. Very often we see things which do not exist, and therefore you make entrepreneurial losses. But the market economy is a market in which people are free to use their vision. They are free to exercise their perception of opportunities. And this is the real meaning of a free economy. A free economy is one in which people are free to see what they see, not what not that which others see. Freedom does not mean, I repeat this, freedom does not mean the ability to choose between given options. Freedom means the ability to see the options for oneself, to recognize what the options are, so that I will see an option which someone else does not see. That is what freedom means. If I am not free, I will not see those options. If I know that I cannot take advantage of what I see, I will not even see them. If I know that every bit of money that I find on the floor is not going to belong to me, I will not even notice, I will not see the money. I see the opportunities only when I am free to take advantage of them. That is the meaning of free enterprise. Freedom is important because it permits us, it encourages us as members of a social system to see that which it is in the interest of others that we should see. It does that by identifying the interest of others which have not been as yet perceived, the opportunities for others which have as yet not been perceived by translating them into profit opportunities for myself. That is the meaning of a free market economy, of a free enterprise system. So when we come back to the question of the ethics of entrepreneurship and the ethical meaning of a market system, I repeat, I do not defend everything that entrepreneurs do. Of course there is false advertising. Of course there are people who cheat. Of course there are immoral acts being performed in the market economy, but the essence of the market economy does not consist in any way of these immoral acts. The entrepreneur, quite the contrary, is the individual who exercises his creativity and his vision to see that which is of benefit to others. His motivation is not our business. His motivation no doubt. Of course it is his own gain. That is what switches on his interest. Of course that is the case. We are not saying that he is a saint. We are not saying that he is motivated by altruistic motives. That is not the point at all. The point is that his right to that which he sees is to be attributed to the fact that he saw it and no one else did. He created that as it were. He created it out of nothing. He did not start out with capital. He did not start out with resources. He started out with an idea. With this idea he borrowed money, bought resources and sold them at a higher price. Sold the product at a higher price. He created that difference because he saw that gap. By seeing that gap in a relevant ethical sense, he created it. He created it as it were out of nothing. And therefore in the eyes of many of us it belongs to him. He found it. He created it. He keeps it. That I believe is a moral defense for entrepreneurial profits. I believe this directs us away from seeing that which is inessential, not essential to the entrepreneurial role, directs us towards that which is essential. And in this way I believe we can recognize the true ethical character and ethical virtues of a free market system. Thank you very much. I believe there are two points that were made in the question. One has to do with the notion of dispersed knowledge which has to do with particularities of time and place. That was a notion that was introduced particularly by Hayek in his 1945 paper. I believe that Hayek was a little bit too bound by the older tradition by making it seem as if the knowledge of the pieces of information were already possessed by individuals scattered throughout the system so that it would appear that the role of the market is simply to use existing knowledge. On this point I would like to emphasize that whether or not these dispersed bits of information exist in the minds of individuals, the point is that other individuals do not know that this information exists in the mind of anybody else. So that if you have information that I do not know that you have but which would be very useful to me, it is a great service if an entrepreneur will suddenly realize that in fact you have the information that he can put to my service. So in that case I think Hayek's 1945 thesis must be translated into a form which would permit us to recognize the role of what I have called sheer ignorance. Coming back to I think the main point of the question which is how can we be sure that the entrepreneur will successfully coordinate, will successfully bring about that spontaneous order which Hayek referred to. After all the entrepreneurial activities have to deal with the future and the future is as my dear departed colleague Professor Lachman used to emphasize the future is unknowable. I think the answer has to be very honestly that of course we have no guarantee. The late Frank Knight, Professor Knight of Chicago, used to believe that entrepreneurial profits are no more likely than entrepreneurial losses. Entrepreneurial losses he felt on balance may be greater than entrepreneurial profits. I think he was wrong. I think he was wrong. I will try and explain why. But I certainly must agree, must concede that there is no guarantee, there is no guarantee that entrepreneurs will see that which is in the future. The market has empirically tended to bring about coordination. It could conceivably do the reverse. We must admit that in a world of rapid, volatile changes, there is no guarantee that entrepreneurial activity will be coordinating. But we must not overlook the situation, must not overlook the true features of the situation. For Professor Knight, the late Professor Knight, what the entrepreneur does is to shut his eyes and gamble. If one sees entrepreneurial action as nothing more than shutting one's eyes and gambling, one should not be surprised if the chances of missing are just the same as the chances of being successful. But that I submit is not what entrepreneurship consists in. Entrepreneurship does not consist in shutting one's eyes and sticking one's neck out of the window. It consists in opening one's eyes and seeing what one believes one can see. Let me give you an analogy. You drive an automobile. It is a beautiful summer's day. You're on the highway, the sun is shining. It is glorious to drive under these conditions. You see what is ahead of you. Now contrast that with driving on a dark night, foggy, rainy, you are afraid for every meter of that you're driving. You don't know what's ahead of you. I submit that even if under these circumstances where you are driving on a dark night, you are not in the same situation as if you were to shut your eyes and press the pedal. You are not the same. You are looking. You are trying to see what you can see. The entrepreneur is not gambling with his eyes closed. The entrepreneur is using his imagination. He is using the incentive. If the entrepreneur did not care whether he made profits or losses, Professor Knight would be correct. But the entrepreneur wants to make profits. He does not want to make losses. And consequently, the chances of his being successful are immeasurably greater than that which Knight is prepared to recognize. There is a basic asymmetry between profits and losses, which Knight did not understand. He did not recognize that. Entrepreneurial activity is not simply gambling by shutting your eyes and pressing the accelerator, hoping that you will not go over the cliff. That is not what is happening. Entrepreneurship is a matter of seeing the future. Some have better vision than others. There is no guarantee. Entrepreneurs may make losses. I must say, in a matter of, as a footnote, I am not in favor of those who teach entrepreneurial courses, courses on entrepreneurship, and tell students you must take risks. I do not believe that is the right message to teach students. You must take risks, of course. You must take risks. We all take risks. But the idea that people should take risks which they are themselves not prepared to take is bad advice. Let the teacher take the risks. Why does he tell the students to take the risks? My point is that we will take risks if we believe that there is a good chance to make profits. And that is what freedom is about. And therefore, if we find, you know, the great French economist, Bastiat, he started out with the observation that Paris gets fed the enormously remarkable circumstance that every day millions of people get food without anybody being in charge. And that is the fundamental empirical fact of coordination which we as economists have to explain. And the explanation lies in the fact that night was wrong, that entrepreneurs do tend to make profits, that entrepreneurs do tend to see which is in the future. But there was no guarantee. Thank you. James Sadovsky. James Sadovsky from Fordham University in New York City. Dr. Kirtzner you seem to find that there is an ethical relevance that comes from distinguishing between luck and discovery. Now first of all it seems to me that luck itself is a ought to be a sufficient justification for owning something. I don't think we resent the person who wins a lottery and complains that just because he's lucky he should not have done so. Now why am I bringing this up at all? Well the problem I see is this. How can any third party tell whether an entrepreneur is being lucky or whether he's made a genuine discovery? Now you may say that it's built into the meaning of entrepreneur that what he gets he gets through discovery as distinct from luck. But in that case the third party problem returns because how can anyone tell then whether a so disent entrepreneur is a real entrepreneur as that's my... I have no quarrel with anyone who adopts a moral position saying that if I have been favored by luck I should be entitled to the fruits of that good fortune. I have no quarrel with that but I can assure you that there are many theorists of justice who are not satisfied. To give you one very well known example the eminent philosopher John Rawls whose book on the theory of justice resuscitated the philosophical inquiry into the theory of justice over two decades ago John Rawls starts out from the basic premise the fact that you are born with beauty with brains with physical strength does not give you any title whatsoever any ethical title whatsoever to the fruits of these qualities because you are simply lucky. Now that view I believe expresses a view of the individuality that many of us would be unhappy with but nonetheless it is based on the view of good fortune as providing no title whatsoever to injustice to the fruits of good fortune. So I believe that in dealing with critics of that kind it is important to make it clear to them that that indeed is not the source of entrepreneurial profit. Now the second half of your question is of course a very valid one how is it possible to distinguish between the element of luck in entrepreneurial rewards and the element of vision and discovery you are absolutely correct that in the real world luck and good fortune become intertwined in an inextricable fashion there is no way to disentangle that is absolutely absolutely correct. My concern here however was to point out that the market system as such does not depend on good luck and the market system as such does not depend on any ethical questions one might have as to the justice of title based on good luck my point is to introduce the insight that the market economy is based strictly on the concept of discovery. Now it is true it is true that many entrepreneurs have put themselves in a position where they may be the beneficiaries of good luck however I would like to point out that what may seem to be good luck is to a large extent very often the result of having deliberately placed oneself in a position to take advantage of that which one was not sure about but which was thought was a good chance that too is more discovery than sheer good fortune and that I think is something which we should always draw attention to but one would not do it one would not there are other ways of gambling than in business one can go to the horse races there are better ways of gambling if one wishes to try one's pure luck the luck which favours the fortunate businessman is to a large extent that which he has in a dim way in a vague way perceived as being possible to be achieved Thank you. Last question. Micro number three. And we will stop here after. You can ask questions again tonight. My name is Diana Selagian. I come from Romania. In a possible future world. Please speak slowly because of the translator. In a possible future world where information would be obtained very easy and cheap. So I need the cheapest chair around. I push a button and I found out where can I find it. So what the role of the entrepreneur would be then. Can you repeat the question? So in a future world where information could be very easy and cheap to obtain. So for example I need the cheapest chair around. I push a button and I find out where I can find it. So what the role of entrepreneur would be then. So if the gaps of information would be less and less. In the future information would be free because of the greed now. I think we are likely to mislead ourselves if we believe that there will ever be a world in which all conceivable information was known to us. Remember part of the problem is that we do not know what questions to ask. For example you say I want to have a chair. That was my example of course. But supposing someone has never heard of a chair. Someone has lived in a civilization where people did not have chairs. That individual does not know what it is that he lacks. The entrepreneur who creates a chair and says here try a chair. He has done something which nobody could have imagined. Nobody did imagine before. So the idea that with a computerized world you press a button and you will have the answers to everything. Presumes that you know which button to press. But the entrepreneur has to do very often is to create goods to satisfy wants that people themselves are not aware that they have. Sometimes this leads to misunderstanding. Sometimes this leads to people believing that the entrepreneur has created needs. Created wants. But I submit that if you go into a civilization where they do not wear shoes. They have not wore shoes for thousands of years. And you show them a shoe and you give them free shoes for six weeks. And after six weeks everybody wants to buy shoes. I submit you have not created a need. You have not made them want something that they didn't want before. You have taught them to recognize that there was an innate want which they themselves did not recognize that they had. And I submit that in the future world that kind of situation will provide endless opportunities. Thank you. Push the button please. Okay. Yes, yes. Selma in France. In the way of scientific discovery I remember Claude Bernard who said La fortune ne favoris que des esprits bien préparés. It is mostly quoted as les esprits bien préparés. He was more modest and said que des esprits bien préparés. Merci. To conclude this first session. And I'm sorry for people having many very interesting questions but we will come back maybe on this afternoon. To conclude this very stimulating session. I would like to give to Professor Issael Kirsner a little gift from the Ville of Aix-en-Pauvards and also to give this same medal to Professor Ligiot because when they have been given this medal it was a very little medal and now really a medal at the measure of their talents. So please Professor Issael Kirsner accept this gift from all people being in Aix-en-Pauvards now. Also you have to always remember that this university has become at this level of great international and scientific level thanks to Leonardo Ligiot. And if Professor Issael Kirsner is today attending the meeting it's thanks to Leonardo Ligiot because they were together, a scholar suites Ludwig von Mises.