 Okay, it is four o'clock on the first full day of Mises you the last session of the opening day Some of you are probably a little tired. You're right. It's been a lot to absorb And most of you look fresh some of you are looking a little bit ragged. I mean Connor Well, I'm kind of worried about him, but You know, some of you might have been thinking I've been sitting here all day listening to these excellent Speakers, but rather long-winded speakers and I could use a nap So some of you might have been might have been considering blowing off this last lecture of the day Trying to sneak out back to the hotel. Now, of course had you tried that? I mean Mises Institute security would have stopped you on the grounds You would have been tackled or one of the lasers would have gotten you but but but maybe you didn't know that And so you might have you might have tried it, but you didn't right? You're sitting here At the end of a long day because you really want to learn about entrepreneurship You want to understand better the Austrian approach to to Analyzing entrepreneurship you want to understand what role entrepreneurship plays in society and you're looking forward to a really fantastic excellent entertaining informative Discussion, okay, I'm not a professional actor like our speaker last night But I you know, but I can put a little pizzazz into it to try to try to keep your attention up So the fact that you're here Tells me that you anticipated that the value of coming to this talk Exceeded what Austrians would call the opportunity cost, right? The fact that you can't be back in the hotel taking a nap or playing a video game or you know Whatever else you might be doing now. You don't know for sure that that's going to be the case Right, there's some uncertainty about how things are going to play out now. I anticipate that at 445 You will all be I mean most of you will be crying tears of joy Because you've never heard a lecture this good in your life You'll be shouting and people will be dancing and all that And and every one of you will think oh my goodness. I am so glad I came to the four o'clock lecture on Monday I thought about skipping. Oh boy. Am I glad I came because it was so good. I got much more out of it Then I would have gotten out of a nap now It's theoretically possible Practically, this would never happen But theoretically some of you might get to the end of this 45 minute slot and and think you know The nap might have been the better choice Okay, I didn't understand what he was saying and I couldn't stay awake And I didn't learn anything blah blah blah So some of you might decide at the end of this hour again theoretically that you'd made a mistake You know that you had made the wrong decision. You wish you had stayed home. You wish you had done something else Then come here now if you believe that the benefits you got from attending this lecture Exceeded the costs we could say if we wanted to you earned a profit Right you had a net a net gain benefits exceeded costs now We don't have numbers exactly to put on that but from your own subjective Assessment of the situation you gain more than you lost you profited from being here I'm always sometimes even used that expression right I profited greatly from reading that book You don't mean literally a money profit You mean you you the benefits of reading the book, you know exceeded the cost right or if you decide that you wish You hadn't read the book you might say well that was a huge loss Right what a loss of my time I spent you know 45 minutes sitting here. I could have been doing something else again It's a subjectively perceived loss not necessarily a monetary loss You don't have a number that you can attach to it But you do have some sense of whether you benefited or not now if you you know if as is likely the case You've got a huge profit Psychological subjective profit from coming here, you know that may influence your decision in the future That may influence your behavior in the future the next time there's a Peter Klein lecture on the docket You are gonna be there you're gonna be in the front row right eager and excited ready to go if you decided you Earned a net loss right then you might decide to skip going forward You might not be right in your future decisions, but you would have a little bit more information Right you would have learned something from this experience that would guide you in the future Okay, by deciding to show up you engaged in entrepreneurship Right you you engaged in an entrepreneurial act in sitting here in this room today. What do I mean? Well ex ante before you had to choose to sit here or not You weigh the anticipated costs against the anticipated benefits You may not have done so very explicitly, you know thinking it in exactly thinking it through in those terms But implicitly you made a judgment about the benefits Expected benefits compared to the expected costs and then you acted based on that judgment And then at the end of this lecture period You'll do some backward-looking ex post assessment and decide if you were right or if you were wrong and You'll adjust your behavior going forward. That is exactly what entrepreneurs do that according to Ludwig von Mises is the definition of entrepreneurship in Fact Mises says in human action He says the term entrepreneur as used by economic theory means Acting man exclusively seen from the aspect of the uncertainty inherent in every action Mises is trying to explicate for us in his treatise in his entire system Right the nature and implications of human action well Outside of a few sort of abstract hypothetical scenarios that we can imagine in which you know exactly what's going to happen in the future Human action in the real world always involves some uncertainty You know, you don't know exactly if you'll receive, you know If the means that you employ Will bring about the end that you desire Now that doesn't mean people are ran, you know act randomly or blindly they're sort of running around No, I mean human action is purposeful Right to the best of their ability people try to choose wisely to bring, you know in situations where they have reason to expect The benefits will exceed the costs sometimes they're right and Sometimes they're wrong So in this very broad sense all human action is entrepreneurial Mises goes on he says in using this term thinking about entrepreneurship in this way One must never forget that every action is embedded in the flux of time and therefore involves a speculation Right speculation here just means, you know acting under conditions of uncertainty Anticipating certain benefits that you may or may not receive for sure now note He says the capitalists the landowners and the laborers Are by necessity speculators so is the consumer in providing for anticipated future needs and then he quotes a now obscure English proverb There's many a slip Twixed cup and lip which I guess means, you know as you're gonna take a drink There's always a chance you might drop your $8 latte in your lap, right and not get to enjoy, you know The delicious delicious beverage so we understand what it means to say that capitalists are speculators, right investors They're investing resources where they expect to you know earn an economic positive economic return financial return They're trying to avoid losses landowners are deciding how to employ their land should it be used for growing crops Should I rent it to a developer to build houses or should I sell it etc? In anticipation of future financial benefits from putting that land into one use or another even leave deciding to leave it idle To have it ready to use later would be another example of speculation in this sense, but even laborers Right, so you you know you you take a job for the day or for the week or for the year you sign an employment contract Right now for some kinds of jobs the actual monetary return is not certain ahead of time Like you know if you're in sales and you work on commission, right? So you're anticipating that with your abilities to sell and market conditions and the characteristics of the things you're selling You know, I expect I'll be able to earn this much in You know wages plus bonus whatever But even in a even in case where your salary is fixed by contract, you know There's uncertainty about the costs of working that job. You know how pleasant will the work environment be? Well, I like my colleagues. Well, I have a demanding boss You know, we'll be well, you know, well the fringe benefits meet my expectations, whatever So even laborers are engaged in some speculation, right normally for for terminological clarity We don't describe workers as entrepreneurs for reasons that I'll elaborate on this moment But I mean in me's is broad sense. Even the laborer is acting entrepreneurially. So as the consumer, right? I paid five dollars for the sandwich in anticipation of it satisfying my hunger But I might you know, it might be a bad sandwich. I might decide. I don't like it. I might get into gestion I buy a loaf of bread thinking I'll consume it during the week But maybe it goes stale, you know quickly than I imagined, right? All of us as purposeful human actors are engaged in speculation in this broad sense And I said before the benefits and costs may not be easily measurable or may not have numbers to attach to them the profit or loss the net gain or net loss from The actions that we've undertaken, you know, they may not be quantifiable may be subjective But you can see that we're engaged in Mises terminology in an entrepreneurial act Now it is often convenient for us to use the language of entrepreneurship in a more specific sense as well Namely, it may not be all that useful To describe, you know, the Mises University student who decided to go to the four o'clock lecture as an entrepreneur I mean it might be or might not be depending on what we're analyzing or what research questions we're posing But for many purposes, it's more useful to restrict the language of entrepreneurship to a special category of, you know, full-time professional commercial actors, you know, who are doing this they're bearing uncertainty, but to try to earn financial rewards Right, so they are, you know, professional investors business owners traders and manufacturers and so forth They invest financial resources, money, they buy capital equipment, they hire labor, etc In anticipation of earning monetary revenues that exceed the monetary costs, you know, in Sandy's lecture you heard about You know, the need for a unit of calculation And that's another reason why a monetary economy outperforms a barter economy, right? But if we have a monetary economy and we do have cardinal numbers to attach to revenues and costs Net gains and net losses, then we can engage in entrepreneurship in a sort of a deeper and oftentimes more successful way The German economist Ludwig Lachmann, who was kind of a close fellow traveler of the Austrian school, wrote a very important book on capital in 1956 It's called Capital and its structure and in that book he says we are living in a world of unexpected change In other words, a world of uncertainty, right? Hence capital combinations, resource combinations used in production 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 arrangement and rearrangement of the factors of production Land, labor, capital, right? In anticipation of earning monetary revenues in excess of monetary costs Okay, obviously, this is pretty darned important Right this this speculation particularly by these professional commercial speculators producers Capitalists entrepreneurs, this is kind of what makes the world go around as Mises describes it again in human action He says it is impossible to eliminate the entrepreneur from the picture of a market economy The various complementary factors of production cannot come together spontaneously They need to be combined by the purpose of efforts of men of persons Right 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 So in a complex industrial economy think of the goods and services that you consume, you know your laptop or whatever a Laptop doesn't just miraculously appear, you know by itself It's not you know tornado doesn't blow through and then it is the wind assembles these components You know into a laptop right a laptop takes a lot of a long planning horizon You know think of all of the engineering all of the design things Things that we've discovered over many years the underlying science the technological development plus the manufacturing The sourcing you know the supply chain issues the marketing the distribution et cetera et cetera et cetera right a lot of people had to make Decisions purposeful decisions about allocating resources in Anticipation of some gain in order to produce the kinds of goods and services that we take for granted And who's doing that what doesn't just happen on its own? The people who make those decisions and bear those uncertainties are the entrepreneurs and they're the ones who are driving The process of production and you just as an aside right you may have heard The term that was popularized by Hayek That economics is the study of spontaneous order a market economy is a spontaneously organized or spontaneously arranged system again, I mean they're That's an insightful remark in a certain way Right, but but it doesn't mean that you know the economy miraculously self-organizes Right, Hayek's making an argument against central planning against top-down economy-wide central planning But he's not claiming Austrian economics does not claim right that at a micro level right that goods and services firms Products industries just sort of you know spontaneously emerge No, somebody has to be doing the organizing the design the anticipation the production That's what entrepreneurs do entrepreneurs are at the heart of the market economy Now you'll be learning more this week more details about how Austrians understand the production the production process How Austrians understand the notion of capitals you probably know something about this already if you've studied Austrian business cycle theory You know you'll be hearing more about it this week the production is really in the Austrian sense about transformation of Inputs into outputs, you know raw materials and unskilled labor and so forth things get combined Successively through different stages into final goods and services with all their complexity and nuance and the Austrian notion of Production taking place in different stages and capital goods Having characteristics Based on their place in this temporal production sequence is that's a unique Contribution of Austrian economics to production theory to business cycle theory to economics at large Sean Rittenour will be lecturing on capital theory tomorrow You'll also learn more about the Austrian concept of imputation Which is simply the idea that the value and prices that they can command on the market of the earlier stage Components are determined by their marginal contribution To the final goods and services that are then consumed In the market that consumers are willing to pay for so it's the value of the outputs that is imputed to the inputs rather than the other way around right if you've heard of like the labor theory of value that was Embraced by some of the classical economists and then of course more famously by Karl Marx Right claiming that outputs only have value because of the amount of input or the quality of inputs that go into them Austrian say no, that's that has the causal chain reversed It's only because the outputs that these inputs can produce have subjective value to consumers that the inputs themselves Are traded on factor markets that entrepreneurs are willing to pay for them and so forth to put them into production And of course all of this in a monetary economy takes place through Economic calculation and you'll learn more about that tomorrow from Salerno So you might have caught I used In my opening sort of you know Many case or whatever I use the term judgment. We're making judgments about the future That is a term. I didn't choose that term by accident That is a term that's used by Mises in his Discussion of entrepreneurship and some of you may also recognize that that term was used by Frank night Famous American economist who also wrote about uncertainty and entrepreneurship in the early 20th century The way I think about judgment, you know, this sort of way that entrepreneurs grapple with the uncertain future is it's a way of decision-making under uncertainty, you know in the absence of a Formal mathematical model formal decision model or decision rule There's no formula that tells me, you know that told you should you come to the lecture or not, right as a producer, you know, should I? You know put a higher generation of microprocessor in my laptop or not, right? Should I pursue this marketing campaign or not? Should I hire these workers or not? I don't have a mathematical formula into which I can plug certain data and then the computer tells me or an AI tells me exactly what to do Right under conditions of probabilistic risk, which I'll about which I'll say more about things in a second We may have some decision tools that are useful, you know rolling dice or playing blackjack or something But in in the real world in with the complexity of the real world all the different variables We don't have access to that kind of a model instead. We rely on something that you might call intuition or Instinct or gut feeling, you know, you talk about making decisions based on your gut rather than some kind of calculation or you know the cognitive Theorists talk about your system one thinking versus system two thinking. Okay, the Germans have a great word for this for staying Which is usually translated into English as understanding But it's really even that's not really a perfect translation. It's like a very sort of a deep fundamental understanding based on you know knowledge of Particulars of time and place as hike would call it. Okay. Here's how Mises puts it again I'm quoting from human action the real entrepreneur is a speculator a man eager to utilize his opinion about the future structure of the market for business operations promising profit this specific Anticipative understanding of the conditions of the uncertain future defies any rules and systematization Okay, so we it's not there's not a formula for it There's not a computer program that tells you exactly how you should anticipate the specific things that will happen in the future This talent he also says it can be neither taught nor learned Which is a problem for me as an entrepreneurship professor, but we'll forget about that He says the entrepreneur sees the past and present as other people do but he judges the future in a different way the entrepreneur relies on a an idiosyncratic subjective possibly tacit judgment of future market conditions in order to make decisions about what to do and You know what implication of this is that you know the way that we exercise judgment according to me Mises is by you know having real resources at stake Right now just sort of thinking about it and maybe making a recommendation to someone else But to exercise judgment you've actually got to have skin in the game as we call it nowadays So there's a link between entrepreneurship as judgment and ownership The ownership that we normally associate with the capitalist function, which is why Mises talks about the capitalist entrepreneur Okay, in fact one of my books that you can find downstairs is called the capitalist and the entrepreneur because it represents an attempt To show the importance of ownership as part of the as a means by which entrepreneurship entrepreneurial judgment is exercised Let me say a word about uncertainty You may have heard before of the distinction between uncertainty and risk and this is what again was popularized by by Frank night You might have heard the term nightian uncertainty To refer to you know risk is I'm throwing dice right and if I have one die, and it's like a normal die I throw it, you know, I don't know what number will come up But it's a very well-defined problem right there are six possible numbers And if it's a you know unless I'm cheating, you know the probability of any particular number coming up as 1 6 Okay, but if I'm you know, I'm starting a business venture and I'm trying to figure out whether or not that business venture will be profitable. That's a very different kind of a problem Right. I mean, I don't know exactly what the relevant probabilities are according to Mises You really can't use that same kind of mathematical probability Reasoning in a case like that rather you're relying on this kind of more intuitive sense of what you think will happen in the Future now there is another branch of probability theory Which I would argue is kind of the dominant one in mainstream Economics and the sort of mainstream decision theory And I'll leave if this is pioneered by John Maynard Keynes the same the same Keynes same bad guy Right not in the general theory, but in an earlier book that coincidentally also came out in 1921 On which in which Keynes argued that all probabilities are just subjective beliefs Right they can be neither correct nor incorrect They just are what they are so Keynes would say, you know, if I believe that the probability of rolling a five on a normal die is 1 8th That's just my belief. I mean you can't tell me that's not correct If I tell you I'm flipping a coin. It's 0.9. It's gonna come up heads. Okay. Oh, that's just my belief now What what mainstream economists would say is you know The only thing that we can say about beliefs is that a rational person will choose to revise Their beliefs or update their beliefs in a certain way Right if you believe that when you flip a coin it will come up heads nine times out of ten And you keep flipping and flipping and flipping and flipping eventually you'll realize Well now that can't be right, you know about half the time I get tails So I need to adjust my belief somehow and you might have heard of a Bayes law or Bayesian Updating as a technique by which decision-makers Rational decision-makers are thought to update their beliefs now living von Mises rejects this view of probability altogether You know so wait a minute. I thought Austrian economics is all that subjectivism Keynes's approach sounds like the most subjectivist at all. Isn't that the right one? No No, that's not what Austrians mean by subjectivism Right Austrians subjectivism doesn't you know, it's not if David Gordon were here He could you know, he could articulate this more clearly in philosophical terms Austrians are not making an Ontological claim about the world that the world operates by these sort of subjective on not understandable or unintelligible principles Right, it's just Austrians believe that you know consumer preference is subjective Okay, and and son and judgments about the future under conditions of uncertainty are also subjective Mises so I don't know if you knew this but little bit von Mises had a younger brother Who was also a very accomplished Academic his name was Richard von Mises a Richard was a member of the Vienna circle logical positivists in An early 20th century he became a professor in Germany then he emigrated to the US He sort of landed on his feet became a famous professor at Harvard Where he made contributions to a number of fields including probability theory Apparently the two Mises brothers did not get along well, and I'm sure there's some good gossip, you know underlying that you can read You know Holtzman's biography of Mises to get a little more insight there, but two very brilliant men, but with Different ideas About the world, but one thing they agreed on was probability theory. Okay, so one of the younger Mises contributions Is is what is sometimes? in the in probability theory they call it the frequentist Approach the frequentist theory of probability holds that What we mean by probability? the probabilities are sort of The limit frequency by which a certain event occurs in a series of repeated trials In other words suppose you had no idea. What is the probability when you roll a die that a number five will come up You know for some reason you just you can't think it through you It's yours totally in the dark, you know Keynes would say you can just pick any arbitrary belief, and that's fine But the younger Mises is well no what we would do in a case like that is we would just roll the die Right roll it once record what number comes down roll it again record the number roll it again keep rolling rolling and rolling and rolling and rolling and you know Mathematically as the number of rolls approaches infinity the frequency with which a five will come up is will approach one sixth Same for all the numbers Right, so a probability is what would happen in an infinite number of repetitions if we played this thing out Whatever it is, you know how often would a particular event occur well if it's you know one twenty-fifth for whatever it is Okay, then one twenty-fifth is the probability That's what we mean when we say the probability is one twenty-fifth one six whatever it might be in a particular case problem with this is of course That you know if we're talking about rolling the dice Then we actually can roll the dice a whole bunch of times And if you're worried that oh well, maybe you know my arm is not going to be exactly at the same angle every time Okay, we get a robot to do it You know put a robot in a clean a vacuum sealed clean room and if you're worried about the rotation of the earth Maybe we could do it like on a spaceship or something But in theory you could have exactly the same conditions and nothing would be relevant except rep your chance To see which number kind of comes up. We could do that a bunch of times You know Peter Klein wants to start a restaurant in Auburn, Alabama To serve, you know barbecue or maybe a food truck a park in front of the Mises Institute We can't do that a hundred times a thousand times a billion times Yeah, I mean I can do it once and see what happens and not yeah Maybe I could try again, but the circumstances wouldn't be exactly the same. It would be a different point in history People's decision preferences might have changed my capabilities might be different, you know market conditions inflation blah blah blah You we can't perform a repeated controlled experiment in these real-world complicated Conditions therefore we don't have access to a limit frequency. It's impossible to To describe it in that way So the language that the younger Mises uses and Ludwig von Mises also adopts this terminology in human action is In situations where each Each item you're interested in you know each role of the dice is an element of a class of Homogeneous events all other roles of the dice then we can apply this frequentist model and what Richard von Mises calls this class probability So probability only applies to situations where you have an element that's part of a class and you can repeat and Compare every element of the class is the same except for some random noise Okay, on the other hand if each situation you're interested in is a unique case Then we can't apply that kind of reasoning we use judgment intuition gut feeling for staying and Mises calls that Case probability. It's really not even probability. I mean it should be like case non probability But he calls it case probability who am I to judge? Okay, so Entrepreneurship only applies to situations of case probability When you're deciding how much to bet at their casino at the roulette wheel You're not engaged in entrepreneurship because you can mathematically calculate the likelihood that a certain number will come up Depending on how much wealth you have or can borrow depending on how much you enjoy the thrill of playing the game You know your risk preferences You can make a rational decision about, you know, how much to bet on a number five or whatever Okay, business decision-making entrepreneurial decision-making is not like that because we're dealing with unique cases But by the way if you say well, but does that mean Austrian economics as it understands probability rejects subjectivism? answers no Because there is look. I mean this is ultimately about You know behavior on the market Right if I'm not I'm an entrepreneur. I'm making a pitch for my food truck. I go on Shark Tank I make my spiel try to get them to give me money. I go to the venture capital market, whatever I'm trying to persuade other people that my case probability beliefs are sensible And I've got all these arguments I present and maybe I have some charts and graphs or whatever, right? So, you know even in situations where class probability might apply you've got a there's some subjective Judgment in deciding what is or isn't in the class You know insurance contracts work this way Right, so if you've got you know get drivers insurance or whatever the insurance company is willing to sell you that insurance policy They've estimated the likelihood that you know this guy in the yellow shirt that he is gonna have an accident Based on characteristics that we can observe his age his gender where he lives What kind of car he drives his police record? You know whatever based on all that the insurance company estimates the likelihood that he'll have an accident And that's how they set their rates, and you might say Austin is Austin you might have what you know, so it basically the insurance company is putting Austin in a class of A bunch of other people who are superficially similar to Austin and calculating the probability that way you say But Austin's unique He's different He he has a yellow shirt. I mean he goes to me's is you right? He's not like all the other people his age and income level, and you know, etc Okay, that is the thing on which the trading parties have to make a judgment or a subjective assessment What factors are relevant and what factors are not relevant to something being in a class? Okay Yeah, as I mentioned before one of the contributions of Austrians to production is this notion That the value of inputs factors of production we call them is Determined by the value of the outputs that they can be used to produce So what Austrians call that the the marginal revenue product or the discounted marginal revenue product is the money? Revenue that can be attributed or imputed to one service unit of a factor one hour of labor One kilowatt hour of electricity one You know unit of a raw material, okay holding all other factors constant discounted by the interest rate or social rate of time preference, okay, so This this number determines the entrepreneur's maximum willingness to pay for a factor But if the factor is you know one hour of Manuel's labor, right? I believe that in one hour Manuel can produce, you know, three laptops. He's just the assembler It's we'll make it easy right he can assemble three laptops, you know Which I can sell for a certain amount of money without Manuel I would not be able to assemble those three laptops So the additional revenue I get from selling that good or service based on an hour of Manuel's labor Determines the maximum. I would be willing to pay Manuel for an hour of his services And I've never paid more than that because then I then I'd be paying more Adding more to my costs, then I would be adding to my revenues. I wouldn't do it Okay, now I would like to be able to hire him for much less than that and then I'd have a little bit left over But I mean I would I'd be willing to pay up to the discounted marginal revenue product of an hour Hours worth of his labor for one hour of his labor. I would never pay more. I would never purposely pay more, okay? So now what if there are lots of entrepreneurs like me bidding for Manuel's services? Well that he's not you know if his marginal revenue product discounted marginal revenue product is $25 an hour and I offer him 10 He's gonna say no Salerno's paying 15. I'm gonna go work for Salerno and well Mark Thornton's paying 20 Right and if all of us entrepreneurs have sort of the same beliefs about what an hour is worth of his labor What an hour of his labor is worth? It's unlikely that any of us will be able to get him on the cheap Right competitive bidding by entrepreneurs will bid up the price of that input to where it's pretty close to the discounted marginal Revenue product. There's some exceptions to that which we can discuss later if you want so if you imagine a kind of an equilibrium state Like what Rothbard and Mises call the evenly rotating economy everything has already sort of been worked out Everybody knows what's gonna happen in the future I know exactly how many units of output Manuel can produce in an hour And I know exactly how much I can sell those for on the market Then I can precisely estimate his discounted marginal revenue product Other entrepreneurs also correctly anticipate his discounted marginal revenue product Everybody gets paid, you know exactly what they are worth to the entrepreneur You know owner managers of firms will get some Rothbard calls it an implicit wage as a reward for their sort of managerial function Capitalists if we assume there's still time preference in this imaginary construction will get an interest return on advancing resources in production in advance of stuff getting produced But there's nothing left over Right. There's no residual profit or loss for the entrepreneur Because what I have to pay for factors is exactly what those factors are worth to me in terms of how much revenue they generate Why would we imagine such a crazy world? Well only to contrast it with the actual world in which we don't know for certain I don't know for sure how much Manuel can produce and I don't know for sure how much I can sell that additional output for on the market So in the real world of uncertainty or case probability Entrepreneurs are competing for factors of production Based on their knowledge and belief about the present the state of technology How much Manuel is capable of producing? How many Manuel's there are out there and so forth, right? But also their anticipations of the future Will people actually want to buy these additional units that Manuel's labor combined with other factors? Produces I don't really know that for sure Some entrepreneurs will be very skilled at making these anticipations others will be less skilled and of course the result is profit loss Right, this is where profit and loss come from Entrepreneurs who are more skilled than other entrepreneurs at anticipating future revenues Therefore can make more accurate assessments of what inputs are worth and Will be better able to acquire inputs and still have something left over then entrepreneurs who over estimate What the you know, what will be the demand for the good or service produced? I haven't come across a Twitter feed of a guy last week Trunk fawn is his name. I didn't know him before but he has some pretty funny tweet threads One was like on great read your great product failures Right. So in in 2006 ESPN branded with some hardware company to produce an ESPN phone Flip phone it was 400 bucks in 2006 With a hefty annual monthly fee and you can only watch ESPN videos on it, right? You can see Steve Jobs apparently did not think very highly of the prospects of this product in the 1980s Ikea introduced something called Ikea air Which apparently was inflatable Ikea furniture, okay, which I guess in some sense is easier than putting it together Twitter introduced a branded electronic device called Twitter peak you can only see 20 characters at the time couldn't link to websites cost 200 bucks My one of my favorite examples of also is Harley Davidson cologne If you want to smell like a Harley or you want to smell like somebody who rides a Harley apparently you can get this So, you know the lots of examples, you know, we often think of the examples of the super successful products Boy that Steve Jobs was pretty clever with that iPhone. Wasn't he right? You know pick your favorite successful entrepreneur boy Henry Ford. He really had it figured out But of course, we don't you know if you hear people say well, you know the US under capitalism is a profit system I'd always say well, you're half right. Okay, it's a profit and loss system, right without the prospect of loss There's no possibility of profit Right because again if you knew for sure what consumers would pay for stuff Then you would never overpay for the factors. You'd never be in the red Right at worst you'd break even and if you're really skilled if you're successful You'll be able to get get some factors and pay less than what you otherwise would have paid Okay There are some you know, there are other concepts of entrepreneurship in the literature and I'll mention those briefly before we close You know if you take a college level entrepreneurship class they might emphasize kind of personality traits charisma leadership persistence is when you often hear about You know whether or not these traits are associated with people who you know whether they're good predictors of entrepreneurial Success is widely debated probably not and probably false But but these have nothing to do with entrepreneurship in the theoretical sense that we've been describing it right the successful Entrepreneur in Mises sense may or may not have charisma may be a great leader may not be those things are independent of entrepreneurial success in the formal sense A lot of times we use the language of entrepreneurship To refer primarily to like a certain kind of business or a certain kind of firm You know entrepreneurship is startups and small small businesses Maybe family businesses, but what large companies do is not entrepreneurship. Well again not according to Mises definition Entrepreneurship is the bearing of uncertainty under conditions of case probability is something that mature companies large companies all kinds of companies do it Right, it's not only companies that do it and so forth It's not just about the tech sector. It's not just about firms that have patents or get VC or whatever one other Concept that you hear a lot about in both in the practitioner world and in the some of the theoretical literature is That entrepreneurship is really about the pursuit of opportunity And that's not clear what opportunity really means in this context This notion comes from a famous entrepreneurship professor named Howard Stevenson who established one of the first entrepreneurship programs at Harvard Business School back in the 1970s and He Howard Stevenson's definition of entrepreneurship is the following Entrepreneurship is the pursuit of opportunity beyond resources Controlled or beyond resources currently controlled So in this sense right if you have access to capital labor other kinds of resources that you can put into productive use Well, then you're just kind of you know living within your means You're just doing what anybody would do who has access to those valuable resources. There's nothing special about that What it means to be entrepreneurial in this sense is oh, I've got a vision. I've got a dream. I don't have any money I don't have any skills. I don't have any I don't know anybody right But my relentless pursuit of my dream, you know in in in my relentless pursuit of my dream I'll acquire the resources and capabilities that I need along the way So it's trying to this notion is trying to decouple Entrepreneurship from resource ownership from production from the more practical or mundane aspects of it And you hear you get echoes of this in Israel Kersner's famous definition of entrepreneurship, which is quite popular in the Austrian literature Kersner articulated a notion of entrepreneurship as the discovery of Opportunities not yet exploited by other actors And like I say, it's been very influential in the Austrian literature It's meant to be in contrast to more mechanistic notions of optimal search Right entrepreneurs engage in serendipitous discovery You didn't even know you were looking for something and boom the idea just popped into my head in the shower For some successful company that I can start You know I get problems with this include in my view the separation of Entrepreneurship and production and resource ownership Again the claim that pure discovery rather than investment is what drives the market is something. I think it's not quite right If you really want to understand this well, I don't have time to show you the clip But I suggest you watch the scene from the movie Fargo Where Jerry goes to his father-in-law and tries to get a loan Tries to get money to pursue an opportunity. That's not defined very precisely, but anyway watch that scene. Okay, so Sorry I'm gonna skip a couple things that we can talk about in the Q&A, but I'll leave you with this There's been some recent discussion of whether you have to have a market to have entrepreneurship Right can the state be an entrepreneur? Can the government act? Entrepreneurially there's a book by Mariana Mazzucato that came out about 10 years ago It has been extremely influential particularly in Europe called the entrepreneurial state claiming that the state is really the driver of entrepreneurship and innovation I mentioned this only because I have a chapter in a book that came out three or four months ago called questioning the entrepreneurial state which is available open access as a free download which Criticizes the Mazzucato view and I've a chapter arguing that government decision-makers are not well positioned to be skilled at exercising entrepreneurial judgment in Mises sense, so I think our we're ready to have our Discussion panel for the day. So thanks very much for coming to the call