i challenge the austrians
Yesterday, Teppo linked to some interesting slides posted by Peter Klein & co explaining how Austrian economics would be useful to management scholars, especially those interested in entrepreneur studies. If you don’t know much about the Austrians, you can read the wiki, or a critical article that reviews the topic, but here’s the fortune cookie summary:
Economics should try to understand how entrepreneurs create and exploit opportunities, which arise from imperfections in markets. Markets are about risk taking, property rights, disequilibrium and institutions. Fancy stats and math are either wrong or misleading.
What’s not to like? Sounds pretty darned close to what a lot economic sociologists might advocate as a general modus operandi. And the Austrian school has been quite influential in the past. Many of the core insights of the earliest Austrians, such as choice being a forward looking decision, have been adopted by most mainstream economists. Also, FA Hayek came out of this tradition, and his ideas about spontaneous order have found quite a following among many non-economists.
But Hayek died almost 15 years ago and the Austrian School’s most recent hits were back in the 1970s, probably ending with Kirzner’s discussion of entrepreneurs. Since then, the modern Austrians have dwelled on the topics of subjectivism and entrepreneurialism without offering a big pay off. In the comments to Teppo’s post, I suggest that the Austrian’s have limited themselves by not adopting the modern tools of social science: model building/hypothesis tests (verbal or math based), statistics, and theories of the middle range. Given this intellectual stance, it’s really hard to imagine how this school would have an impact on mainstream social science, except in interpretive work aimed at the school’s classical texts. It also distances Austrianism from literatures that could actually help them conceptualize the complex economy envisioned by Hayek, such as network analysis or neo-institutionalism. Finally, there have been numerous mainstream challenges to Austrian theories.
So in the spirit of scientific progress, I challange Austrians, and any economic sociologists who care, to solve the following problems. Each problem addresses a core Austrian issue, but in ways amenable to mainstream sociology or economics:
1. Come up with a definition of an entrepreneur that is not trivial. In other words, make an argument for why we should make this a key analytic concept. The definition should prevent someone from labeling any purposeful action with uncertain consequences an entrepreneur. If you can make it more interesting that Merton’s description of innovators (people who follow normative goals with non-normative procedures) in his 1937 article on Anomie and Social Structure, even better.
2. We know that entrepreneurs have different attitudes and pyschological traits than the rest of the population. Can you (a) summarize the entreprenuer profile and (b) show how those traits make certain types of social action possible? Connect your theory of entrepreneurial action to recent work on social skill. If you can show cross-cultural similarities, even better.
3. Can you come up with a formal model of how entrepreneurs conceptualize the world in ways that allow them to see things that other economic actors don’t? Can you make a good formal model of worlds with such “entrepreneur actors” in the same way we have lots of models of neo-classical rational actors?
4. A lot of business history is about the transition from entrepreneurs to larger firms. Can your theory of entrepreneurs add anything to the basic business history on this topic?
5. There are many different flavors of property rights. Can you come up with (a) a theory of what kinds of rights you can possibly have and (b) connect this to the success or failure of entrepreneurs? Then back it up with case studies base on international comparative work.
6. Can you model the three way interaction of entrepreneurs, non-entrepreneurial firms, and the state? Are there other meaningful interactions other than co-optation of the state by firms to stifle competition?
7. Can you define, and prove, what the differences between mature and nascent markets are based on your theory of entrepreneurship? For example, can an Austrian inspired theory tell me how we went from the world of Lynx and Mosaic, to the world of Internet explorer?
Each problem is really an entire research agenda, but even a partial answer is likely to be highly informative. Good luck! Tell me how it goes!
You’re certainly right about the wheel-spinning, but I think Pete Boettke, inter alia, is trying to make progress again, not least by working with rather than against neo-institutionalism and by working on something like the research agenda of #5.
Jacob T. Levy
August 24, 2007 at 12:14 pm
Lots of food for thought Fabio:
I will take a crack at number 1:
Insofar as the study of human beings is not biology, the study of human beings begins and ends with the study of human action in their particular life-world situations. Now, due to entreprenuers taking a perspective from their current life-world situations, and thus seek to better their life-world situations, the causality of social outcomes (e.g., property rights, markets, norms, etc.) may be seen as teleological and ontological. This sounds like what the doctor ordered for economic sociology (i.e., a field, ostensibly, concerned with interest and structure; btw, the problem I see with network analysis is that the analysts simply assume group membership and embeddedness. This, I believe, is a unidirectional methodological fallacy that ignores the origin of embeddedness and networks and purposeful action. What is more, it is a problem that formal modelling has a difficult time escaping.)
The problem with any ex ante definition of entreprenuership that goes beyond purposeful action and uncertainty comes from the general objective of entreprenuers to choose the means they individually believe will achieve the ends envisaged. Thus, the notion of purposeful action becomes a bit tautological, but very useful. Additionally, definitions of the entreprenuer, germane to real world applications, must be undertaken ad hoc; discursive definitions may be bizarre if applied to the manifold conditions of the life-world. Finally, it is on this basis, that I believe that Mises concluded that action and its observed results cannot be anything but the existential manifestations of reason applied to subjectively perceived problematic circumstances. Therefore, formal modelling and statistics will not tell much, if any, of the story of the life-world.
Brian Pitt
August 24, 2007 at 1:00 pm
Isn’t that a bit like challenging the Andorrans? No fair.
dave
August 24, 2007 at 4:19 pm
“Isn’t that a bit like challenging the Andorrans? No fair.”
Why? Is there an Andorran school of economics I should know about? :)
fabiorojas
August 24, 2007 at 6:01 pm
Fabio, a few quick thoughts:
1. I wouldn’t recommend Caplan’s “Why I am Not An Austrian Economist” as a good place for newbies to start. (Given the title, one would hardly expect an even-handed summary!) Hayek’s 1968 entry in the IESS and Kirzner’s contribution to the New Palgrave are good resources (not available online, unfortunately). This summary at Mises.org is good; here is a shorter summary at EconLib.
2. I like your questions #4, #5, #6, and #7. There’s a lot of good work on these topics. Browse this biblio for some ideas.
3. I think your first three questions are misplaced. The entrepreneur is a functional category, not a person. The standard definitions of the entrepreneur (e.g., the Knightian one, which I prefer, in terms of decision-making under uncertainty) are no more or less trivial than the definitions of the consumer, worker, landowner, etc. The entrepreneur is invoked to explain particular economic phenomena (for Knight, the existence of profit, as distinct from other categories of business income, such as interest; for Schumpeter, the existence of technological progress; for Kirzner, the tendency toward market clearing). It is not to describe a particular kind of individual, personality type, leadership style, or whatever. (BTW the premise of your #2 is incorrect; survey evidence suggests that entrepreneurs, if defined as firm founders, do not have different attitudes, risk preferences, etc., from the general population.) On #3, if by “formal” you mean mathematical, then I’m not aware that anyone has done that, but I’m not sure I see the value added of doing so.
Peter Klein
August 24, 2007 at 7:29 pm
[...] guess that we’re looking at a personality cult based around an economic theory of, of, of, as far as I can tell, not a whole lot. Am I saying Miseans are akin to Scientologists? No, I’ve seen no evidence that they are extreme [...]
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