Imagine if human anatomists had, for a century and a half, for the most part, neglected an entire crucial anatomical function: let’s say respiration. That would be analogous to the very real neglect economics is guilty of, regarding a keystone of the market economy: the entrepreneur. As Doug French points out in the Foreword to a very important new book,
“most schools of economic thought are silent on the subject. Even the work that has been done is incomplete and contradictory. Economists can’t even agree on what entrepreneurship is or what exactly entrepreneurs [...] do. And the apparatus that facilitates the manifestation of the entrepreneurial vision—the firm—is but a “black box” where inputs enter and outputs emerge, like so much magic.
But like so many market phenomena that modern economics chooses to ignore or get wrong, an Austrian economist has entered the black box, examining its contents for a better understanding of not only what entrepreneurs are, but what they do and why they do it.”
That Austrian economist is Peter G. Klein, and the above-mentioned important new book is The Capitalist and the Entrepreneur: Essays on Organizations and Markets.
In the Forward, French also tells the inspiring story of Ewing Kauffman,
“[a] man who as a child was bedridden for a year with a heart ailment but used the time to read 40 books per month.”
(As an avid reader myself, this part of the story is inspiring enough on its own, and almost makes me wish for a heart ailment!)
Kauffman started out as a crackerjack pharmaceuticals salesman at Lincoln Laboratories…
“A natural salesman and hard worker, Kauffman in just his second year earned more in commissions than the company president did in salary. In response, the president cut Kauffman’s commissions. Despite the reduction, Kauffman still out-earned the Lincoln head man the following year, so “he took away some of my territory, which was the same as taking away some of my income,” Kauffman related later. ‘So, I quit and I started Marion Laboratories in the basement of my home.’”
In 40 years Kauffman turned a $5,000 investment into a company with $930 million in revenues.
An entrepreneur like Marion Kauffman operates in a very different head-space from your average tenure-coddled academic economist, which perhaps explains the latter’s reluctance to really try to come to understand the former. But Peter Klein, in the grand tradition of Austrian economists rolling up their sleeves and grappling with the market economy as it really operates, has taken on the enterprise of understanding the entrepreneur and the firm. It will be my pleasure to blog each chapter of that enterprise (next, I’ll blog about Klein’s Introduction to his book).
Of course to really comprehend the entirety of Klein’s analysis, it would be paramount to study the book itself (available for purchase and as a free PDF download). And what better way to study the book, than under the direct tutelage of the author himself? Well that opportunity is before you, because Peter Klein will be teaching an all-online Mises Academy course centered around his new book (click here for details). The course starts June 7, so sign up today!
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I’ve heard stories like that, about companies cutting sales reps’ commissions and then taking away their territory when they’re “too successful”. In every case that I heard of, the sales people quit and went to either the main competitor or else started their own business.
In one case the fellow’s new company was so successful the American parent of the company he previously represented actually closed their Canadian subsidiary and gave his new company an exclusive deal to sell their stuff in Canada. Part of his motivation was not even financial, but revenge, wanting to kick the azz of his previous boss. The motivation of his previous boss, whose subsidiary was shut down, was apparently not so much jealousy of his star sales rep, but that he had promoted his secretary, with whom he was sleeping, to sales rep and wanted to make her happy by giving her a lucrative territory.
Needless to say these non-financial motivations, though very human and completely rational in their own way, are something that many economists cannot grasp.
I’m so excited about Peter Klein teaching at the Mises Academy. From all of his literature, presentations and interviews online, I realize how important his course is to anyone engaging in entrepreneurship, and wanting to better understand the Austrian analysis of business development, investing and management.
This stuff is the meat and potatoes of applied Austrianism.
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