Following up Art’s post, while Julian Simon was certainly right to take on Malthus (let alone the risible Paul Ehrlich), it’s worth remembering that the metaphor of human knowledge and agency as the “ultimate resource” is just that — a metaphor. Simon correctly pointed out that physical stuff is transformed into higher-order goods only when entrepreneurs figure out how to use the stuff in production. Menger himself noted that “things” become “goods” only when there are “[s]uch properties as render the thing capable of being brought into a causal connection with the satisfaction of this need,” and, particularly important, “[h]uman knowledge of this causal connection.” But it doesn’t follow that knowledge is itself an economic good, let alone higher-order good. As Mises (quoted the other day by Joe Salerno put it: “Capital is a praxeological concept. . . . It is a product of reasoning, and its place is in the human mind. It is a mode of looking at the problems of acting, a method of appraising them from the point of view of a definite plan. It determines the course of human action and is, in this sense only, a real factor.” In other words, physical goods become capital goods only as they are incorporated into an entrepreneur’s subjective production plan (Lachmann’s Capital and Its Structure and Kirzner’s Essay on Capital emphasize this point — see discussion here.) But that doesn’t mean these production plans are capital.
I’m reminded of the long-running debate on whether entrepreneurship is a factor of production. A few years ago I highlighted an insightful 1950 article from Jean Marchal on this point:
Some people doubtless will say that [the entrepreneur] provides the function of enterprise and receives as remuneration a sum which varies according to the results. But this is a tortured way of presenting the thing, inspired by an unhealthy desire to establish arbitrarily a symmetry with the other factors. In reality, the entrepreneur and the firm are one and the same. His function is to negotiate, or to pay people for negotiating under his responsibility and in the name of the firm, with two groups: on the one hand, with those who provide the factors of production, in which case his problem is to pay the lowest prices possible; on the other hand, with the buyers of the finished products, from which it is desirable to obtain as large a total revenue as possible. To say all this in a few words, the entrepreneur, although undeniably providing a factor of production, perhaps the most important one in a capitalist system, is not himself to be defined in those terms.
In other words, while production requires entrepreneurship, and resources exist only as mediated by knowledge, entrepreneurship is not itself a factor of production, and knowledge is not itself a resource, except in the trivial sense that resources — or any economic activity — cannot exist without knowledge.
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Cutting-Edge Causal-Realistic Entrepreneurial Theory.
Production is creating something that did not exist, in a form that can be used functionally. Discovery derived from perceptual acumen is not production although it can be of great value in a productive endeavor. The intertwining of these two can cause the distinction between them to become cloudy but no more so than the intertwining of means and ends, which causes the artificial separation of ethics and economics. At some point science needs to reach the zenith of contemporary understanding and then to step further so that the state-of-the-art science is along the cutting edge! Divine economy theory is on the cutting edge of causal-realistic economics!
Great post and very interesting first comment. I came across Henrik Berglund, Steffen Korsgaard, and Todd Chiles’ interesting take on the Professional Development Workshop on “Austrian Economics and Entrepreneurship Studies” at the recent Academy of Management conference online.
Having read Simon’s tracts it clear he’s from the 1800′s – he wanted humans to clear all the untamed wild and convert it into cities, farms, suburbs with some parks and gardens. Of course, humans can adapt. Humans don’t need that much food or water to live hence if people live on a scarce minimum of sustenance then there could be a world population of, say, 100 billion.
Oh,I know that
In a similar vein, ideas are valueless in themselves until they are put to actual use of some kind. Ideas are not property. Data is not property either, no matter how unique or aesthetically pleasing it is. On the other hand, given the status quo, perhaps entrepreneurs should copyright themselves!
For those who are looking for that Marchal guy: I could not find any English translations of his work, he is (horror) french. The work seams to be “Cours d’économie politique”. Can anyone provide a larger context for the quote? The problem is that, even in french, I could not find that work.
Niko, it’s here: http://www.jstor.org/stable/1813587
Thank you. Nice article, also.
This seems quite reasonable but rather abstract. I think some concrete (counter) examples would help. For instance, what would some of the implications be if knowledge *is* a proper resource or if entrepreneurship *is* a factor of production? Basically, it seems like this article is a foundational attack on an unidentified thesis.
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