21
Mar
2019
Peter Klein Talks Entrepreneurship
And Christina Romer, Bill Clinton, and Israel Kirzner. The latest episode of the Bob Murphy Show.
Incidentally, especially for young Austrian grad students / PhDs, Peter and I talk about shortcomings in standard Austrian theory at the tail end.
Interesting, but by the time I got to the end, I already didn’t understand the start.
Klein is a smart guy, and it takes a long, quiet period of contemplation to come to grips with each point he brings up. I think I get the bit about limitations on vertical integration due to lack of internal price signals. Quite a lot of firms recognize that problem and attempt to get around it by using a system of inter-department billing (pretending to be a free market economy, within the firm itself). What tends to happen is the employees treat this with suspicion like funny money.
I will definitely have to come back to this episode … do the back reading to make sense of it.
What I can do is bring up a few random examples that I happen to know. Let’s consider eBay … people setup a shop inside eBay, and the “shopkeeper” can set the prices, but eBay sets the rules. This eBay shop is kind of an independent entity but not entirely because it is locked into the eBay ecosystem. Does this count as integration, or are they separate business entities? IMHO it’s not at all clear. They have blurred the lines of what would traditionally be a “firm”. Maybe this is an aberrant outlier, or perhaps there’s a good reason to go this way.
On the issue of entrepreneurship, I can’t escape the perspective that ultimately everyone is by necessity an entrepreneur. There’s the fundamental fact of life that you always take risks … either getting out of bed, or not getting out of bed, something or someone could always get you. There’s another fact of life that you will get old and die, and in the process your most productive years are usually somewhere in the middle. This imposes a requirement that every young person must plan ahead by choosing a vocation, training, credentials, etc then attempt to maximize the value of this in order to reach a stage where they can afford to live in retirement. That implies risk. You might spend many years training only to find your job is outsourced, or technology has changed or perhaps whatever you do doesn’t matter anymore because preferences have shifted.
Even without that intrinsic risk embedded in the human life cycle. You have imposed sovereign risk because the rules can change at anytime, and the risk of trusting other people … given that it is extremely difficult to live your life without finding other people you think you can trust. An entrepreneur is someone who plans ahead, takes risks and has skin in the game … that’s all of us.
When Russ Roberts tells the $20 bill story he uses an accoubtant and an economist. It helps to setup the difference in perspectives. An alternative version would be an economist and an entrepreneur. Where the economist sees a $20 bill and a $20 cost to retrieve it. The entrepreneur sees that there are roughly 40 bills that are worth $22 because they are slightly rare and thinks he can retrieve them for $18 each with an ingenious idea he has and sell them for $21.
Another way to tell the $20 bill story is that it is an economist and an entrepreneur. The economist sees a $20 bill with a $20 cost to retrieve. The entrepreneur sees a rare $20 bill worth $22 notices there are at least 50 of them and thinks he can retrieve then for $18 due to a novel idea he has and find plenty of buyers at $21 each with a 50 cent cost to sell them.