Cooking as Entrepreneurship

15 August 2012 at 10:10 pm Peter G. Klein 11 comments

| Peter Klein |

To honor Julia Child on her 100th birthday, Lynne Kiesling writes a nice post combining three of my favorite things: cooking, entrepreneurship theory, and Austrian economics. Good cooking is about the combination of heterogeneous resources, it requires experimentation and creativity, and it either works or it doesn’t. Most important:

A system that will yield the most valuable and pleasing combinations of entrepreneurial economic or cooking activities will have low entry barriers (anyone can try to cook!) and a robust feedback-based system of error correction. Low entry barriers facilitate creativity in discovering new useful products from the raw elements, as well as enabling new value creation when some of those raw elements change. Error correction, whether a “yuck, that’s gross!” at home or a lack of profits due to low repeat business at a restaurant, is most effective and valuable when there are feedback loops that can inform the cook-producer about the value that the consumer did or did not get from the dish.

This emphasis on error correction highlights one of my differences with Kirzner’s approach to entrepreneurship. In Kirzner’s system, which emphasizes entrepreneurship as a coordinating agency, the entrepreneur is modeled as “piercing the fog” of uncertainty — hence the familiar metaphor of entrepreneurship as the discovery of preexisting profit opportunities. My approach focuses on action, not discovery, and gives a larger role to uncertainty. What generates coordination, in this approach, is the entrepreneurial selection process, not the “correctness” of entrepreneurial decisions.

Incidentally, Saras Sarasvathy often uses cooking to illustrate her “effectual” approach to entrepreneurial decision-making (i.e., cooks don’t always follow a recipe to produce a known dish, but use the ingredients they have in a sequential, experimental process). And for more on food, see here and here.

Entry filed under: - Klein -, Austrian Economics, Entrepreneurship, Food and Agriculture.

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11 Comments Add your own

1. Shawn Ritenour | 16 August 2012 at 12:31 pm

Cooking also provides excellent examples for an introduction to production and the production structure. Rothbard used making a ham sandwich. I like to use flourless chocolate cake.
2. Rafe’s Roundup of odds and ends | Catallaxy Files | 18 August 2012 at 4:59 pm

[…] as entrepreneurship. Pete Klein points out that cooking combines some of his favorite things, including Australian economics. Good […]
3. FC | 22 August 2012 at 3:23 pm

My favorite example of cooking as a discovery process is the classic repertoire of French sauce making. At various points one can choose any of several daughter sauces, or leave out the planned entree and just make soup.
4. Bruce Koerber | 27 August 2012 at 2:36 pm

The point that you make about Kirzner’s entrepreneurship seems to only take into account what is called pure entrepreneurship. Pure entrepreneurship is discovery but competitive entrepreneurship is not the same as pure entrepreneurship. If this is your gripe and your distinction then hopefully this comment helps clear things up.
5. Peter Klein | 27 August 2012 at 2:39 pm

Bruce, nay, nay, ’tis the opposite! Pure entrepreneurship is uncertainty-bearing. Real-world, historical entrepreneurship involves something we might call “discovery,” though the term is somewhat misleading even in that context. Read my stuff. :)
6. Bruce Koerber | 27 August 2012 at 11:12 pm

Peter, so I understand what you are saying: what are you saying Kirzner meant by pure entrepreneurship and what did he mean by competitive entrepreneurship.
7. Peter Klein | 27 August 2012 at 11:16 pm

Kirzner characterizes “pure entrepreneurship” as the costless, risk-free discovery of exogenously given profit opportunities. He doesn’t use the phrase “competitive entrepreneurship” so I’m not sure what you have in mind there. He does say that real-world, empirical entrepreneurship is different from pure entrepreneurship, as it typically involves risk and capital.

I’m offering an alternative to Kirzner, one that I think is more consistent with the historic meaning of entrepreneurship in economic theory.
8. Bruce Koerber | 28 August 2012 at 5:45 pm

I agree with and enjoy your description of Kirzner’s pure entrepreneurship. I am surprised that you are not familiar with competitive entrepreneurship because Kirzner speaks of these two market characteristics as analytically inseparable. How can the alertness of the entrepreneur be exercised in the real world without it being competitive? This type of human action is consistent with economic theory as far as I can tell.
9. Peter Klein | 28 August 2012 at 5:51 pm

Well, sure, he describes competition as an intrinsically entrepreneurial process. But he doesn’t invoke a different definition of entrepreneurship (i.e., “pure” versus “competitive”). Even Crusoe can exercise Kirznerian alertness!
10. Bruce Koerber | 28 August 2012 at 9:39 pm

I think where the distinction lies is in the actor. We humans can act as capitalists or resource owners or as pure entrepreneurs, etc., or we can act as combinations of these. If an individual changes from latent to active entrepreneurship and discovers something that requires resources to make it come into reality then, since resources are scarce, the result is necessarily competitive entrepreneurship.
11. Bruce Koerber | 30 August 2012 at 5:05 pm

The Three Entrepreneurial Stages. (http://divineeconomyconsulting.blogspot.com/2012/08/the-three-entrepreneurial-stages.html)

At the beginning of this elucidation about entrepreneurship it is important to know how natural and basic entrepreneurship is to the human being. Humans seek truth, by nature, because it is what leads to betterment. Truth can be seen as the laws in operation all around us and once these laws are relatively more understood the potential for advancement is present.

But humans are not always engaged in truth-seeking. Everyone has down time. Some have significantly more down time than others. This gets us to the first stage of entrepreneurship: latency. As is implied in latency, humans have the potential to be entrepreneurial – to be truth-seekers – but when that potential is not activated then it is in a state of dormancy.

Transforming from the first stage to the second stage requires a spark of interest, a quest for knowledge, an alertness or a desire for alertness, which transforms latent entrepreneurship into active entrepreneurship. Although somewhat rare, a pure entrepreneurial discovery can occur at this stage. The betterment that results from this pure entrepreneurial discovery requires nothing other than the discovery.

Most of the time the pursuit of knowledge in the active entrepreneurial stage is accompanied by the recognition that other economic realities like physical and human resources and/or capital are additional means that are necessary for success.

This is when the third stage of entrepreneurship is entered. The search becomes purposeful, not just for the ‘new discovery’ but also for all of the new combinations, including those that occur over time. Purposeful entrepreneurship is the driving force in the economy and it is a manifestation of the equilibrating power that is operating in the market process, which is always in a state of disequilibrium.

In summary, the three stages of entrepreneurship are: latent, active, and purposeful.