Economists Are Not Entrepreneurs

26 January 2007 at 12:55 am 3 comments

| Peter Klein |

Edwin Cannan, writing in 1902:

I do not mean to argue that a knowledge of economic theory will enable a man to conduct his private business with success. Doubtless many of the particular subjects of study which come under the head of economics are useful in the conduct of business, but I doubt if economic theory itself is. It does not indeed in any way disable a man from successful conduct of business; I have never met a decent economist who was in a position of pecuniary embarrassment, and many good economists have died wealthy. But economic theory does not tell a man the exact moment to leave off the production of one thing and begin that of another; it does not tell him the precise moment when prices have reached the bottom or the top.

This is from Cannan’s Presidental Address to the Royal Economic Society, reprinted in the January 2007 issue of EconJournalWatch. I have spent most of my career teaching economics to business students, and I am always careful to emphasize that knowledge of economic theory, while valuable, is neither necessary nor sufficient for commercial success.

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3 Comments Add your own

  • 1. Eric H  |  26 January 2007 at 9:59 am

    “knowledge of economic theory, while valuable, is neither necessary nor sufficient for commercial success.”

    As an example, may I suggest Robert Owen?

  • 2. russ Bankson  |  26 January 2007 at 6:12 pm

    It may not be necessary to “play the game” but ignorance of the higher order effects of many economic policies can delude successful (unsuccessful) businesspersons into supporting ( or not opposing) polices the effect of which will change “the game” from a non-zero sum version into a zero sum game.
    Through such ignorance or shortsightedness, a businessperson can contribute to destroying the very ecological (economic) system that makes his existence possible

  • 3. spostrel  |  27 January 2007 at 8:27 pm

    My first-day lecture on strategy starts with how I’m not teaching an algorithm for wealth creation but the course is nonetheless useful. Incentive compatibility (why would I be here if I could easily use my knowledge to get rich?) and efficient market arguements play important roles in this explanation.

    D. McCloskey’s book If You’re So Smart is the best meditation I’ve found on the relationship between creative endeavors and the critical/analytical fields that grow up around them. Business and economics, literature and criticism, etc. are discussed. There’s also a good analysis of why efficient markets rule out the possibility of effective, low-cost magic but don’t rule out effective poetry (despite its “magical” effect on the reader). Also, it may be the best read of all of McCloskey’s books.

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