Organizations and Markets

Hayek and Entrepreneurship

7 November 2007 at 11:45 pm Peter G. Klein 4 comments

| Peter Klein |

At the Kauffman data symposium participants were given little notebooks with the Kauffman logo and a quote from Hayek — “Society’s course will be changed only by a change in ideas” — on the cover. It’s a nice line and certainly in the spirit of Hayek’s views on social change as expressed in The Road to Serfdom, “The Intellectuals and Socialism,” and other works, though the exact quotation does not seem to appear in Hayek’s writings. (The line is attributed to Hayek by John Blundell, recounting a conversation between Hayek and IEA founder Antony Fisher. In “The Rediscovery of Freedom,” written in 1983, Hayek puts it this way: “A young English pilot who had returned from the war and had made a great deal of money in a few years as an entrepreneur came to me [around 1947] and asked me what he could do to thwart the ominous growth of socialism. I had considerable trouble persuading him that mass propaganda was futile and that the task consisted rather of convincing intellectuals.”)

The Kauffman Foundation focuses on entrepreneurship, not opposition to socialism, so I started thinking about the influence of Hayek on entrepreneurship research. Kirzner’s theory of entrepreneurial discovery builds directly on Hayek’s notion of an economy characterized by dispersed, tacit knowledge, an economy in which “competition” is a process of coordination and equilibration, rather than a set of conditions (as in Walrasian competitive general equilibrium). However, Hayek did not develop a theory of the entrepreneur per se.

Hayek does use the term “entrepreneur” in his writings on socialist calculation and capital theory. But he seems to mean simply “businessman,” and does not distinguish sharply among entrepreneurs, managers, capitalists, and other business professionals. Certainly the Kirznerian metaphor of the “pure entrepreneur,” performing a discovery function independent of ownership and investment, does not appear in Hayek’s writings. Nor does Hayek say much about Schumpeter’s theory of innovation and creative destruction, though he knew Schumpeter’s work well.

David Harper puts it this way in his Foundations of Entrepreneurship and Economic Development (p. 20):

In his magnum opus, Human Action, Mises analyses market processes rather than equilibrium states. . . . [T]he equilibrating properties of the market process depend vitally upon the activities of entrepreneurs. Entrepreneurs see opportunities for profit in the conditions of disequilibrium. Competition among profit-seeking entrepreneurs is the agency which would bring the market prices of all goods and services to their equilibrium levels if no further changes in market data were to take place. Indeed, Mises considers entrepreneurship to be analytically inseparable from the process of competition.

In contrast, Hayek did not focus explicitly upon the role of entrepreneurship in explaining the market process. Rather, he emphasized the role of knowledge an mutual learning. He examined how, in the course of the market process, market participants come to obtain more accurate knowledge of each other’s plans.

One can construct a theory of entrepreneurial learning that is more explicitly Hayekian (see Butos and Koppl, 1999, which builds on Hayek’s Sensory Order). On the whole, however, the entrepreneurship literature appears to treat Hayek as an important theorist of knowledge and the competitive process — important elements of the entrepreneurial story — but not a contributor to the theory of entrepreneurship per se.

Update: Steve Horwitz offers some commentary here.

Entry filed under: - Klein -, Austrian Economics, Entrepreneurship.