The Return of the Entrepreneur

This week's Economist has a short piece, "Searching for the invisible man: Economics rediscovers the entrepreneur."  Kirzner gets a passing mention but the main focus of the piece is on the work of William Baumol.  The main gist: 

Microeconomics instead gives pride of place to prices. Guided by the wages and interest rates they must pay, businessmen choose among different techniques of production (labour-intensive when workers are cheap, capital-intensive when they are scarce) but they do not reinvent or revolutionise them. Guided by the price their wares will fetch, they decide to make more goods or fewer. But they do not conjure up new products that no one had previously thought of.

Some quick thoughts:

1. I am pleased that the entrepreneur is getting some well-deserved attention.  However, given Kirzner's large body of work on this topic it is a shame he is not the focus of this piece.

2. We shouldn't forget the importance of prices for economic calculation.  It is prices and profit/loss that serve as a disciplinary mechanism regarding the activities of entrepreneurs.

3. Perhaps obviously, the institutional environment that provides incentives to engage in productive innovation and reallocation of resources is key.  Both Baumol and Kirzner recognize the role of institutions in the entrepreneurial process in their work. 

Comments

[Brian]

I agree strongly with your third point. Without the necessary institutional environment, individuals will have reduced incentives to engage in productive behavior. A reliable rule of law, coupled with strong property rights and low cost of starting new enterprises are all necessary elements for the entrepreneurial process to develop into productive outcomes.

I am currently strongly interested in development work and am convinced that economies will not grow without successful avenues for entrepreneurs to emerge to use local knowledge to better their own situations by bringing successful innovations to the market which, in turn, helps their fellow man. I think I am in need of reading both Kirzner and Baumol to understand this process more...

Read more of my thoughts on this post on my blog: http://thinkingonthemargin.blogspot.com/2006/03/understanding-entrepreneur.html

[Paul]

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