Over 50 years ago, economist William Baumol noted that economics was a theory of the economy that left no place for entrepreneurship. Economic models, simply put, were “entrepreneur-less.” Economics is no better today; in fact, it’s arguably worse. It focuses on faceless economic forces in formalized models. Modern economics is to a great extent a theory of equilibrium and efficient outcomes. But it is not a theory of the market.
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Not only is the customer king, but all production aims to ultimately satisfy consumers in some sense by providing them with value. This value is entirely up to the consumer. Entrepreneurs can only provide the means, typically a good or a service...
Here are four insights from Austrian economics that are part of that entrepreneurial intuition:
With value being in the eyes (and experience) of the consumer, the price they are asked to pay must be (much) lower. The entrepreneur’s job is to figure out at what price their product is attractive, and then choose a cost structure that allows for profit. In other words, the price is a
Few entrepreneurs have heard of or studied Austrian economics. But most entrepreneurs are Austrians without knowing it. They have learned from experience how the economy works and have developed an intuition. Their gut feeling, sometimes referred to as entrepreneurial jud...
In standard economics models, competition is about offering the same or nearly the same goods competing on price. This is a terrible strategy for entrepreneurs, whose superpower is to facilitate value. Therefore, “Austrians” think of competition differenlty: It is about f...
Standard economics has turned its back on and developed models that exclude entrepreneurship. As Joseph Schumpeter, schooled in the Austrian tradition, put it: the market economy without entrepreneurship is much “like Hamlet without the Danish prince.” Indeed, en...
As economist Joseph Schumpeter argued, entrepreneurs are the lifeblood of the dynamic market economy. They are in the business of creating dis-equilibrium. They engage in “creative destruction.” The new that they create displaces the old and makes us better off. The mark...
Leading Austrian economist Ludwig von Mises noted in his tome Human Action that “the ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of demand and supply.'' What that means is individual entrep...
So-called Austrian economics, which was founded by scholars at the University of Vienna 150 years ago (hence the name), is an alternative approach to understanding the economy that embraces entrepreneurship and even sees it as the driving force of the market. To “Austrian...
With entrepreneurship at the core, “Austrians” only reluctantly use mathematical modeling and statistical analysis. After all, if the economy is a dynamic process of entrepreneurship and innovation, of what use are mathematical equations? Instead, their focus is on value creation...
“An idea is something that won’t work unless you do.” - Thomas A. Edison
Modern economics is a theory of the economy that leaves no place for the entrepreneur. So where should entrepreneurs turn to improve their understanding? The Austrian school of economics might be the answer.
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