Why Entrepreneurship Matters? Schumpeter vs. Kirzner

Interesting post by Prof Steven Horowitz.

He says we usually think entrepreneurs to do big heroic things which is what Schumpeter also said. However, entrepreneurship could be incremental as well a la Kirzner:

Opponents of economic freedom have a twisted view of entrepreneurs, imagining them to be greedy exploiters of both workers and consumers. But advocates of free markets can have their own distorted ideas of entrepreneurship. Our vision is often a romantic one. We imagine the heroic businessperson who comes up with a new idea, device, or method; who persists against long odds to bring it to market; and who profits greatly when it revolutionizes an industry. The entrepreneur is heroic — a Doer of Big Things. The vast majority of new businesses fail quickly. 

As my friend Alexei Marcoux, professor of business ethics and society at Creighton University, pointed out in a recent talk, we largely owe this vision to Joseph Schumpeter, the most well-known theorist of entrepreneurship in the 20th century. Schumpeter’s entrepreneur was a disrupter of the placid, an upsetter of economic apple carts, and the source of what Schumpeter called a “gale of creative destruction.” Alexei also noted that the Schumpeterian entrepreneur is a rare creature: only a few heroic folks have extraordinary power to disrupt the market’s routine operations.

In his talk, Alexei contrasted the Schumpeterian entrepreneur with the almost opposite one we find in the work of Israel Kirzner. Kirzner’s entrepreneur, developed from ideas in Ludwig von Mises’s Human Action, is not a Doer of Big Things and a disruptor of the placid, but rather an observer who notices opportunities for profit where others have made errors, where people’s desires have shifted, or where a resource’s availability has changed.

Rather than creating new opportunities, as Schumpeter describes, Kirzner sees entrepreneurs as noticing or being alert to new opportunities. And this alertness is not something possessed by a special few, but is an ability we all have.

For example, a few weeks ago, I was about to buy a candy bar at the hotel gift shop to satisfy my desire for some dessert. Then, I had a moment of entrepreneurial alertness when I realized the hotel lounge had free cookies. What I thought was the existing set of opportunities in front of me was wrong; I actually faced a different set of options (a different “means-ends framework,” in the language of economics). That alertness — my ability to notice that the world was not what I perceived it to be — is, for Kirzner, the essence of entrepreneurship.

Very few get the Schumpeter version going actually. Most of the time gains are made from Kirzner approach..

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: