Ludwig von Mises Institute

Entrepreneur

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The Entrepreneur performs the function of carrying out "new combinations" of labor, natural resources or capital goods for the purpose of making a profit.[1] The entrepreneur is distinct from the capitalist because he does not risk capital while the capitalist does.[2][1] This distinction is made by Mises to better explain the different roles individuals play in the economy and is part of the "imaginary construction of functional distribution."[2] Individuals, in the market economy, often perform both functions.

According to Ludwig von Mises:

"[Economics] also calls entrepreneurs those who are especially eager to profit from adjusting production to the expected changes in conditions, those who have more initiative, more venturesomeness, and a quicker eye than the crowd, the pushing and promoting pioneers of economic improvement."[2]

Mises suggests the term "promoter" in addition to term entrepreneur:

"The driving force of the market, the element tending toward unceasing innovation and improvement, is provided by the restlessness of the promoter and his eagerness to make profits as large as possible."[2]

Entrepreneurs and The Future[edit]

Entrepreneurs are primarily concerned with the future state of prices. In anticipating the direction of the market, entrepreneurs must also predict the length of time which will pass before the desired change in prices have emerged. In fact, timing can determine whether a definite project will have success or not.[3]

Entrepreneurs make profits by providing for future needs which have been neglected by other businessmen. It is not foresight itself which brings profits, but foresight better than the majority.[4] Mises writes:

"The entrepreneurial idea that carries on and brings profits is precisely that idea which did not occur to the majority...The prize goes only to those dissenters who do not let themselves be misled by the errors accepted by the multitude."[4]

According to Mises, the entrepreneur:

"...discovers a discrepancy between the prices of the complementary factors of production and the future prices of the products as he anticipates them, and tries to take advantage of this discrepancy for his own profit."[5]
And:
"An entrepreneur can make a profit only if he anticipates the future conditions more correctly than other entrepreneurs."[6]

The famous entrepreneur Henry Ford, in My Life and Work, states with regard to the future and failure one must have:

"An absence of fear of the future and of veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunitv more intelligently to begin again. There is no disgraceful honest failure; there is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress."[7]

Examples of Entrepreneurship[edit]

A recent example of entrepreneurship is facebook founder Mark Zuckerberg. After winning Times 2010 person of the year Zuckerberg said:

"If you create value for other people then you might be able to realize a portion of that value yourself. I never thought about facebook as starting a business that would grow its own value, but its really good that the world works this way. If someone does something that is valuable, that is enough to build a good business based off of. I don't think that I focus on the same thing that other business people do. But every day we just come in and try and build the best product for people."[8] (emphasis added)

Other notable living entrepreneurs are Steve Jobs (Apple), Bill Gates (Microsoft), Jeff Bezos (Amazon) and Richard Branson (Virgin).

References[edit]

  1. ↑ 1.0 1.1 Joseph Schumpeter, The Theory of Economic Development, trans. Redvers Opie (Cambridge, Massachusetts: Harvard University Press, 1961) 75
  2. ↑ 2.0 2.1 2.2 2.3 Ludwig von Mises. XVIII. The Scope and Method of Catallactics, 7. The Integration of Catallactic Functions, Human Action, online version, referenced 2011-02-05.
  3. ↑ Ludwig von Mises. XXIII. The Data of the Market, 5. The Period of Adjustment, Human Action, online version, referenced 2011-03-30.
  4. ↑ 4.0 4.1 Ludwig von Mises. XXXVII. The Place of Economics in Learning, 3. Forecasting as a Profession, Human Action, online version, referenced 2011-03-30.
  5. ↑ Ludwig von Mises. XXVI. Economic Calculation under Socialism, 6. The Differential Equations of Mathematical Economics, Human Action, online version, referenced 2011-04-25.
  6. ↑ Ludwig von Mises. XV. The Market, 8. Entrepreneurial Profit and Loss, Human Action, online version, referenced 2011-05-19.
  7. ↑ Henry Ford. Introduction, My Life and Work, online, referenced 2011-03-30.
  8. ↑ An Interview with Mark Zuckerberg, Time Magazine. [1]

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