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Friday, October 7, 2011

Steve Jobs, Entrepreneur

I for one will miss him.

When I think of Steve Jobs I naturally think: entrepreneur. What does that mean? I like how Ludwig von Mises and his student Israel Kirzner described this role in the market. Here are some passages from Mises’s Human Action (emphasis added):

The term entrepreneur as used by catallactic theory means: acting man exclusively seen from the aspect of the uncertainty inherent in every action. In using this term one must never forget that every action is embedded in the flux of time and therefore involves a speculation. . . . There’s many a slip ’twixt cup and lip.

* * *

Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future. His success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come, he is doomed. The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of the consumers.

* * *

An entrepreneur can make a profit only if he anticipates future conditions more correctly than other entrepreneurs. Then he buys the complementary factors of production at prices the sum of which is smaller than the price at which he sells the product.

* * *

[C]ompetition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve the consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts.

* * *

The social function of catallactic competition is, to be sure, not to establish who is the smartest boy and to reward the winner by a title and medals. Its function is to safeguard the best satisfaction of the consumers which they can attain under the given state of the economic data.

And from “Profit and Loss” in his Planning for Freedom:

What makes profit emerge is the fact that the entrepreneur who judges the future prices of the products more correctly than other people do buys some or all of the factors of production at prices which, seen from the point of view of the future state of the market, are too low.

As for Kirzner, in Competition and Entrepreneurship he wrote (emphasis in original):

Now I choose . . . to label that element of alertness to possibly newly worthwhile goals and to possibly newly available resources . . . the entrepreneurial element in human decision-making. It is this entrepreneurial element that is responsible for our understanding of human action as active, creative, and human rather than as passive, automatic, and mechanical.

* * *

There is a certain temptation to conceive of the entrepreneur as one who simply knows more accurately than others do where resources can be purchased most cheaply, where products can be sold at the highest prices, what technological or other innovations will prove most fruitful, which assets can be expected to increase most in value, and so on . . . . I speak of the essentially entrepreneurial element in human action in terms of alertness to information, rather than of its possession. . . . Ultimately, then, the kind of “knowledge” required for entrepreneurship is “knowing where to look for knowledge” rather than knowledge of substantive market information. The word which captures most closely this kind of “knowledge” seems to be alertness.

Everyone an Entrepreneur

For Mises and Kirzner, entrepreneurial action is risk-taking in an open-ended world of significant uncertainty. And for them, all action is therefore entrepreneurial. Other conceptions of human behavior stress the maximization of utility through the optimal allocation of given means among given ends. In the Misesian model human beings are creative agents capable of discovering means and ends in the process of acting that are not already known. In the market the entrepreneur is the one who formulates a plan to enlist “undervalued” factors of production in order to create a good which he or she intuits that consumers will be willing to pay enough for to reimburse money costs (including interest) with enough left over – the entrepreneurial profit — to make the project worthwhile (compared to alternative uses of the money).

In a freed market, as opposed to corporatist mixed economies, entrepreneurial profit is always fleeting because competition, unmolested by government restrictions on upstarts and privileges for incumbents (such as taxes, antitrust laws, patents, subsidies, guarantees), bids up the price of inputs and drives down the price of finished goods. In a freed market, then, we get the best of all worlds: The lure of entrepreneurial profit excites alertness to hitherto overlooked possible ways to make our lives better, while competitive forces prevent the concentration of wealth that justifiably worries so many people.

Corporatist Economy

Steve Jobs worked not in a fully free economy, but rather in one — despite its relatively large scope for entrepreneurship — that is riddled with government intervention, some of which benefited him, some of which did not. One suspects that on net he benefited. But he did not create that interventionist system, however much he, like most of his competitors, took advantage of it. (Thank goodness Jobs didn’t believe ideas could really be owned when he visited Xerox PARC in 1979 and saw the Alto personal computer with mouse and graphical user interface.)

Despite all this, we can see in Steve Jobs the Misesian entrepreneur. He certainly  had a knack for anticipating what people would want. In a variety of ways he blazed trails and brought forth products that make our lives more pleasant, more productive — more fun. And he did it with a vision and style — a romance with technology — that could not be ignored. One need not prefer his closed-architecture philosophy to appreciate his accomplishments and what it inspired in others.

Except for an older iPod, I use no Apple products. Nevertheless, Jobs changed all our lives for the better, and I for one will miss him.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.