Acton Institute Powerblog

A ‘Reality Economics’ View of Entrepreneurship

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This week I’m attending Mises University, one of the largest and most rigorous summer courses in the Austrian School of economics (or “reality economics,” as my friend Michael McKay likes to call it).

Among the various lectures, there was one in particular that struck me as particularly relevant to the work of the Acton Institute. Peter Klein, professor of economics at the University of Missouri, delivered a presentation on entrepreneurship, a large part of the focus of his academic work.

Dr. Klein approaches the subject of entrepreneurship from the more realistic Austrian perspective. Rather than viewing people as examples of the homo economicus, as almost robotic, quantitatively-driven machines, Dr. Klein views human beings as unique and free actors. When we act, we do so under conditions of time and uncertainty. Though every human action presupposes cause and effect, there is no guarantee that our instincts are correct or that our efforts will pay off. In this way, every one of us, whenever we choose some action, is a kind of entrepreneur. In the face of uncertainty, we have an intended – but not guaranteed – result of action.

Combine that with the Austrians’ very realist take on production: production is not some kind of abstract graphical function, but the concrete act of taking a natural resource (e.g. some wood, a stone,  some metal ore), and using one’s labor – almost investing a part of oneself – to physically transform it.

In a very broad sense, we all participate in this two-sided entrepreneurial action: actively and consciously transforming the world around us, and doing so in the face of uncertainty and imperfect knowledge.

In a much more specific sense, this activity applies to the people we would usually call entrepreneurs (Ludwig von Mises called them, “entrepreneur-promoters”). These are the businessmen we all know: the small-business owner, the investment banker, the risk-taker. These are individuals whose entrepreneurial spirit in a special way exceeds those of everyone around them. They are the ones willing to take on greater risk, confront greater uncertainty, and make more difficult decisions.

In any case, I find that this realistic description of the role of entrepreneurship fits extremely well with the theology in The Call of the Entrepreneur. In the film, we learn that the entrepreneur is a “co-creator”: He  participates in the act of transforming raw materials and natural resources into products for consumers; but the entrepreneur does so by investing time and energy into the production process. And creativity and imagination play an indispensable role in this process of co-creation.

I remember a kind of feeling of awe when this thought dawned on me during Dr. Klein’s lecture. Here we find yet another example of how the market process, when understood and employed correctly, is not simply a morally indifferent result of choice, but a morally positive thing. Society and its consumers are made better off, and both the laborer and the entrepreneur are reminded of their human dignity as they participate in God’s work of fashioning the world.

Chris Oppermann


  • Martha

    Chris, this is great! I am glad you found the time during Mises U to write something.

    You seem to be saying that taking risks as an entrepreneur and particularly finding success in the free market, is, in itself, a good, “morally positive thing”. Would you say there are any instances that this isn’t so? If there are, would you say that it is an example of the market being “employed” incorrectly?

    For example, the fact that consumers make decisions “in the face of uncertainty and imperfect knowledge”, to me represents a danger. Specifically, the danger that a consumer acts out of line with their own value system, unknowingly. I’m thinking of buying meat that looks good at the store, but that I would never buy if I knew how it got there.

    Also – Jonathon pointed this out at a the LOTR Acton on tap – entrepreneurs can sometimes find great success in the free market by taking advantage of addictions and temptations. Through manipulative advertising and other shady tactics, firms can literally appeal to the weaker, you might even say irrational, side of their target consumers. Though it’s perfectly legal, and though the trade that takes place in the free market is perfectly legit and voluntary all around, I would not call this particular process a “morally positive thing”.

    Finally, one last question. Would you say that as a market economy develops and matures, it becomes more and more respectful of people, animals, and the environment, or less mindful of these things?

    Overall, I affirm you, this post, and your friend Michael.

  • Roger McKinney

    Martha, while awaiting a reply from Chris, may I but in with my two bits?

    By affirming the free market process as a moral good, I doubt that Chris was endorsing everything every actor in the market does. Take religion as an example. It’s possible to endorse Christianity as true and good without endorsing the actions of every Christian.

    Individual market participants will often act in ugly, immoral ways. How do we handle them? We can have the state try to prevent such behavior beforehand with massive regulations, or we can let competition drive the immoral actors out of the market. Adam Smith concluded over two hundred years ago that competition did a better job than does state intervention. That’s Hayek and Mises’ conclusion, too. There is no system under the sun that will prevent evil people from acting on their evil desires. All we can hope to do is to manage those types of people as best we can.

  • Martha Johnson

    Yes, I agree with you Roger and much prefer free market competition to government regulation. I only want to suggest the danger of equating success in the free-market to moral action.

    I don’t think that the immoral actors are always eventually driven out of the market by competition. And the problem here is imperfect information. For example, if I could be well-informed about how the beef got from the cow to the grocery store, I might make different choices. But, too often, consumers (like me) are lazy or blissfully ignorant, resulting in them making choices that are based on what they can see (price) rather than their value system.

    The solution is not more regulation, but more information and more responsible investigation on the part of each consumer!

    Basically, my point is that the free market CAN be morally positive, but it all depends on the choices you and I make. In order to use the market for good, I need to be well-informed about what sort of choices I am actually making as a consumer. And I need to always be encouraging others to be well-informed themselves.

  • Roger McKinney

    It may not be the case that people are lazy. It may be that they don’t care. I know a lot of people who really care about such things as where their meat came from and the spend a lot of time reading about it. Most of them buy meat from a local rancher or local butcher shop.

    You’re right that immoral actors aren’t always driven from the market. The market can only handle minor offenses, such as greed. For major offenses like fraud or theft, the market is ill equipped. Taking care of those offenses is the role of the state in all traditional liberal thinking.

    Also, respect for people, animals and the environment are not issues that the market can handle well, either. That’s not market failure, as some suggest. No classical liberal ever imagined that people would give the market that responsibility. Respect for people, animals and the environment begin with private property. Protecting property is the state’s job. The market cannot do it. Where people, animals and the environment are not respected tend to be places with little respect for private property and a lot of state owned property.

  • Roger McKinney

    PS, of course, religion plays a major role that neither the state nor the market can replace.