Friday, August 7, 2009

Personal Economics--Rule V.

Personal Economics--Rule V
Whosoever will be chief among you, let him be your servant.
Would God that all the Lord’s people were prophets.
Rule V says simply that it is the entrepreneurial component of our exchanges that improves our lives, increases our choices, hence, our freedom, and advances civilization. Of course, in the ordinary exchanges that we make every day, it is hard to recognize an entrepreneurial component at all. An entrepreneurial component occurs when something has changed, when things are no longer as they have been and that change results in an opportunity for us to serve in a way that requires us to foresee future events and that will help people in ways they have not been previously helped--as we say, "to do something different."
The most successful entrepreneurs are envied because they reap what are called profits. Real profit is a very poorly understood concept. In a sense, if I plant a seed and reap twenty, forty, or even sixty times what I planted even after subtracting the cost of fertilizers, water and other inputs we refer to that as profit, but it becomes entrepreneurial profit only if it is serving a need that has come about as a result of a change. If, for example, I realize that people need bread so I purchase an existing farm and begin growing wheat, I am not in the strictest Austrian sense an entrepreneur. If thousands of others have done likewise and there is, consequently, a large surplus of wheat so that I and the other thousands cannot even break even on our venture, and in that extremity, I use my wheat for something entirely different, or market it in a new way, or in some other way use my wheat to bring something to consumers that they want but is new to them, then I become an entrepreneur.
It is important to recognize the difference between technical components of exchange and entrepreneurial components. George Washington Carver, for example, discovered many new products that could be made with peanuts, because so many people were growing peanuts that the situation was for them like the one outlined above for wheat farmers. What he did was provide technical input. If he, or anyone else, actually made and marketed any of those new products and consequently, gained more resources in the making and marketing than were used in the growing of the peanuts, he became an entrepreneur..
It is important to recognize that it is the entrepreneurial component of every exchange that enriches our lives and advances civilization. But it is also true that because entrepreneurs are envied and because so many people are eager to live without having to actually serve that entrepreneurs are almost always--and particularly in corrupt cultures--vilified. In our country where kings are looked down on, extremely successful entrepreneurs are referred to pejoratively as "kings". Hence, Andrew Carnegie was the "steel king", Hershey the "chocolate king". Our history books refer to these men as being powerful and often, devious and underhanded, and other characteristics we associate with kings. But it is important, indeed, it is critical to remember that kings, like Henry VIII and Louis XIV, were powerful because they ruled. An entrepreneurial king is powerful only to the extent that he serves. The day that consumers feel that Nestle’s chocolate it cheaper or better (or both) than Hershey’s, is the day that Hershey becomes the "former chocolate king".
All too often we confuse technical ability and expertise with entrepreneurship. Two examples, that I like to use to illustrate the difference are Thomas Edison and Gilbert and Sullivan.
Thomas Edison is often criticized as having borrowed other’s ideas, purchased their patents and then taken credit for the invention himself. For example, Joseph Swann’s English patent on the electric light bulb preceded Edison’s and numerous other inventors had patents relating to the electric light bulb, some of which Edison purchased, but the fact remains that without Edison we would not have had a working electric light bulb in people’s homes anywhere near as soon as we did, and possibly not ever. Edison and his team got all the financing and made all the auxiliary inventions and equipment necessary to make the electric light bulb available to the ordinary consumer.
My personal favorite is Gilbert and Sullivan. I very much enjoy their operettas, particularly, "Pirates", "Gondoliers", and "Patience". But the fact of the matter is that we would not have had those many operettas were it not for the entrepreneur who worked so hard to get the two to work together, Richard D’Oily Carte. Indeed, the real end of the relationship (with the "Gondoliers") came largely because Carte abandoned his role as entrepreneur and took sides with Sullivan. Recognizing his mistake, he tried to heal the breech, and the two did, in fact, collaborate on two more operettas, but so half-heartedly that they are never performed except by companies determined to claim to have done them all. Like all entrepreneurs, Carte took risks. For example, he was the first person in England to install electric lighting in a theater. Like most, he also had his failures. For example, he built a theater that was to be used exclusively for English operas. The first one (by Sullivan) ran for 160 consecutive performances--probably a world record for consecutive performances for an opera, but their was no second "English opera" so Carte had to sell his theater to a vaudeville company.
Rule V says simply that we should strive to increase the entrepreneur component of all our interactions. Real entrepreneurs are essential to the free society. The essential ingredients in entrepreneurial activity are courage and foresight--two qualitites almost totally missing in government planners, bureaucrats, politicians, and, alas, in most, corporate managers.

1 comment:

LGH said...

I wish you were in politics and ran the system.