TheMarketForIdeas

The dispute between Trump and the rest of the world regarding custom duties calls back into question a fundamental issue: the distinction between economist and entrepreneur. Furthermore, it shows us the fact that being a businessman, an entrepreneur or a capitalist (I shall use these three terms interchangeably), does not imply having a correct understanding of what is happening in/to the economy. Sometimes, simple economic consequences, such as the ones brought about by imposing a customs duty on imports, can pass you by. The way Trump, the Tariff Man, gives credit to certain Mercantilist principles of seeing international trade, enables us to take a deeper look into this distinction between economists and businessmen/entrepreneurs.

This discussion is important, especially in today’s world where, on top of the decline of the University and of higher education in general (especially in the realm of social sciences) and the failure in presenting the proper way of understanding the world and of seeking the truth, there also came a supposedly pragmatic approach, orientated towards “practical” issues, towards “craft”, particularly towards business. We can’t make sense of who’s right regarding theory (partially because we no longer read?!), so let us take refuge in “practice” instead – or so does popular wisdom tell us.

The decline of economic theory, too, is a byproduct of this orientation, which claims that a thing’s relevance lies only in its “application” or in its “exact use” – a sort of lack of sensibility towards theory, schools of thought and arguments, which oftentimes takes on the form of a true phobia, as if the science of economics is a branch of polytechnics’ or at least of a discipline preoccupied with understanding the physical nature of the world. The German historical school, which negated the theoretical and scientific statuses of economics, would be content today in finding out how many advocates it has (many of whom are not even aware of it!), advocates who doubt the economic science in every way. We have a lot to recover in relation to the true value of studying economics, after the wave of Historicism – and especially after the instalment of the idea according to which economic research should follow standards of mathematical measurement.

At the same time, this new orientation implicitly reveals the fact that this is truly what we lack: entrepreneurs, men with entrepreneurial thinking. They are the ones who can lift us up from the “swamp” of stagnation or even from economic regression. And, to be certain, this is the case to some extent – but only when they harbour the correct economic ideologies and ideas. That is because:

“The flowering of human society depends on two factors: the intellectual power of outstanding men to conceive sound social and economic theories, and the ability of these or other men to make these ideologies palatable to the majority.” (Mises, 1998, p. 860)

What is University economic education?

Well, from its origin and up until not so long ago, University (higher education) was never aimed towards professions or crafts, towards doing or knowing how to do something, but towards how to think, towards openness towards ideas, problematisations, nuances etc. – towards a craft of thought or towards a crafty though. We go to the economics faculty in order to learn how to think about economic laws, principles and phenomena. At University, no one has the duty to definitively clarify an issue, but to present the issues and offer you your own keys to understanding the world, from within the science of economics. Furthermore, the faculty of economics is where you realise, or are supposed to realise, that you are on your own – that making sense of certain issues is also up to you, your intellectual input and your willingness to leave prejudices at the door. In other words, to be available. Therefore, the most likely “emotional collapse” in the face of a multitude of economic schools of thought and theories is only the beginning of the journey, not its point of abandonment. Here is where the role of the professor comes into play.

We (as economics professors) can’t produce businessmen – they are the product of a particular subjective intuition and knowledge and of a need, a demand present on the market. Oftentimes, entrepreneurs can’t properly verbalise the laws of economics, but this is excusable because, we claim, they are the ones who fully live by them. In the exact same way, economists could just as easily be abysmal businessmen. This merely tells us that economic and entrepreneurial thought are two different domains – two different specialisations in the division of labour.

“The truth is quite different: economic analysis and entrepreneurial action are fundamentally different activities, requiring different skills. Economics involves abstract, deductive reasoning, the ability to trace out long-run consequences, a view of the whole as well as the parts. Entrepreneurship, as Mises consistently emphasized, is about anticipating future market conditions, something that economic theory does not provide.” (Klein, 2014)

If the University could produce businesspeople, then we would become them ourselves, or most of us at least – just like those who teach literature would become writers and sports commentators would become sportsmen. The art critic need not become an artist, need he? One could talk about a Monnet painting without necessarily being a painter – by mere virtue of being knowledgeable about the canon features of Impressionism and how they persist over time. It is, therefore, perfectly justifiable to talk about economic laws and principles without being an entrepreneur. Practising entrepreneurship is one thing, explaining the characteristics of the economic world in which it takes place is another. You don’t ask of an entrepreneur to know the quantity theory of money or to explain the formations of prices through reasoning. For an economist, however, a lack of knowledge in this regard would count as a failure.

In the torment of channelling the world towards educational “pragmatism” (a process taking place, more or less, with the help of the state), towards entrepreneurship or, better said, towards entrepreneurship surrogates (one could cite here the increasing number of curricula which are tasked with making entrepreneurs out of children), we have forgotten about economic theory, the one which explains why moneys exist, why an entrepreneur can function thanks to the existence of a free society with private property where economic calculation in monetary terms is possible, why competition creates the incentives necessary for innovation and development, why free trade leads to a nation’s quicker and more satisfying access to goods necessary for its development etc. – or, on a different note, it makes one aware of the fact that any government intervention bears opportunity costs.

“Economics is haunted by more fallacies than any other study known to man. This is no accident. […] In this lies almost the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups. […] From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” (Hazlitt, 2008, pp. 1-5)

However, when taught improperly or without a certain engagement in intellectual dispute, without a scholarly openness towards problematisation, theory risks becoming a burden even, something to be avoided or, to many graduates of economic studies programmes, something worth adding to the “bad memories” drawer. That is why a division of labour exists even within this very craft of theoretical speculation, just as is naturally the case in the world of entrepreneurs.

Thus, the following question naturally arises: what kind of entrepreneurs will we create by completely ignoring the fact that the idea of entrepreneurship lies on the basis of a society which cultivates the philosophy of economic freedom? If nobody were to cultivate this philosophy, entrepreneurship dies, and entrepreneurs risk becoming the managers of a state-controlled enterprise system, who obediently wait their production orders – a sort of a (James Burnham style of) managerial technocratic revolution, where managers simply apply society’s economic design and which has all the characteristics of an interventionist government. Still:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” (Hayek, 1988, p. 76)

And, were we to look further into the issue, in a more and more interventionist universe, where the function of prices is attributed less and less importance, not even technological calculation’s complexity (including here artificial intelligence) will help with much, because the problem with an enclosed system is not the lack of access to information, but the absence of private property and of a real price system.

“The problem of socialist economic calculation is precisely this: that in the absence of market prices for the factors of production, a computation of profit or loss is not feasible.” (Mises, 1998, p. 701)

You of no entrepreneurs – create them! But how?

Expanding the meaning of the term a little bit, every man is a capitalist-entrepreneur by virtue of future uncertainty. He must abstain from present consumption in order to accumulate resources needed for satisfying future needs. Thus, he saves. A society where savings increase is capable of developing an efficient production structure, which increases/boosts the quantity of capital goods and, therefore, of means of consumption. We end up being better-off – this is the true meaning of economic growth. Some of us invest our saved-up capital straight into this production structure, while others prefer an indirect involvement through the stock market or through various investment funds.

How do you, then, create these entrepreneurs? Through television programmes dedicated to entrepreneurship (see, in the U.S., The Apprentice or, in Romania, Arena Leilor / The Lions’ Arena, an adaptation of the British TV programme Dragons’ Den)? Through government programmes which subsidise the starting-up of businesses (see Romania’s Start-up Nation)? Through the decrease of interest rates and the artificial price reduction of credits? The simple answer would be that they appear naturally, but the economic conditions under which we live might favour or stifle their appearing.

I don’t consider entrepreneurship something to be sought after at all costs, apart from the instance where we aren’t concerned whether or not the newly-created entrepreneurs will be quick to show potential for politics and will engage in the same old destructive economic policies. To say that society lacks entrepreneurial thinking is to reveal your own lack of knowledge about the real cause of the problem (especially when that same society breeds ideas contrary to entrepreneurship, if we are to reference the polls about how many Romanians appreciate Communism). It is, therefore, not surprising that a neutral form of entrepreneurship gains ground today – one according to which profit is good both when acquired with personal funds, but also when obtained through accessing public ones; or, we could also mention various forms of political entrepreneurship, according to which it is perfectly fine to lobby for the implementation of customs duties in order to eliminate the competition that bothers you.

Just because there are certain needs in a society (e.g. the need for entrepreneurs), that doesn’t mean that those needs can be satisfied in just any way. In a sense, it is precisely like with the issue of the absence of capital in the developing or less developed countries. It cannot be created anyhow, economic policies which recognise its importance in the processes of production and later in economic development must be in place.

Despite Trump’s being an entrepreneur – a capitalist, it looks as though his economic education doesn’t help him in identifying the economic consequences of protectionism (or maybe it simply doesn’t interest him), despite their having been discussed by economists for over two centuries. Incidentally, classical economics came as a reaction to the fist protectionist policy (Mercantilism), adopted governmentally from the sixteenth to the eighteenth centuries. The supporters of this policy were not economists, but rather pamphleteers and businessmen (traders),

“who argued and pamphleteered for specific economic policies, generally for policies which would subsidize activities or companies in which those writers were interested” (Rothbard, 1963).

Classical economists are the first who raised the question: can we really intrude whenever we please in the economic structure (property, prices, trade, money)? Trump appears to believe we can, either for visibly protectionist objectives (protecting/securing jobs on a national level), or for purposes related to macroeconomic adjustments (sending a signal to the FED that the time has come for it to intervene and make the dollar weaker in order to reduce America’s debt), or for the sake of reducing the number of immigrants etc. Thus, he has also registered himself, as many other politicians have, in the history book of those for whom economics is just a tool in the hands of a hegemon.

It is thereby clear that we do not wish for just any type of entrepreneur to take the reins of a country’s economic policies. Therefore, there is no point in the naïve orientation towards a so-called entrepreneurial culture, as long as so little of the classical economic thought remains assimilated thus far.

References

Hayek, Friedrich von, The Fatal Conceit. The Errors of Socialism, Routledge, 1988.

Hazlitt, Henry, Economics in one lesson, Ludwig von Mises Institute, 2008.

Klein, Peter, „Economists and Entrepreneurs”, Mises Daily, March, 11, 2014.

Mises, Ludwig von, Human action: A treatise on economics, Ludwig von Mises Institute, 1998.

Rothbard, Murray Newton, “Mercantilism: A Lesson for out Times?”, The Freeman, November 1963, pp. 16-27.