Entrepreneurship and the Firm

Entrepreneurship and the Firm

Austrian Perspectives on Economic Organization

Edited by Nicolai J. Foss and Peter G. Klein

While characteristically ‘Austrian’ themes such as entrepreneurship, economic calculation, tacit knowledge and the temporal structure of capital are clearly relevant to the business firm, Austrian economists have said relatively little about management, organization, and strategy. This innovative book features 12 chapters that all seek to advance the understanding of these issues by drawing on Austrian ideas.

Chapter 6: Economic Organization and the Trade-offs between Productive and Destructive Entrepreneurship

Kirsten Foss and Nicolai J. Foss

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship, industrial organisation


Kirsten Foss and Nicolai J. Foss1 In the view of Frank Knight (1921) - the founder of the theory of the firm firm organization, profit and the entrepreneur are closely related phenomena. In his view, these arise as, respectively, an embodiment, a result and a cause of commercial experimentation (Demsetz, 1988a). Very few economists have followed Knight in his linking together the existence of the firm, profit and entrepreneurship. Notably, entrepreneurship is largely neglected in the modern economics of organization (as in most of modern economics). However, as we shall argue, introducing the notion of entrepreneurship has profound consequences for the understanding of economic organization - in the sense of different systems of property rights (contractual structures, governance structures, ownership) - consequences that are different, yet complementary to those of the modern economics of organization.2 In order to explicate these consequences we take our starting point in ideas and insights associated with the Austrian school of economics, and not just ideas on entrepreneurship.3 A neglected chapter in the history of the economics of property rights and ownership is constituted by Austrian school economists, such as Menger (1871), Böhm-Bawerk (1884-89), and Mises (1922, 1949). Our aim in this chapter is not to provide a detailed historical exegesis of Austrian contributions to property rights theory per se. Rather, we are interested in how some of the characteristics of the Austrian view of property rights connect to the Austrians’ well-known emphasis on entrepreneurship (Hayek, 1948, 1968; Mises, 1949; Kirzner, 1973; O’Driscoll and...

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