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Profits and Entrepreneurship presentation copyright ©1997, 1998 by Barry and Deborah Brownstein.

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Presentation on theme: "Profits and Entrepreneurship presentation copyright ©1997, 1998 by Barry and Deborah Brownstein."— Presentation transcript:

1 Profits and Entrepreneurship presentation copyright ©1997, 1998 by Barry and Deborah Brownstein

2 Prologue (George Gilder) Without the light of new knowledge and the roots of ownership (an economy) it withers. The belief that wealth consists not in ideas, attitudes, moral codes and mental disciplines, but in definable and static things that can be seized and redistributed, is the materialistic superstition... It betrays every person who seeks to redistribute wealth by coercion…The means of production of entrepreneurs are…minds and hearts.

3 Competition is a Discovery Procedure (Hayek) ‘The knowledge …consists of a capacity to find out particular circumstances, which becomes effective only if possessors of this knowledge are informed by the market which kind of things or services are wanted, and how urgently they are wanted.’ ‘There are always ‘unique combinations of individual knowledge and skills, which the market enables them to use …(would not) be such knowledge of facts they could list and communicate if some authority asked them to..’

4 Entrepreneurial Functions Makes use of widely dispersed knowledge Follows new paths, sometimes makes mistakes and helps to discover ‘error’ Helps allocate resources from lower to higher valued uses Helps to uncover gaps in the mutual coordination of decisions thus ensuring a greater fulfillment of expectations (promotes the spontaneous order) Conceives of new solutions, new products, new ideas, and new technologies

5 How Are Profits Earned? n Economic profits are the return earned above a "normal" rate of return. They are earned: n Either by the use of coercive force or theft or by: n Entrepreneurial insight- "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."

6 Profits " They are never normal. They appear only when there is a maladjustment, a divergence between actual production and production as it should be in order to utilize the available material and mental resources for the best possible satisfaction of the wishes of the public."

7 What About "High" Profits? The greater the profits the greater the divergence between where a resource was being used and where it should have been used in order to satisfy the most urgent needs of the consuming public.

8 Higher Valued Uses _____ Lower Valued Uses Entrepreneurs move resources into higher valued uses. There is no cap to this transformative activity and it is thus inherently win-win.

9 Karl Popper on Knowledge There are no ultimate sources of knowledge –uncertainty clings to all assertions Thus the questions of which are the ‘best’ source of knowledge should be replaced with ‘how can we hope to detect and eliminate error. Growth of knowledge is unpredictable Every solution of a problem creates new unsolved problems –our knowledge is finite, our ignorance is infinite

10 What Should A Firm’s Policy Be Toward Discovery? “In the absence of a known way to solve the unknown, it seems that the best alternative is to allow all the unknowns to be explored.” “To loosen the reins, to allow a thousand flowers to bloom…is the best way to sustain vigor in perilous, gyrating times”.- Peters “If you prune long- if you are tolerant…you may not have this year’s largest roses, but you have increased the chances that you’ll have roses every year.”- Arie De Geus

11 The Entrepreneurial Element In Decisions “For the truth is that the calculative aspect is far from being the most obvious and most important element in decisions. When a wrong decision has been made, the error is unlikely to have been a mistake in calculation. It is far more likely to have resulted from an erroneous assessment of the situation- in being overoptimistic about the availability of means or about the outcomes to be expected of given actions; in pessimistically underestimating the means at one's disposal or the results to be expected from specific courses of action.”

12 n “Choice and Reason are different things in nature and function, reason serves the chosen purposes, not performs the selection of them.” n “A man can be supposed to act always in rational response to his 'circumstances': but those 'circumstances' can and must, be in part the creation of his own mind.” The Limits Of Rationality

13 Qualities of Entrepreneurial Alertness n Alertness is not an ingredient to be deployed, it is rather something in which the decision itself is embedded. n Alertness is not a potential stock available to society n Alertness is inexhaustible and costless

14 The Future Is Unknowable, But Not Unimaginable n “Entrepreneurship in individual action consists in the endeavor to secure greater correspondence between the individual's future as he envisages it and his future as it will in fact unfold.” n “the future one "sees" is a future that may in fact be constructed significantly by one's action, which is supposed to be informed by that very vision.” n “To dream realistically in a way that inspires successful, creative action is to "see correctly" as compared with the fantasies that inspire absurd ventures or the cold water poured by the unduly timid pessimist that stunts all efforts at improvement.”

15 Entrepreneurship, Innovation and Knowledge n “(we need to ) understand how entrepreneurial individual actions, and the systematic market forces set in motion by freedom for entrepreneurial discovery and innovation, harness the human imagination to achieve no less a result that the liberation of mankind from the chaos of complete mutual ignorance.”

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