Title: Entrepreneurship and Economic Growth: The Theory of Emergent Institutions
Abstract: ABSTRACT: This paper enlarges Menger's theory of the origins of money by making explicit the role of entrepreneurship in the theory and by extending the theory to market institutions other than money. Drawing on the research of anthropologists, archaeologists, and historians, the paper considers the origins of three institutions that underlie economic growth-the division of labor, monetary accounting, and private property. Menger's generalized theory of the origins of institutions is used to interpret each of these institutions. I. INTRODUCTION Although economic growth has not been high on the research agenda of modern Austrian economists, they nevertheless have made important contributions to the subject. Garrison (2001, pp. 33-83) has integrated economic growth into macroeconomics by showing how time preference, saving, and technological innovation deepen the structure of production and expand future output. The structure of production has been a distinctive feature of Austrian economics since Menger, and its integration into growth theory is a significant advance on the neoclassical theory of growth, which contains no structure of production.1 Kirzner (1985) has emphasized the distinction between secular growth-the planned growth that comes about from increasing resources through savings- and entrepreneurial growth, which is the spontaneous growth that occurs through the discovery of previously unexploited opportunities. These opportunities take three forms-arbitrage (simultaneously buying low and selling high), speculation (buying low now and selling high in future), and innovation (introducing new combinations that exploit existing price discrepancies between factors of production and future goods.) Innovation powered Schumpeter's capitalist engine and Kirzner has gone some way toward reconciling his theory of entrepreneurship with Schumpeter's.2 Entrepreneurs who successfully exploit any of the three kinds of opportunities increase the value of output by increasing the efficiency with which scarce resources are used. Holcombe (1998) has extended Kirzner's theory by linking present entrepreneurial opportunities to past entrepreneurial behavior. Complementarity in the capital structure creates a sequence of opportunities for innovation. The introduction of the railroad, for example, created opportunities in meat packing (through refrigerated cars and national distribution systems); the introduction of the internal combustion engine created opportunities in oil refining; advances in computer chips created opportunities in software design. Holcombe's theory, like Schumpeter's classic exposition, is not merely a theory of growth, but of development-the introduction of new goods and services that improve economic productivity.3 Boettke and Coyne have advanced the provocative thesis that entrepreneurship is not the cause of economic growth. Because entrepreneurship is so widespread, it cannot explain differences in growth rates between different regions. In their words . . . entrepreneurship cannot be the cause of development, but rather . . . the type of entrepreneurship associated with economic development is a consequence of it. That is, development is caused by the adoption of certain institutions, which in turn channel and encourage the entrepreneurial aspect of human action in a direction that spurs economic growth. (Boettke and Coyne 2003, p. 3) Boettke and Coyne single out private property and the rule of law as the main institutions that lead to productive entrepreneurship and growth. Boettke and Coyne's emphasis on institutions leads directly to the question of how proper institutions emerge. This is a question that Austrian economics, with its emphasis on social processes, is well equipped to answer. Menger, in fact, provided a theoretical explanation for the emergence of money, one of the market's quintessential institutions. The purpose of this paper is to extend Menger's theory to other institutions that undergird economic growth, viz. …
Publication Year: 2009
Publication Date: 2009-07-01
Language: en
Type: article
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Cited By Count: 50
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