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This paper applies Israel Kirzner’s theory of entrepreneurship and the Austrian theory of capital to the theory of the firm. In particular, it explores why some firms are better able to react to exogenous change than others, especially when that change is negative. The argument is that firms that have structures of physical and human capital that are more “flexible” are better able to adapt to exogenous change. In this context, flexibility is understood in terms of Lachmann’s notions of the (...) substituability and complementarity of capital. Flexible capital structures are ones in which elements can be more easily substituted for. Such flexibility carries a trade-off in terms of lost productivity from using less specific capital, but it is argued that this trade-off might be worthwhile in an environment of heightened structural uncertainty.Cet article applique la théorie entrepreneuriale d’Israel Kirzner et la théorie Autrichienne du capital à la théorie de la firme. Plus particulièrement, il explore pourquoi certaines entreprises sont plus à même de réagir face à des changements exogènes que d’autres, spécialement quand ces changements sont négatifs. L’argument est que les firmes qui possèdent des structures de capital physique et humain plus “flexibles” sont plus aptes à s’adapter à des changements exogènes. Dans ce contexte, la flexibilité est comprise au sens lachmanien de substituabilité et de complémentarité du capital. Les structures de capital flexibles sont celles dans lesquelles la substitution entre les composantes est plus aisée. Une telle flexibilité entraîne un compromis en termes de perte de productivité découlant d’un usage de capitaux moins spécifiques, mais il est suggéré que ce compromis en vaut la peine dans un environnement encore plus structurellement incertain. (shrink)

One of the distinctive features of the Austrian School of Economics has been its emphasis on the entrepreneur as central to the market process. One 20th century Austrian whose work is normally not thought of as making a major contribution to the Austrian theory of entrepreneurship is Ludwig Lachmann. However, a careful reading of his 1956 book Capital and its Structure can tease out a theory of the function of the entrepreneur that is distinctly different from that of Israel Kirzner, (...) yet still clearly situated in an Austrian conception of the market process. In this contribution, I want to emphasize two points that have been raised by previous work on Lachmann, but not explored in any detail. The first is that Lachmann’s conception of entrepreneurship is deeply bound up with the need to engage in monetary calculation thanks to the heterogeneity of capital and uncertainty of the future. For Lachmann, the key function of the entrepreneur is to “specify” the uses of capital goods. Such specification requires the use of money prices and what Mises called monetary calculation. The second contribution is to offer more detail on the way in which entrepreneurs both creatively specify and re-specify the uses of their capital goods in response to profit and loss signals. The constant shuffling and reshuffling of capital goods, of which coming up with new products or new twists to old ones are a part, is the essence of Lachmann’s implicit vision of entrepreneurship. For Lachmann, entrepreneurship is bound up with resource ownership and deployment through the creation and revision of plans in ways that are much more active than Kirzner’s conception of the entrepreneur. (shrink)

In his Reply, Kindleberger falsely ascribes to me the views that political actors are utterly incompetent, while market actors are completely rational; and that political processes are pure chaos, while market processes are perfectly efficient. My point was that the relatively better performance of the market is a result of systemic factors, not the rationality of individuals. Kindleberger fails to address the historical evidence indicating the comparatively poor performance of government intervention in the monetary order. ?Market manias? are, in fact, (...) largely the product of ill?conceived government regulations. (shrink)