Friday, December 30, 2016

A Colloquy On Entrepreneurial Error

On Nov 12, 2016, at 4:39 PM, DS wrote:
See: https://mises.org/blog/there-are-two-types-credit-%E2%80%94-one-them-leads-booms-and-busts
Shostak writes about the distinction between the two. He also says that firms experience difficulties not because of entrepreneurial errors but in tandem with the economy.
In your blogs you state that start-up firms fail due to assumed customers. That is, founders assume there is a market of ready, willing & able customers for their products when, in fact, no such market exists.
Question: Does this kind of assumption represent an entrepreneurial error?
Question: Does anybody bother to measure/quantify commodity credit? In other words, how much commodity credit is available to the economy overall? Does it matter?
All the best
DS

On Nov 17, 2016, at 5:35 PM, John Spiers wrote:

***Right, Shostak is great...  I use the terms credit and ex nihilo credit...  Mises assumes an interest rate is legitimate in biz, I do not...***


In your blogs you state that start-up firms fail due to assumed customers. That is, founders assume there is a market of ready, willing & able customers for their products when, in fact, no such market exists.

***One big factor for many...***


Question: Does this kind of assumption represent an entrepreneurial error?

***No, if entrepreneur is defined properly...  it is fantasy, not entrepreneurship...***

Question: Does anybody bother to measure/quantify commodity credit?

****Illegitimate forms yes, but definitions are wild....  legitimate credit is difficult to track, because it is private...***

In other words, how much commodity credit is available to the economy overall? Does it matter?

*** Matter to whom? the amount availble to industry is pitch perfect, since it is created based on supply and demand, and carries no interest.  It is created when two traders trust each other....***

JOhn


On Nov 21, 2016, at 4:39 PM, DS wrote:
Follow up on Entrepreneurial Error. I was looking for an example of what the Austrians mean by Entrepreneurial Error. Mises provides one:

Now it happens again and again that entrepreneurs err in anticipating the future state of the market. Instead of producing those goods for which the demand of the consumers is most intense, they produce less urgently needed goods or things which cannot be sold at all. These inefficient entrepreneurs suffer losses while their more efficient competitors who anticipated the wishes of the consumers earn profits. The losses of the former group of entrepreneurs are not caused by a general abstention from buying in the part of the public; they are due to the fact that the public prefers to buy other goods. –Human Action 298

Question: Is this Mises’ way of saying that (at least some) entrepreneurs simply misread the market?
Comment: JWS has given us Milestones 1&2 to deal with those errors. #2 tells us to get specialty retail to say it’s a good idea but unavailable. So, given the milestones it’s hard to make the errors mentioned in Human Action.

DS


On Nov 22, 2016, at 1:14 AM, John Spiers wrote:
Hey DS,

Great colloquy!  Can I reformat it and hide identity and post it?

To answer, yes...  I say I am informed by the austrian school, but it is capitalist, and all capitalism presumes usury.. its fatal flaw...

The problem is the definition of entrepreneur.. there is Mises', Kirzner's, Drucker's and at least a dozen others I've read...  (and they cannot agree on a definition of money, credit, profit, customer and so many other terms!)

All of them are academics, so had to form a definition of what they were referring to...  and I think their definition formed their entity, not the other way around...  they made the definition fit their ideas...

Reading them against what I learned working for others I could see their errors, and already knew from practice how as Drucker notes, "entrepreneurs do not take risks"  as you so exactly note below...

And they think of entrepreneurs as starting boeing, the corporation, not noting Bill Bowing the tinkerer who manages to get an airmail contract can then went into production, and after 15 years quit in disgust as the government accused him of ripping off the system...

They are rare.  Airborne cold medicine started by a teacher getting sick of being sick is more common, or for that matter, the fish taco stand...

As you say, hard to make the errors if you follow the practice representing actually how humans act.  You still make errors, they are just amendable , one step back, two forward...

and the academics seem to miss it is passion/joy/lifestyle that drives innovation, not some animal spirit that sees some opportunity...

but Mises is great on how we take over lesser utilized resources and organize them into a better result...  we are on the margins in every way to start...  since we can command more, we outbid those marginals, and get going...

Our initial products are poor quality, rare, expensive, inefficient...  we design just enough to get to milestone #3, no more, to start...

think of the first apple computer...

John

On Nov 22, 2016, at 6:17 AM, DS wrote:

People still make errors, they are just amendable , one step back, two forward...
***Go right, in order to go left. Produce in order to consume (Say’s Law). Round-about production. Umweg (detour) Yet, not all who wander are lost (Steve Blank)***

and the academics seem to miss it is passion/joy/lifestyle that drives innovation, not some animal spirit that sees some opportunity...
***Yet, entrepreneurs organize on opportunity. How to organize? Mises has pointed out that value is a ranking, a scale. So it may apply to opportunity as well. More from Mises: “In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.” Human Action 311.***

***Which opportunities to organize? The one’s that appeal to your passion I guess. Admission: I’ve been concerned about passion because I see so many starving artists. But knowledge of opportunity and the ways to organize it gets me past any fear based objection. So, I’m always checking my passion . . . and matching it with world class discipline.***

DS


On Nov 22, 2016, at 7:03 AM, John Spiers wrote:

 Produce in order to consume (Say’s Law). 

***If you are quoting Keyne's reference to Say's "Production creates its own demand" Say never said it.  The first recorded instance of the phrase is with Keynes, a wicked man who attributed it to Say.  he know it was nonsense, so he tried to pass it off as Say.    Keyne's gerneal theory is full of such nonsense, written as a game  plan for the new utilitrianism...  Keyne sin his foreword to his german language version to the new Nazi regime...***

***Yet, entrepreneurs organize on opportunity. How to organize? Mises has pointed out that value is a ranking, a scale.

**cardinal vs ordinal, an important observation...***

So it may apply to opportunity as well. More from Mises: “In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.” Human Action 311.***

***d'accord...  and thanks for repeating his definition of entrepreneur.... ***

A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy.

**Ayn Rand created a comic book hero based on this definition... entrepreneur as here, when in fact the entrepreneur is usually inspired by the mundane "it hurts."  Passion and joy...  Someone who is annoyed and invents a airplane is not the stuff of heros, it is quite common.  Comic books have mass appeal. ***

***Which opportunities to organize? The one’s that appeal to your passion I guess. Admission: I’ve been concerned about passion because I see so many starving artists. But knowledge of opportunity and the ways to organize it gets me past any fear based objection. So, I’m always checking my passion . . . and matching it with world class discipline.***

*** An excellent critique, because starving artist is a lifestyle too,....  All entrepreneurs grow on customer feedback...  Picasso answered a young artist's inquiry as to how to make money as a painter and Picasso replied "use blue paint."  (one original painting I bought was of Hong Kong harbor.  It was largely blue, the only color you do not see in Hong Kong harbor.)

And...  you have not seen the countless people who do the passion/joy lifestyle who are thriving, unless it is the family restaurant 100 year old, etc..something retail...  vast majority are unseen becuase they a few million in sales and lower...

The discipline is in the test of the hypothesis....  keeping the offer standard until enough feedback warrants a change...  the siren is to run and make a change based on each feedback experience...

JOhn 

On Nov 15, 2016, at 9:48 AM, DS wrote:


What to do? Read Say’s Political Economy. I’ll have to follow up on this issue after further study & analysis because Says’ book is a deep read. And that takes more time . . . Meanwhile, I have WH Hutt’s book: A Rehabilitation of Say’s Law to get me going. Straight away, it seems as if barter plays a prominent role in Say’s economy.

I borrowed that phrase (we produce in order to consume) from Paul Cwik’s discussion (https://www.youtube.com/watch?v=9YTJtwYrzak) Around t29:30 he discusses Keynes’ spin on JB Say: supply creates its own demand. So, in Cwik’s rendition of Keynes production becomes supply and consumption becomes demand. Keynes’ error here is that a definition has been transmuted into a cause. Even Austrians may be victim to the same trap. To say that we “produce in order to consume”, as Cwik does, may be a transmutation in itself.

All the best
DS

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