How Murray Rothbard’s Theory of Entrepreneur-Driven Progress Can Be Applied to Modern Businesses

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Recently, on the Human Action Podcast, Jeff Deist and I discussed the Rothbardian theory of the entrepreneurial economy in chapter 8 of Man, Economy, and State, titled “Production, Entrepreneurship, and Change.” In this article I will illustrate just how this Austrian theory is applied effectively in the business world.

In chapter 8, Rothbard establishes the principles of what he calls the progressing economy, one in which gross investment in capital goods is increasing, productivity is growing, and firms are making profits, indicating social affirmation that they are deploying resources in the ways best adjusted to the most urgent and evolving consumer needs. Specifically, firms are making an economic profit—returns higher than the going rate of interest derived from social time preference.

Importantly, economic profits (returns higher than the cost of capital) are hard to achieve and even harder to maintain. Rothbard points out that, to succeed in this challenge, entrepreneurs must demonstrate superior foresight and judgment, and practice continuous dynamic improvement in their assembly and reassembly of assets to serve the consumer. This urgency is sharpened by the competition of new entrepreneurs who see the high returns that the pioneering entrepreneur has achieved and are willing to enter the same space for lower margins so long as returns remain higher than the going interest rate. Eventually, all the superior returns will be competed away—unless the first entrepreneur keeps changing and advancing to serve more and higher-valued consumer needs.

More specifically, Rothbard’s construct is that economic profit is the result of entrepreneurs identifying discrepancies in the capital structure where capital is overdeployed in the service of less acutely felt consumer wants and underdeployed in the service of some more acutely felt consumer wants. The function of entrepreneurship is to make the adjustment that consumers are demanding. Entrepreneurs buy factors that are underpriced because of the discrepancy and recombine them to serve currently underserved needs. The adjustments are always in the direction of higher and higher productivity. The prices of the new consumer goods and services generate a profit and a return that is higher in the new, adjusted arrangement of factors than in the prior arrangements.

Rothbard also deduces that the economic profit margin will erode over time because more entrepreneurs, seeing the high return for the new arrangement, will enter the economic space and compete away the high returns, pulling them down toward the going interest rate. Entrepreneurs must continue to find more new urgent consumer needs to address, rearrange their capital structure even further, and maintain a continuous dynamism both in their capital structure and in their consumer offerings.

Man, Economy, and State is a treatise of Austrian economic theory. To what extent is it translatable to and applicable to the realities of business in 2020? The answer is that Rothbard’s acute theoretical insights can be applied directly in business strategy to great effect.

A recent McKinsey Insights article confirms every one of Rothbard’s theoretical points in real-world analysis.

First, the McKinsey consultants confirm the challenges inherent in the effort to achieve economic profit. Their S-curve distribution (they call it a “power curve” for marketing purposes) illustrates how very few firms make high economic returns and most hover close to, or in some cases below, the break-even (i.e., zero economic profit) line.

 

Exhibit 2

The McKinsey consultants conclude that:

  • Market forces are pretty efficient. The average company in our sample generates returns that exceed the cost of capital by almost two percentage points, but the market is chipping away at those profits. That brutal competition is why you struggle just to stay in place. For companies in the middle of the power curve, the market takes a heavy toll. Companies in those three quintiles delivered economic profits averaging just $47 million a year.
  • The curve is extremely steep at the bookends. Companies in the top quintile capture nearly 90 percent of the economic profit created, averaging $1.4 billion annually. In fact, those in the top quintile average some 30 times as much economic profit as those in the middle three quintiles, while the bottom 20 percent suffer deep economic losses. That unevenness exists within the top quintile, too. The top 2 percent together earn about as much as the next 8 percent combined. At the other end of the curve, the undersea canyon of negative economic profit is deep—though not quite as deep as the mountain is high.

With further data analysis, the McKinsey consultants identify the strategic actions that need to be taken to place a firm in the highest echelons of economic returns in their industry—and they confirm all the implications of Rothbardian theory. They propose five strategies of adjustment that effectively derive directly from Austrian theory.

First, they confirm the importance of continuous dynamic reallocation of resources by firms in order to achieve high returns.

Winning companies reallocate capital expenditures at a healthy clip, feeding the units that could produce a major move up the power curve while starving those unlikely to surge. The threshold here is reallocating at least 50 percent of capital expenditure among business units over a decade. When Frans van Houten became Philips’ CEO in 2011, the company began divesting itself of legacy assets, including its TV and audio businesses. After this portfolio restructuring, Philips succeeded at reinvigorating its growth engine by reallocating resources to more promising businesses (oral care and healthcare were two priorities) and geographies. Philips started, for example, managing performance and resource allocations at the level of more than 340 business-market combinations, such as power toothbrushes in China and respiratory care in Germany. That led to an acceleration of growth, with the consumer business moving from the company’s worst-performing segment to its best-performing one within five years.

They also identify an accompanying strategy for dynamic allocation of resources in the form of frequent M&A (mergers and acquisitions) activity—buying new assets and selling old ones. They call this strategy programmatic M&A: continuously buying and selling capital assets and turning over factors to dynamically manage capabilities.

You need a steady stream of deals every year, each amounting to no more than 30 percent of your market cap but adding over ten years to at least 30 percent of your market cap. Corning, which over the course of a decade moved from the bottom to the top quintile of the power curve, shows the value of disciplined M&A. Corning understands that doing three deals a year means it must maintain a steady pipeline of potential targets, conduct due diligence on 20 companies, and submit about five bids.

Beyond reallocation and M&A, strong capital expenditure is required to maintain profits.

You meet the bar on this lever (strong capital expenditures) if you are among the top 20 percent in your industry in your ratio of capital spending to sales. That typically means spending 1.7 times the industry median. Taiwanese semiconductor manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) pulled this lever when the Internet bubble burst and demand for semiconductors dropped sharply. The company bought mission-critical equipment at the trough and was ready to meet the demand as soon as it came back. TSMC had been in a head-to-head race before the downturn but pulled clear of the competition after it ended because of its investment strategy. That laid the foundation for TSMC to become one of the largest and most successful semiconductor manufacturing pure plays in the world.

In addition, it is critical to maintain a strong productivity program.

This means improving productivity at a rate sufficient to put you at least in the top 30 percent of your industry. Global toy and entertainment company Hasbro successfully achieved the top quintile of the power curve with a big move in productivity. Following a series of performance shortfalls, Hasbro consolidated business units and locations, invested in automated processing and customer self-service, reduced head count, and exited loss-making business units. The company’s selling, general, and administrative expenses as a proportion of sales fell from an average of 42 percent to 29 percent within ten years. Sales productivity lifted, too—by a lot. Over the decade, Hasbro shed more than a quarter of its workforce yet still grew revenue by 33 percent.

The fifth strategic lever is improvements in differentiation. Modern Austrian economics identifies the importance of differentiation in Per Bylund’s islands of specialization theory and our focus on brand uniqueness as a source of superior profits. McKinsey uses gross margin as a proxy for differentiation, and their consultants say:

For business-model innovation and pricing advantages to raise your chances of moving up the power curve, your gross margin needs to reach the top 30 percent in your industry. German broadcaster ProSieben moved to the top quintile of the power curve by shifting its model for a new era of media. For example, it expanded its addressable client base by using a “media for equity” offering for customers whose business would significantly benefit from mass media but who couldn’t afford to pay with cash. Some of ProSieben’s innovations were costly, sometimes even cannibalizing existing businesses. But, believing the industry would move anyway, the company decided that experimenting with change was a matter of survival first and profitability second. ProSieben’s gross margin expanded from 16 percent to 53 percent during our research period.

Each one of these Rothbard-derived strategies can be effective in driving superior returns. Even more effective is to combine them, a recommendation with which Rothbard would concur.

Big moves are most effective when done in combination—and the worse your endowment or trends, the more moves you need to make. For companies in the middle quintiles, pulling one or two of the five levers more than doubles their odds of rising into the top quintile, from 8 percent to 17 percent. Three big moves boost these odds to 47 percent. To understand the cumulative power of big moves, consider the experience of Precision Castparts Corp. (PCC). In 2004, the manufacturer of complex metal components and products for the aerospace, power, and industrial markets was lumbering along. Its endowment was unimpressive, with revenues and debt levels in the middle of the pack, and the company had not invested heavily in R&D [research and development]. PCC’s geographic exposure was also limited, though the aerospace industry experienced enormous tailwinds over the following ten years, which helped a lot.

Most important, however, PCC made big moves that collectively shifted its odds of reaching the top quintile significantly. The company did so by surpassing the high-performance thresholds on four of the five levers. For mergers, acquisitions, and divestments, it combined a high value and large volume of deals between 2004 and 2014 through a deliberate and regular program of transactions in the aerospace and power markets.

PCC also reallocated 61 percent of its capital spending among its three major divisions, while managing the rare double feat of both productivity and margin improvements—the only aerospace and defense company in our sample to do so. While nearly doubling its labor productivity, PCC managed to reduce its overhead ratio by three percentage points. It lifted its gross profit-to-sales ratio from 27 to 35 percent.

The combination of a positive industry trend and successful execution of multiple moves makes PCC a showcase of a “high odds” strategy and perhaps explains why Berkshire Hathaway agreed in 2015 to buy PCC for $37.2 billion. Could our model have predicted this outcome? Based on the moves PCC made, its odds of rising to the top were 76 percent.

McKinsey’s reputation in business strategy consulting is second to none. To see these consultants apply Austrian economic theory so directly in their recommendations is a strong confirmation of its value.

This article was originally published by Hunter Hastings on Mises Wire

The Genius Of The Consumer

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Entrepreneurship is the intentional pursuit of value. This pursuit fuels the engine of economic growth. The entrepreneurs who achieve the realization of value become folk heroes, and the great firms that create value at scale – Apple, Microsoft, Amazon, Facebook, Google – are stock market heroes.

All of this is acceptable wisdom. However, it’s the wisdom of outcomes, of recording the score after the play has been completed. Who drew up the play? Don’t we concede some genius to the coach and the offensive co-ordinator as well as the quarterback and the wide receiver?

Who Is Pursuing Value?

In order to understand cause and effect, we have to start at the input, not the outcome. Who is actually pursuing value? How did the entrepreneur – or Apple – know that something new was needed? That some improvement was required to retain the role of stock market hero?

Henry Ford is often quoted as saying (although he probably didn’t), “If I had asked people what they wanted, they would have said faster horses.” The implication is that he placed no faith in the identification of consumer needs. His preferred method was invention (coming up with something new through his own genius) followed by innovation (translating the invention into something that could be produced, and then sold on the market).

In fact, Ford’s attitude, according to Harvard Business Review, “had a very costly and negative impact on the Ford Motor Company’s investors, employees, and customers”. Because it turned out that, once consumers had Model T’s, they quickly decided that what they wanted was better cars. General Motors developed a response in the form of their “A Car for Every Purse and Purpose,” strategy which aimed to produce cars for distinct market segments aided by installment selling, used car trade-ins, closed car models, and annual model changes. The Ford Motor Company was quickly relegated to a minor, small-share role in the American automobile market.

Think of this as the genius of the consumer. One minute, they don’t have cars. Next minute they are demanding not only better cars, but also better ways to buy them, better aesthetics, greater variety and frequent upgrades. Such boldness, such expansive thinking, such imagination! Edison brought them lightbulbs, and they imagined a world of devices attached to an electricity grid providing on-call productivity services of all kinds. Steve Jobs brought them the iPhone and they interconnected themselves to each other and to sources of knowledge and to global supply chains.

The double genius of the consumer.

What is this genius? It is twofold. 

First, it is consumers who actually create value. How so? Because they are the ones pursuing it.  Entrepreneurs and the innovators put resources – such as cars and refined gasoline and silicon chips and touchscreens and internet connections – into consumers’ hands, and then the consumers roar into action, their creativity unleashed by new affordances. They try to create as much value as they can with the new resources. They drive to work and drive to school and drive across America and put grocery and tools in the backs of their cars (Hey, Henry! Make me a pick-up truck!), and maybe sleep in the car (Hey, Henry! Make me an RV!) and maybe make music in the car by singing and whistling to themselves or to their kids in the back seat (Hey, Henry! Where is the radio?), and maybe find themselves wishing they could call home to say when they’ll be home for dinner (Hey, Henry! How about a carphone?). Value occurs entirely in the consumer’s domain (or the customer’s if you are in B2B). Value is a feeling of satisfaction in the consumer’s mind.

Which brings us to the second aspect of the consumer’s genius. It’s their dissatisfaction. Henry Ford wanted to accuse them of lacking imagination. He got it all wrong. Anyone can imagine the future (flying cars for example). Not many can get it right. Consumers don’t waste their time on such high error rate activities. They concentrate on a subject where they are always right: their own feelings of dissatisfaction. “Henry, we get wet driving your car in the rain!” “Henry, it’s really hard to change the tires.” “Henry, I can’t afford to pay you that amount of money all at once. Give me some time, won’t you?” “You said it only comes in black, but blue is my favorite color.”  “Henry, your Model T looks the same this year as it did last year.” “Henry, can you speed this thing up?” “Henry, I need to work remotely. Can you make my F150 like a mobile office?”

The consumer has big dreams.

How genius is this? Dissatisfaction indicates that the consumer is able to dream bigger than the producer. Every new invention that becomes an innovation and is introduced to the market is immediately scrutinized under the lens of dissatisfaction, critiqued and criticized. No matter how many millions or billions of development dollars went into it, no matter how many Ph.D. engineers and Harvard MBA’s brought it to market, it can not survive the consumer’s examination unimproved. Because the consumer has big dreams.

The genius of the consumer outstrips that of the entrepreneur. Economists see the entrepreneurial process as one of trial and error, with the emphasis on error – a lot of mistakes before arriving (with the help of consumer feedback, of course) at a salable proposition, which is defined as one that generates less dissatisfaction than some alternative on which the consumer could spend their money.

Entrepreneurs are still heroes of course. If they weren’t willing to invest time, money and ego into the process of trying to please consumers, despite all the rejections, then there would be no progress. We might still be driving Model T’s, because no entrepreneur was willing to suffer the wrath of dissatisfied customers. We love our entrepreneurs. And we especially love those with more empathy – more ability to listen to consumers’ complaints to stimulate their imaginations for future betterment.

But let’s not err in identifying the locus of genius in this market process. Let’s help consumers achieve their dreams (before those of the entrepreneur).

A Values-Driven Entrepreneur Shares Ten Principles For Success In The Highly Competitive World Of Sports Content.

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There are many kinds of entrepreneurs. They are all instigators of win-win arrangements in which customers are served in innovative ways by enterprising individuals and firms. Lives are improved for consumers and producers.

Recently, I was able to learn the path to success of an individual who chose the crowded and highly contested field of sports content production, navigated a way to the top, and then broke out in a new entrepreneurial distribution initiative. Jason Whitlock, the famed sports journalist and occasionally outspoken opinion commentator, shared many principles of his success;  here is a summary.

 Choose a field that fits your personality and interests.

Entrepreneurs talk about assembling a unique and competitively advantaged set of resources. Jason’s unique resources are a love of sports, some original thinking, and a distinctive personality that he was able to express in writing. He wasn’t deeply technically trained for his first profession (journalism) beyond writing for his college newspaper. That wasn’t the point. His commitment to the pathway – starting at the very lowest point in the climb – was the point. This is what the textbooks and white papers call effectual entrepreneurship.

Choose your path based on vocation, and not purely for financial reasons.

Don’t choose entrepreneurship to “get rich” or “make a killing”. Choose it because it’s your vocation. Jason wanted to stay in the world of sports, one he’d joined by playing football in college. If he could spend the rest of his life writing about and talking about sports, he felt he’d be happy – he’d have life licked, as he put it. Would he make money? An adequate salary probably, but money was not his goal.

Credentials are nice but hard work and experience advance you.

Jason has won a number of prestigious awards over his time on the path to success. He was delighted to receive them. But he stressed that advancement comes not from the credentials but from the hard work and experience-gathering of which they are a reflection. Experience is the most important: learning from others, learning from circumstances and events, learning from setbacks, learning from observing industry trends and what happens to others. Experienced entrepreneurs are the most successful in business even if they have made mistakes along the way – because they are able to glean from their experiences what is most important for the success of a business and what is merely incidental or actually detrimental.

Let your values guide you the whole way – define them, write them down, adhere to them.

Jason has thought deeply about – and codified – his own values. He includes them in his personal profile on his entrepreneurial distribution platform, Outkick. He cites Booker T. Washington as one of his guides. The entrepreneurial life is a values-driven life.

Study your field – know its history and role models.

It dawned on Jason why they teach you history in school – in order to learn about trends and the consequences of actions and the role of change and the nature of competition in ideas, institutions, nations and firms. Having chosen sports journalism as his field, he studied it deeply, to get a sense of how it changed over time, with technology, and in the culture. He tried to imagine – even though no-one can forecast – how it might evolve over time, and to equip himself for a new and different future.

Your intuition and innate ability to read people are your best tools for managing the future.

We discussed the entrepreneurial act of embracing change and trying to “stay ahead of it”, in Jason’s words. How do you do that? He elevates the role of intuition and empathy over data gathering and predictive analytics. At Mises University 2020, Professor Peter Klein spoke of the elevated role Austrian economics allocates to those two cognitive skills, and even cited academic studies about the entrepreneurial advantages of intuition (“smart intuitors”) among cognitive skills.

Be yourself! Emphasize your own uniqueness, personality and talents.

 Many of the assets Jason brings to the business of sports are personal and individual – a sense of humor, a jaunty outspokenness, a willingness to delve below the surface in defiance of conventional wisdom. In a corporate world, these traits can be viewed through a clouded lens; in the entrepreneurial world, they can be great strengths and differentiators if applied for customer benefit, information, and entertainment. Be yourself, and on your vocational path, your individual attributes will support you in your journey.

Always keep building a bigger and bigger platform for yourself and your content.

Jason started his career at the bottom of the ladder, covering minor college sports for a local newspaper as a part-time reporter. That’s a platform – a small one. He kept ascending on to bigger platforms – a major city newspaper, then a national reporting and opinion platform (ESPN), and now an independent internet platform (Outkick). There is always the opportunity to expand and grow.

Embrace change; try to stay ahead of it by always reinventing yourself.

By studying change in his industry and attempting to understand it and chart it, or at least acknowledge it, Jason was able to avoid being caught out by unexpected disruption, and to embrace the wave. If it is impossible to predict and master change, it is feasible to be the kind of economic actor who can self-reinvent, whether that is by learning, moving from platform to platform, adding new skills and capabilities, or finding new audiences. Never get locked in to one persona or set of capabilities.

Your intuition and innate ability to read people are your best tools for managing the future.

 I asked Jason how he predicts the future. Of course, he acknowledged, you can’t do that. But you do have tools, and intuition and what he called an “innate ability to read people and situations” are the most important. This is consistent with scientific research into the cognitive attributes of successful entrepreneurs. They have highly developed intuitive skills as well as more formal cognitive abilities, and it is a highly developed intuition that gives them the confidence to make quick decisions without waiting for all the data.

Always, always put your customer first. Be honest with them, be objective, and serve them distinctively.

It is the first principle of economics for business that the consumer is sovereign and that a successful business puts the customer in first role in everything that they do. Jason Whitlock confirmed the same principle. For a sports content producer, the customer is the reader, viewer or listener. Jason characterizes his audience as the intelligent sports fan who can appreciate an original take and distinctive reporting on subjects that many other content producers are covering in a more conventional fashion.

He commented on how athletes today don’t understand the principle. The customers are fans who attend the events and enjoy the performance. Athletes sometimes misunderstand and think that “their twitter feeds are their fans” and often go to the point of ridiculing or rejecting or offending their customers. We’d call that a failure to demonstrate empathy, and disrespecting consumer sovereignty. Successful entrepreneurs don’t make that mistake.

 

You can listen to Jason on the Economics For Entrepreneurs podcast #75.

 

 

Entrepreneurship Is The One Institution We Can Rely Upon To Maintain A Prosperous And Civil Society.

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In this time of social unrest, Americans’ confidence in our institutions is in decline. A sample from Gallup’s frequent annual poll  includes these selected comparisons between 2019 (latest available data) and 2000.

% Confidence in Institutions (Great Deal + Quite a lot)
2019 2000
Congress 11 24
Big business 23 29
Newspapers 23 37
Banks 30 46
Small Business 68 57

Relatively few Americans declare confidence in political institutions, as represented by Congress. Roughly twice as many – but still less than a quarter of Americans – express more confidence in big business and banks. Newspapers, similarly, command only low levels of confidence. All the poll data from 2019 are lower than those from 2000, indicating across-the-board declines of confidence in institutions in general.

The Institution Of Entrepreneurship

Except for small business. Two thirds of Americans declare confidence in this institution, and that number is higher than in 2000. We can easily look beyond the structural definition of small business – which is, after all, defined by government statisticians gathering employment data – into the institution of entrepreneurship.

Entrepreneurs are those individuals who shoulder the task of making things better for the rest of society. They are society’s optimists. They recognize current conditions for what they are – and then imagine a future in which conditions are better. Then they sacrifice themselves to bring that future about, expending capital and labor now for the prospects of revenue in the future. That future is uncertain –  entrepreneurs do not know if their initiative will be as well-received by customers as they hope it will. They press on anyway, their goals being discovery and achievement and making a difference, more than profit.

In this sense, entrepreneurs perform the kind of social function that is badly needed in a time of lost confidence in institutions. Having little time for the rear view mirror and gazing intently through the windshield at the road ahead, they substitute sanguine imagination for everyone else’s dissatisfaction and disappointment with the status quo. They don’t dwell on past injustices, as so many young people seem inclined to do today; they’d rather concentrate on what is possible in the future. When they see barriers they dismantle them.

Solving The Problems Of Others

Entrepreneurs are problem solvers – and the problems they solve are those that their fellow citizens (all potential customers) deem most pressing. If you’re looking for a solution to a problem, seek out an entrepreneur rather than an elected official or bureaucrat.

Entrepreneurs’ problem-solving technique combines empathy with rigorous cause-and-effect thinking. Empathy is the entrepreneur’s tool to understand why people – why society – feels a certain way. What does dissatisfaction stem from? Why do people feel uneasy the way they do? Entrepreneurs take society’s pulse  and measure society’s level of pain. From this input, which is largely emotional, they try, as rigorously and logically as they can, to reverse-engineer a cause-and-effect chain. If dissatisfaction and pain are the outcomes, what are the causes? Entrepreneurs are not policy-makers like politicians, whose aim is to appease. They are obliging and accommodating collaborators whose aim is to please.

Entrepreneurial Creativity

Entrepreneurship is a profoundly human, social and creative activity that changes our world for the better. In contrast to the destruction that our current social justice warriors seek to impose, entrepreneurs create new economic value via a transformative act of human imagination. Their ingenuity is limitless.

What are the entrepreneurial actions that result from this creative societal problem-solving disposition? Entrepreneurs start firms, grow businesses, research and introduce innovations, lower customers’ costs and increase customers’ convenience. Their guiding principle is that whatever customers want, customers can have. The responsibility to improve life is given to the customer, in that they are tasked with communicating, as clearly as possible, what needs to be done and what needs to be provided and what needs to be changed to make them feel better. Entrepreneurs put their own private property at risk to create customer benefits that add up to social benefits for all. The customer is sovereign in this exchange – what they want is what is produced. If they stop wanting it, entrepreneurial production ceases.

Contrast this with political action. Politicians put none of their own private property at risk. In fact, they steal property from some citizens, through taxation and debt (which is a tax on future citizens), in order to redistribute it in some new form to a different set of citizens. They appease one group of citizens with the property of another group. Where the entrepreneur’s collaborative deal with customers is win-win (entrepreneurs make profits when customers approve their initiatives), the politicians’ deal always involves loss. The politician achieves office when an opponent loses an election, and makes policy that imposes loss on some part of the population. Politicians deal in losses, entrepreneurs deal in benefits.

Individual Action, Social Benefits

Society would be happier and healthier if we turned to entrepreneurs for all our solutions, and to politicians solely to protect the system of private property and freedom of contract that makes entrepreneurship possible. It would be healthier still if we were to encourage the spirit of entrepreneurship in a larger group: the spirit of service to fellow-citizens through innovative technological problem-solving. The measure of success for this system is what historian and economist Deirdre McCloskey calls “trade-tested betterment”. What she means by that is the customer-determined improvement in the quality of life (i.e., betterment) validated by customers buying or not buying what entrepreneurs offer as potential solutions to their problems and their pain (i.e. trade-tested).

If those who protest and complain today were themselves to adopt the entrepreneurial spirit in their own lives, they would find that they could not only build better platforms for progress, but also introduce more purpose, meaning and autonomy into their own lives. The entrepreneurial life is purpose-driven (solving others’ problems), a source of meaning (solving problems is more meaningful than carrying protest signs or throwing rocks) and the ultimate autonomous lifestyle (discarding dependency on employment wages or welfare payments).

Entrepreneurship is an American institution. Every immigrant who ever came here brought an entrepreneurial spirit: life will be better for me and others if I escape from the limitations of my current situation and join this open, betterment-demanding, property-protecting, innovation-welcoming country and see what I can do. The institutions that grew up with our innovating immigrants and their offspring are now largely decayed and decrepit. But entrepreneurship is one institution that there is no need to abandon. In fact, it’s necessary that we revive it.

 

 

How Entrepreneurs Build Beautiful Businesses.

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In his book, Narrative Economics, Robert Schiller, Nobel Prize-winning economist, tells us that the greatest influences on the nation’s economy come from the stories we tell ourselves about it.

A depression lasts longer when people tell themselves and each other that it’s going to be a long time before things turn around. Recoveries accelerate when people turn optimistic and tell each other that the good times are just over the horizon and will be back soon. Currencies lose their purchasing power when people tell each other prices are going up and its best to exchange cash for products now and not wait for the higher prices. Trade unions are vilified when people start talking about excessively high wages pushing up inflation. Schiller has a lot of stories, or narratives, as he calls them.

These are macroeconomic tales, about trends in GDP, and the price level. But the same is true at the microeconomics level. The reason why there is so much negativism about business, capitalism and free markets is that people are telling each other negative stories about business aggressiveness, unsustainability, lack of sympathy and general coldness. We’re angry at business, it seems.

One source of this anger are the business school instructors, and their textbooks and business biographies and histories that portray businesspeople as a warrior class and business competition as warfare. Invading industries, taking beachheads, fighting for market share. The Art Of War by Sun Tzu is often cited as the most popular business book, and a source of business strategies.

Another military metaphor is defensive – protecting your castle. “You need a “moat” — essentially, a barrier that can protect your business from potential encroaching forces”, says one writer in Medium.

The military narrative is a horrible metaphor for business. The blood and gore and destruction and operational chaos that war metaphors bring to mind have no place in our image of what businesses do and the service they provide. Customers buy products and services only if they believe that, by so doing, they’ll make their lives better in some way. Otherwise they wouldn’t buy. Businesses exist to generate this sense of betterment, of satisfaction, of well-being among their customers. If they are not good at it, they’ll lose the patronage of that customer to a business that pleases them better. Consequently, businesses are always trying harder to understand what will make their customers happy, and to perfect their own knowledge of how to deliver that happiness.

We need a new narrative of business formation and business action that is an alternative to the military metaphor, especially so that we can teach our kids in school that business is a channel for their aspirations, not a regimen to which they are to be subjected. We need a business-is-beautiful metaphor. That its purpose is to serve and to please and to make life better. That it’s the source of what’s good: income to nurture families, products and services to nurture life.

One business guru who is leading us in this direction is Per Bylund, a professor at Oklahoma State University’s Spears School Of Business. He writes about business owners and executives and managers building an island – an island that is inviting enough to attract visitors who will enjoy their time there, and perhaps become residents. An island that’s separate but well connected by bridges and ferries and transportation to bring people comfortably to and fro. Like any island, it’s unique. No two are the same.

Professor Bylund calls them “islands of specialization”, designed by entrepreneurs and their management teams to serve customers in a specialized way that will merit their patronage, keep them visiting, and make them loyal. His strategic advice to businesses has no military overtones.

“Aim to please” is his first principle of beautiful business. To attract people – customers – to the island is simply a matter of understanding what will please them. This requires empathy – understanding people, their hopes and dreams and desires and preferences, and catering to them. It’s a matter of discovery and translation. Business strategy, in this vision, is not aggression but deference: seeking to please others.

“Don’t copy – move beyond” is the next principle. The military metaphor sees competition as conducting wars over business territory, or fighting for customer attention. That’s a misconception of the economic concept of competition. In the economic way of thinking, there is no new value for customers when a firm merely copies what is already offered by others. Value emerges from what’s new and better and different. Smart entrepreneurial island builders assess the current landscape, predict where the customer will be in the future, and navigate to that place to build a new island.

Once they establish the new location, entrepreneurs build from strength. They distinguish what is unique about their resources that can be of benefit to customers. Much of the uniqueness is subjective – the owners’ or the business’s identity, their unique knowledge and expertise, their relationships and interconnections that can co-ordinate the assembly of specific solutions. It’s not about arraying more destroyers on the battle lines than the opponent; it’s arraying a set of uniquely desirable and attractive brand features and attributes that are attractive to the customer.

And the island builder keeps on building. Not for scale or market share or maximizing output. The direction of growth is to maximize value. Value is a feeling of satisfaction in the customer’s mind. Maximization, in this view, refers to higher levels of satisfaction, over a wider range of experiences, for more customers on more occasions. Maximization is not a quantitative or mathematical concept, to be compared with rivals to ascertain who is “winning”. It’s a qualitative concept – what quality of value has been experienced, and how can it be improved.

The four guiding principles – aim to please, in unique ways, based on your own identity and strengths, always thinking about the value that’s experienced by customers – lead to beautiful businesses. If you are developing visual island imagery in your mind’s eye as you read this, think of a balmy climate, vibrant flowers and trees, bubbling streams and distinctive animals and birds. Perhaps there’s an attractive resort hotel welcoming and catering to customer-guests. Let your imagination run free in conjuring up beauty – that’s what entrepreneurs do as the start, grow and sustain their businesses.

Per Bylund, PhD, is assistant professor of entrepreneurship and Records-Johnston professor of free enterprise in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management and economic organization. He is author and editor of four books.

John Tamny On How The Entrepreneurial System Maintains Its Energy And Momentum.

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Hunter: John, welcome to Economics for Entrepreneurs.

John: Hey Hunter. Thanks for having me on.

Hunter: You make economics relevant and interesting and you’ve been doing it for a long time. You’ve written lots of articles, and several books. You have a very distinctive style, and so we’re going to talk about economics today and maybe get your help in making it palatable to people.

Economics Is More Interesting Than Charts And Graphs.

John: You know, I make it relevant and interesting simply because it is. I think it was Ludwig von Mises in Liberalism, his brilliant book, who made exactly that argument. That he said it’s not a dismal science, it’s a beautiful study of people and he put it better than I did. I never understood why economists have the need to turn into charts and graphs what is so easily described by the world around us. It’s as though they’re striving to make something unintelligible so they can avoid revealing how little they understand.

Hunter: Well, you coined the phrase, in the title of one of your books, Popular Economics, and that talked about LeBron James and Downtown Abbey, and I think Taylor Swift and I think you also mentioned Michigan State football at the same time. You found a way to talk entertainingly about popular economics. How did you come by that title?

John: I think, I think my initial title was “Economics Is Easy”. It’s the one time in the history of my writing career, at least of books, that the publisher I thought came up with a better title. At one point they had water cooler economics, and I said you’ve got to be kidding me. They finally happened on popular economics which I kind of liked. Again, my view is that economics is 1st grade material. The only people that really don’t understand economics are economists who try to make, who make confusing what is easy to understand, what can be explained by athletes and TV shows, movies and famous people. I just don’t get their use of charts and graphs and so on. In many ways Popular Economics and all my books are subtle middle finger to economic profession that’s made boring what’s endlessly interesting.

Hunter: You chose to keep the term economics, I was talking to a marketing guru this morning about marketing Austrian economics, and he said there’s no place for the word Austrian and no place for the word economics, which was a bit discouraging. But do you think you’ve been able to make progress towards a popular realization towards the benefits of thinking economically?

John: I’d be lying if I thought I made huge inroads. Clearly I haven’t. I haven’t changed the way so many people continue to see things. I long ago said it’s going to be my life’s work is discrediting the laughable notion that economic growth causes inflation. Yet to pick up a Wall Street Journal, New York Times or an Economist magazine or anything you constantly see economists say, well you know, if we get the economy moving fast it’s going to cause inflation. And so, clearly there’s a lot of work left to be done, but it’s very heartening to come across people, and I do with great regularity, people who say, you know, you’re book changed how, or your books changed how I view the world, how I saw, you made clear what would have been confusing So that’s an uplifting thing.

Why Are Economists So Negative?

Hunter: Yes, I was reading the Wall Street Journal this morning, and I just came across the phrase at the end of a sentence that said, “economists warned”, and it struck me that that’s what economists do. They’re all negative and warning and it’s going to be bad.

John: Yes, isn’t that true? They are always looking for some awful scenario and if we do this and this, we’ll get to this. What frustrates me is, they are never right. Okay, so it’s easy to pick on the Fed. The Fed employs more economists than any other entity and they’ve always been incorrect. And of course they always have been; and let’s add that, when I was at Goldman’s Sachs, the economist there were so notoriously incorrect that the clients of the firm would know it was a profitable endeavor for them to just bet against whatever the Goldman’s economist thought was going to happen. Just take the opposite position and it really is shooting fish in a barrel based on the opposite of what the economist thinks about something. Okay, so some individual thinks he or she can model the infinite decisions taking place every second among hundreds and millions and billions of people around the world, of course they’re wrong. What fascinates me is that any people ever took them seriously to begin with. The pretense is just remarkable.

Hunter: Yes, in fact the whole premise is wrong, that the goal is to predict. We understand from our Austrian view of economics you can’t predict, the future is uncertain, and you can’t predict the future.

The Economy Is Just Individuals – And Freedom Works.

John: That’s right. We just know that freedom works. That free people with barriers to their productivity removed from them tend to do very well. That’s not to say that there’s not some extraordinarily productive people who do very well with more barriers put in front of them. Look at New York, and California, two heavily regulated, heavily taxed states and that have got the most innovative brilliant people on earth populating both. But generally speaking, if you remove barriers you get more productivity and this shouldn’t be a mystery; yet economists try to model behavior, which is just an obnoxious waste of time.

Hunter: We’ve tried to go through that other door John, the individual door – specifically entrepreneurship. Academically, that’s called microeconomics, but I don’t think that’s a useful differentiation. You said in one of your books, the economy is just a collection of individuals, and you also talked about an intense entrepreneurialism that defines the American economy. So paint that picture for American entrepreneurialism, I hear you linking individualism and entrepreneurship in one system.

John: Oh, what a great question. Okay, so let’s start with the economy is just individuals. The person who most vivified that for me was Henty Hazlitt. I think that the most important sentence ever written in the economics book ever written was Hazlitt’s in Economics in One Lesson. He wrote, quote, what is harmful or disaster to an individual must be equally harmful or disastrous to the collection of individuals that make a nation, end quote. And so what was Hazlitt saying, it was so brilliant, of course probably most people glossed over it, it’s not a knock, but Hazlitt was saying the economy is not some living, breathing blob that you can touch. It’s just a collection of individuals. Break the economy down to the individual you can then see why economic growth is so simple. You can also see why, why you’ll never lose an argument, an economics argument ever again because I don’t care what someone’s ideology is on an individual level you can’t say an individual’s improved economically if he’s taxed more. No individual’s improved economically if he spends more time complying with regulations rather than creating something. No individual’s improved by money that’s constantly being devalued by the US Treasury. No individual is improved if talented people from around the world are barred from moving to and living in another country by putting tariffs on these other people. And so when you break the economy down to the individual everything becomes clear. What improves the individual improves the economy. Why are Americans so entrepreneurially focused? To me it’s fairly obvious. We descend from the crazies. We descend from the other thinkers from around the world who said this isn’t good enough for me, I’m going to risk my life crossing oceans and borders, in order to get to a place that offers me no security but offers me freedom. We got all the nut jobs. How could Steve Jobs, he’s of Syrian decent, could he have started Apple in Syria? No. in the United States people who think differently can very often be funded and so they keep doing amazing things. It’s no mistake that our entrepreneurs are known around the world. We descend from the people who took the ultimate entrepreneurial leap. They left what was in some sense, comfortable, in search of just freedom. So I love the American story and I, one of the reasons I’m so for open borders is I want more and more people to come and participate.

Hunter: We’re aligned about improving individuals economically and one of the themes that we use in thinking about entrepreneurship is the ethic of entrepreneurship which might be a bad word to use. It sounds a bit serious, but that the purpose of entrepreneurship is to improve other people’s lives and that’s a benefit. It rolls up to a better society and we should think of entrepreneurship as a service to others. Is that a useful theme do you think?

Entrepreneurs Lead Us To A Better Place.

John: I would say maybe, turn a phrase a little bit differently. I would say entrepreneurs lead. They lead us to a better place because, never forget , to me the definition of an entrepreneur is someone who’s got a vision that everyone else thinks is ridiculous, yet they do it anyway. Because they think the way things are being done now: nah. So they quite literally lead us to a better place. I’ve heard it’s apocryphal, but Henry Ford’s genius was realizing that the, you know, horse drawn carriages weren’t enough. So he would give people something different. Steve Jobs looked at the Blackberry phone and he thought, “Oh! Come on!”. Yet that’s what everyone wanted at the time. He thought, oh we can improve on that, and let’s never forget he was ridiculed at the time the iPhone was coming out. Most people thought it would be a niche product that most people wouldn’t buy. I’m fascinated to look at Elon Musk right now, his new SUV, the design of it came out and he said something along the same lines that this is something in the future and that’s what Mises said in liberalism. He said entrepreneurs, every entrepreneurial act is speculation. You’re doing something you’re not sure people are going to want and that’s what’s so important about entrepreneurs. They take us somewhere else. They don’t just meet our needs, they exceed them. They take us to a new place.

Hunter: Jobs had another phrase, which is a real challenge when you think about what it takes to be an entrepreneur. We’ve got to read what’s not on the page, and you know, it hasn’t been written down yet. We’ve got to be able to read it. That’s why he rejected consumer research and that kind of thing. So they lead but they also imagine things that other people don’t imagine. Is that how you see it?

John: Oh, without question. They are the outside thinkers. They envision things that only become obvious after the fact. Let’s never forget that Silicon Valley is littered with VC’s that turned down Facebook, that turned down Amazon. I remember in the year 2000, 2001, if you owned Amazon shares you were ridiculed. Remember Amazon was Amazon dot org. These are people that think so differently and have a vision that is so outside the norm and it’s one reason, I don’t want to get, I promise I won’t take us to much off subject, but I’ve, one of the people I think who’s needlessly facing trouble right now is Elizabeth Holmes. She had a vision for something different, and it attracted a lot of attention and now because it didn’t work on time they’re thinking about, they want, some people want her imprisoned. What these creative types who want to do something differently, I want them out creating. Michael Milken, decade ago, because he did something so differently and upended the norm of investment banking, put him in prison and you think about what did we lose? Here was the guy who said MCI is a nothing company, I’m going to find funding for it so that it can take on A T and T, which at the time employed 1 in 500 Americans. And then he saw the future of mobile phones. Mobile phones cost 4,000 dollars. No one could afford, it was seen as this weird luxury bauble for the rich and he thought, there’s a way to get that funded. How could we live without it? I not only think entrepreneurs are important in taking us to new places. I also elevate investment bankers and the Wall Street types that so many people keep criticizing. They figure out a way to get financing to these brilliant people.

Hunter: Yeah, so socially we should be encouraging all of that craziness, that imagination and getting them capital as you say. The barriers are often governmental; you write a lot about barriers and regulation and how the government is taking away our production. I love that term that you use. It makes things very clear. Is that the only barrier in society to the entrepreneurs?

Failure Of Imagination Is As Damaging As Regulation.

John: They’re broadly governmental. I also think that there can be a failure of imagination on the part of people. Let’s be clear, it’s hard enough, there’s no reason investment bankers are paid so well. They are because it’s enormously difficult to track capital to one’s venture, and so it’s hard enough for a business and so investment bankers are paid enormous fees, rightly, for getting capital. Imagine if you’re someone who has an idea that totally upends how things have been done in the past. Let’s be clear, there’s someone out there right now whose going up in Amazon, but imagine trying to get funding for that. So there are nongovernmental barriers for sure. One of them is failure to imagine what could be, entrepreneurs see that. But generally I think there governmental.

Hunter: You’ve written that it’s actually a good thing because it forces the capital to find the best ideas, it forces the best ideas to find the capital. I like the chapter about Hollywood. All the lights are always red in Hollywood. It’s hard to get financing. That’s why the movie industry’s so great.

The Scarcity Of Capital.

John: Of course capital is scarce. There’s this idea out there, and I think sometimes modern Austrians promote it, that there’s such a thing as zero interest rates. There never has been, never will be. The idea is that capital is always scarce. It always has been because when you borrow money, you’re borrowing what money can be exchanged for. You’re borrowing access trust, tractors, computers, desks, chairs, movie scripts, movie cameras, movie directors, and so it’s always going to be difficult to get access to these kinds of resources. And so what I usually say with that in mind is: how dangerous is government spending? Government spending shrinks the availability of what’s going on, what’s accessible out there. But I think this is important, I’m so glad you his on this because I think too often modern Austrians, once again, I don’t think Mises ever would have really fallen for this, from what I’ve read of him and I’ve read the vast majority of books, this idea of easy money, I find that so insulting and stupid. Easy money? Really? No such thing. Implicit in easy money that oh, yeah, here, line up, zero percent rate, one percent and you can get access to the economy’s resources. I’ve never met an entrepreneur who’s ever had an experience like that. I’ve never met a businessperson, who’s had an experience like it. In Hollywood as I wrote in my Who Needs The Fed book  – credit is incredibly expensive. In Silicon Valley it’s so expensive that, if you want to fund a business, you’re going to give up a big percentage of it to a venture capitalist. Michael Milken got rich precisely because the availability of credit and capital of businesses is exceedingly hard to get. So he found it for businesses that, in past times could never really get it. So I think our side does so much damage to itself when it talks, oh yea, you know the fed went to zero and money’s easy. No such thing. Let’s not insult the entrepreneurial function by pretending that the fed, just by printing dollars can make access to resources easy. That insults the entrepreneur.

Hunter: Yes. I’m with you and you would have enjoyed a recent episode we had on the FinTech industry. Financial technology I guess its short for. The point we made is that it’s all these new emerging online lenders like Kabbage and GoFundMe and those kinds of apps are a brilliant way to match capital to entrepreneur sand entrepreneurial projects, and in fact, because there’s so much competition there, we’re probably approaching on those platforms what Mises would have called the originary interest rate – the right interest rate for society in respect to regulation. So actually, FinTech embodies entrepreneurs helping entrepreneurs in getting to the right understanding of interest and the cost of capital.

John: Yeah, but, I think Mises would also agree that the interest rate is different for everyone. And of course it is. If I go into a bank and want to borrow money for a business there’s probably no rate at which they’d lend to me. Jeff Bezos can give away all his worldly possessions today, but he can still walk into banks in any city in the US and he can walk out with billions. Credit is what you bring. Or I think JP Morgan said that. This idea that I think too many Austrians promote, “oh yeah, the fed went to zero and suddenly it was easy money” is so divorced from reality. Everyone’s got a different rate, as I keep arguing based, you talk about Fintech, is just a reminder that the feds influence on the economy is theoretical. The fed projects its influence through a banking system that is antiquated and yesterday. It represents, what, 10 to 15 percent of total lending. It’s the least intrepid of lending of all. Most intrepid lending takes place well away from the banking system and for obvious reasons. There’s this view that the fed is why banks pay so little for deposits. Banks pay so little for deposits simply because they’re not taking any risks. If they were taking risks they would pay more and so you see through these fintech functions. That’s where you can get a higher interest rate simply because the capital allocations that they’re making are more risk focused. Banks are in business to not lose money. Other non-banks are in the business of doing different things and so the rates they pay for those who put money with them reflect that reality.

Hunter: Our expert on that show, Dusty Wunderlich, said it’s the best priced capital market for entrepreneurs.

John: I believe it because, let’s not forget, an entrepreneur can never go to a bank. And again, it just, this is not, I love the Austrian school, but I’ve never understood the modern focus for the fed. The fed deals with banks which are so unimportant. Does anyone seriously think that banks have anything to do with what happened in Silicon Valley? Banks can’t touch innovation and they can’t because as you and I know entrepreneurs fail over 90 percent of the time. Banks have to make loans to entities that are going to pay back. Entrepreneurs are in the business of experimenting, failing and trying again. What the fed and banks do has nothing to do with economic progress. So the focus on it has always been a mystery.

Entrepreneurs Are The Driving Force.

Hunter: Yes, we focus much more on the parts of human action that talk about the entrepreneurs being the driving force of the system. And that’s the other genius of Mises is having identify that and described it and understood how it works.

John: Yeah, without question. Entrepreneurs lead, they take the risks to move us forward and that’s why I make such energetic arguments in favor of reduced government spending, reduced taxation, ideally no taxation on capital gains. I do want it to make it as easy as possible for those with unspent wealth, those with unspent wealth arguably being the most crucial people in the economy to match their unspent wealth with entrepreneurial, and what’s important about this is the less we take away their unspent wealth the more they can be intrepid with it. They can try new things. If I ‘ve got a billion dollars I can take a lot of risks. If I got one million, I’m probably not going to take many risks at all. So when we tax away the wealth of the richest, we tax away the most important wealth of all. That which has the highest odds of being directed towards new ideas, that while they look promising sometimes have very high odds of failure.

Hunter: You said in one of your books, I don’t have the quote with me, John. Maybe it was an article, entrepreneurs will always be able to innovate around politicians and it reminds me of another book that just came out Cato Institute called Evasive Entrepreneurs. I’m not sure I like the title but was the same sentiment. That the entrepreneur is smarter, faster and more agile than the politician. Do you have anything specific in mind when you wrote that?

John: Oh yeah. Thank you. I love that. Thank you for bringing that up. It was an April 13th column I wrote where I said that despite this political disaster that we’re enduring, whereby politicians apply command and control, we will nevertheless roar back. And my point is and the point I made in it is you, the entrepreneurs are just, this goes back to 2009 I asked a rich entrepreneur in Houston, hey what’s going to happen? Things are looking pretty bleak. And he said oh, come one. I am way too smart for Obama and I was way too smart for George W. too. These guys mean nothing to me. I can innovate or around them and I always have. And never forget with entrepreneurs they stare death in the face every day. Phil Knight, one of the greatest entrepreneurs who ever lived spent the first 18 years of Nike’s existence kind of gently telling his wife each night, oh no, we’re going to make it. And his line, his wonderful memoir Shoe Dog, I was telling her something I didn’t necessarily believe. Nike nearly died so many times. And that’s true entrepreneurs. All they know is near death, or they built a company that died, and so the idea these clowns in Washington and around the country just tragically shut down the economy. This is nothing to these guys. They’ll innovate around them. It’s what they’ve always done.

Hunter: So let me switch there and talk about your entrepreneurial journey, John. I read chapter 7 of The End Of Work. You could say your path was uncharted. In the end a little bit you talk about some painful experiences like downsizing, but you found your way to success doing something that you love. You said writing elevates your spirit. We use the journey metaphor, the entrepreneurial journey, is that a good way to think about it from your experience?

John’s Entrepreneurial Journey.

John: Thank you very much. I’m so flattered you read that chapter. I had such high hopes and still have high hopes for The End Of Work. I think the, one of the most unsung, brilliant, beautiful aspects of economic growth that it frees more and more people to specialize and do something that they can’t get enough of that doesn’t feel like work and pays them. Because entrepreneurs work for their work, and certainly I will never put myself in the same realm as, I can’t claim that what I did was Phil Knight Esq. or Jeff Bezos Esq. I’ve always been employed by someone else. I’ve never had the courage to go fully out on my own, but I have had lots of failure. I was laid off by Goldman’s Sachs during the market downturn in 2001. It was devastating. I was, it didn’t make it into the book. It was supposed to because I put it into it, and it didn’t make into the edits, but I was demoted at Forbes back in 2014. I’ve been opinions editor and got on the wrong sides of people and was put out of that job and it was just, it ripped my heart out. But each time it forced me to get better at what I did. I’ve been kicked down, nothing like what Phil Knight did or some of these other entrepreneurs but I’ve been kicked around too, and it does make you better. It’s agonizing but thank goodness we live and we get to operate in an economy where yes, precisely they can fire you and demote you. There’s also lots of opportunities to get to dust yourself off as it were and get back to work and so I’d like to think I keep learning from what I’ve done wrong and I can’t believe how lucky I am to get to write about economics. Every day, and that’s probably why I write so much. Not only do I have so much to say but I feel like I’ve been given the ultimate opportunity to say: wait, someone, people pay me to write what’s on my mind. You better believe I’m not going to skip a day then if they’re going to give me an opportunity.

Hunter: You’ve created some businesses inside of a company – you helped to create Real Clear Markets inside the Forbes empire. So there’s, entrepreneurship can occur inside big companies, in fact it’s important for it to occur inside big companies. So, you’re an entrepreneur of great fame, I think.

John: Oh, thank you.

Hunter: But you’ve also done something else which I saw as entrepreneurial, you created a very distinctive style in your writing. Now let’s try to find some adjectives that would help me describe it. Its contrarian, you say to people, yeah, get real when you talk about the fed, for example. But you also achieve a stylistic individuality with some of your sentences structures and the way you use words. So how did you develop distinctive style and become good at writing. It seems like a pretty hard thing to do.

John: Thank you. Some would say and I would agree with them, I’ve got an angry writing style. I think sometimes people think I write things funny, but I don’t think I’m a particularly funny writer. Some people have that skill. Probably the most distinctive quality to my writing is I’ve got a major chip on my shoulder. I won’t hide from it. I came into this field via fundraising, as you know from my book, for a Think Tank that didn’t think I was worthy of being a scholar there. I must admit there’s, I probably shouldn’t admit, there’s a part of me that wants to prove the people wrong that never took me seriously. So yes, I’m contrarian as can be. I think the generalized assumptions by both sides are frequently incorrect, but there’s also probably, within me there’s a need, there’s a lot of “I’ll show you” – all the people that wouldn’t give me a chance to write, who wouldn’t take me seriously. I’m going to show you.

Hunter: And that seems to me like a perfectly valid motivation within other motivations. One of the things we get mad at to follow in your footsteps there is entrepreneur bashing. I mean at the high level its envy: how can anybody be so rich despite the fact they provided great service to a fantastic number of people all over the world. Generally the pursuit of profit, profit is the devil and we get mad about that, so we try to be contrary about that attitude that seems to be out there in society.

Entrepreneurs Are Heroes.

John: Yeah, it’s a great question. I always say to people if Jeff Bezos had reached the top of his game in 1970 and became the richest man in America and maybe the world – what would have his net worth have been then? $500 million a billion? I don’t know what would qualify as richest back then, but not much more than a billion. So to that I say what a tragedy. That someone so talented can reach so few people relatively. And so now today he’s worth what, $150 billion, and that’s after the divorce. The reason he is, is because he’s touching exponentially more people with his genius around the world thanks to technological advances. Jeff Bezos is in Seattle,  but it can be as though he’s next door to people around the world. And so to me, the greater inequality the greater the progress. Because it’s just the sign that the individuals that you and I elevate are able to attach themselves to capital on the way to meeting the means of people in ways that past entrepreneurs weren’t able to come close to. So I think this needs to be discussed over and over again. I think so often free market types argue that, actually ,if you look at the gini co-efficient, they revert to their graphs and their charts and their numbers, we’re not that unequal. Oh no, we’re very unequal, and in fact we free market types, if we get our way, low taxes and zero out all the regulations, stable money all those things, inequality is going to soar. And it will be a beautiful thing. And why do we run from it? Why do we run from the process whereby brilliant minds innovate for us and transforms our living conditions for the better on the way to becoming really rich? Why that’s perceived as a bad thing is a mystery to me, and again I want to stress so much of what I say goes back to things I’ve learned from Mises. What did he say? Luxury is a historical concept. So much of this was obvious to him long ago that what the rich enjoy is just a preview of what we’ll all enjoy if the economy remains free, because what the rich enjoy they establish as venture buyers. They buy something that’s beyond the reach of everyone. They establish a market use for it at which point entrepreneurs mass produce and I just think for too long our sides run away from this. Inequality is a wonderful thing. The tragedy is when inequality is not increasing.

Hunter: Yes, yeah, and in fact another praise from Mises is that entrepreneurs are people who allocate capital to best serve the most urgent needs of consumers and they should be viewed as heroes for that.

John: As heroes and lets all, I’ve used this quote from Mises in at least 2 of my books, maybe 3, he always said that when a business goes out of business it can no longer bring damage in many instances to customers, much more particularly than I have just now. We seem to, Americans, as much as they rate the entrepreneur there’s this need within people say, the small business, oh my God, noble and great and everything. No, I think the big businesses are most noble. Do all businesses start small? Yeah, that’s a given, but there’s this view out there that somehow inequality is bad. No, no. inequality is good. It’s when people aren’t becoming unequal that they’re probably not meeting the needs of very many people.

Hunter: Yeah, in fact you wrote that the best way to help entrepreneurs in small business is to unleash the big businesses because often the big businesses are the customers and they also generate the economic ripples entrepreneurs can feed on.

John: Yeah, and to be clear there are generally no small businesses without big businesses. In a shopping mall, is there any mystery why there are anchor tenants? Yeah, the anchored tenants, the big businesses, the big global brands are what attract people to them on the way to creating a market for the small businesses next to them. Again, conservatives get all mainstream on us occasionally in weird ways and they say small businesses create all the jobs. Even if you believe that, even if you believe job creation is the purpose of the business, they’re able to create jobs precisely because for the most part they cluster around big businesses. So this need within society to noble the small, to noble the average I find very odd. I think I like the big ones. They make the small entrepreneur possible.

Hunter: Let’s pick your brain as chief marketing officer, John. We both favor a movement that would be pro economics, pro entrepreneurs, and pro innovation. We want everybody to be an entrepreneur whether working for a big corporation or a small corporation. We want to have them do that as oppose to be bureaucrats. If you were the chief marketing officer for that movement where would you start tomorrow?

Happy Things.

John: I would start with happy things. I’ve never understood why some in the conservative libertarian movement, they begin with well, if we don’t cut spending we’re going to hit, we’re going to be the Titanic hitting the iceberg. And if we don’t do this, if we don’t get those deficits under control this is going to happen, and Americans aren’t…..the birth rate is not high enough. Talk about the good things. My problem with government spending isn’t deficit. I don’t care about deficits. Let’s ask ourselves the basic question, in the next ten years, which scenario is better? $50 trillion in total government federal spending where all, quote, balance, or $25 trillion in total federal spending after it’s borrowed. I’ll take the deficit scenario any day of the week. The problem is all the money being spent by politicians. Because every dollar that gets to congress means it’s an extra dollar of control Nancy Pelosi and Mitch McConnell and Chuck Schumer and Kevin McCarthy and Barack Obama and Donald Trump have over the economy. So the focus should be on limiting on how much they spend. Don’t worry about how they get it. Limiting how much they spend. And the idea with that is every dollar that remains in the private sector has better odds for entrepreneurs. Less government spending, more Jeff Bezos and more Steve Jobs, because these guys are the odd bods. And so we have to ask the question, we ask it positively. How many great entrepreneurial concepts that will give us new innovations and new forms of transportation –  make flight seem yesteryear. How many will miss out on if government consumes so much of the precious resources it starves the private sector? So I think the focus should always be: do you love Amazon, do you love your Apple iPhone, do you like your Nike shoes? Yes, we all do, and so wouldn’t we like multiples of Steve Jobs, multiples of Jeff Bezos]? Yes, I think we all would. Imagine our standards. Although the only way to get to that point is to match more and more talented driven people with capital. The only way to get to that is to shrink the burden of government. To shrink the taxation. All those things that limit the ability of wealth producers to direct their wealth to future wealth creators.

Hunter: Good, well happy is a good, a good method, good theme for marketing of economics. John, I wanted to thank you for joining us today and I wanted to thank you for your immense productivity in getting this happy message out. You’re incredibly high output when you look at all the articles and the book the podcasts and the webinars and so on like that. You’re getting involved and we thank you very much for who you are.

John: Well, thank you, Hunter, so much. Honestly it was so flattering, getting an email from you. It’s a great show. How lucky am I to have people who are actually interested in what I have to say? So I’ve been thrilled to come on and again, I just feel really lucky to be able to do what I do and so it’s, there’s immense joy in what I do, and that’s, if I can leave it there as I argue in the End Of Work, my 3rd book, the greatest gift of economic growth is freedom from work we despise. I’m so lucky to do what I do. I couldn’t not do it. It would cost a lot of money to get me to not do it because I enjoy it so much and maybe this is the greatest argument for the things we believe, again, freedom from work we hate. So I’ll leave it there. Thank you so much.

Hunter: Thank you, John. See you soon I hope.

John: Yes, please.