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The True Story Of Capitalism.

Many people today are skeptical about capitalism. Suspicious of it. In some cases, downright hostile. These people believe – or have been led by others to believe – that capitalism is bad for society overall. They believe that capitalism is extractive – it extracts work and effort from masses of people to produce financial reward for a narrow few, with limited benefit (or maybe a net deficit) left for those who do the work. A particular sliver of the financial elite has some specific techniques for extracting the vast bulk of available value for themselves via special tools such as hedge funds, currency trading, and all kinds of esoteric instruments. They believe the biggest corporations extract wealth for shareholders and executives to self-reward themselves with stock awards, stock options, share buybacks, and dividends. They believe that there is monopolistic control over markets exerted by these large-scale corporations. They believe that first-world countries and corporations take value from less-developed countries via resource extraction, cheap labor, and short-term economic activities that don’t leave behind long-term infrastructure or institutions. They believe the inequality of wealth and income in capitalism is deliberately and malevolently manipulated.

But none of this is the true story of capitalism. There are two good places to start in telling the real story. The first is 19th-century America. After the Civil War, the US was in economic expansion mode. The population was growing, supplemented by immigration, and was economically mobile, moving West, establishing cities, starting businesses, learning how to enjoy new lives. Technology was evolving, bringing new enablements for those new lives, including affordable illumination (from oil refining), rail transportation (from steel making and steam engines), better clothing (from sewing machines and new fabric technologies), better food (from mass manufacturing and mass distribution made possible by factory organization) and more. It was in this environment that great entrepreneurs invented customer capitalism. They identified the unstated, unmet needs of customers – such as affordable light for families at home at night for a better quality of life and extended productivity, safe and nutritious food, soaps for more hygienic washing, better communications – and designed systems of unprecedented scale and complexity that could be implemented to meet those needs. Factories, production lines, precision machines for manufacturing, international supply chains, secure packaging, mass distribution and mass marketing – these were all innovations of the times to serve customers in better and better ways. The energy behind these innovations came from a new invention, unique to America at the time: the corporation and its managerial methods. The entrepreneurs invented the managerial corporation because it was necessary to do so to harness the vast potential for value creation of their machines, factories, supply chains, and transportation and distribution networks. The challenge had never before been encountered, but the coordination enabled by new decentralized corporate management systems solved the problem. 

Customers were learning what they could want in the new world of technology, manufacturing, and economic expansion. Those corporations that were able to fulfill those new wants were the ones to thrive and grow into powerful commercial entities of a new type, size, and form. They became the engines of capitalism, doing far more to advance the capacity and achievements of the new country than anything than government could. 

At the same time, in the heart of Europe, a group of researchers in economics were discovering the principles that would guide the further development of customer capitalism as a system of organizing the economy. First, they established the principle of value that guides all economic production: value is in the mind of the customer. It’s not a number or a price, it’s a flow of life enjoyment, a flow of experiences becoming better and better over time, satisfying ever more needs and fulfilling ever more wants. The job of the corporation is to facilitate and sustain this flow.

The method of doing so, identifying value (what the customer is learning to want), and designing new and innovative ways to enable them to enjoy the future experience they are anticipating via a method called entrepreneurship, was another discovery of these economists. Another of their principles, a crucial one, is that entrepreneurial value generation is an adaptive, experimental and creative activity, and can’t be planned in advance or from the top down. This excludes government, as a central planning agency, from any role in customer capitalism, and also guides the private corporation in the design of their organization and processes to make them adaptive to feedback from customers and markets. Those that become bureaucratic and unresponsive are condemned to fading and failure. Continuous innovation is the only route to sustained success.

The early research came from the University of Vienna and has inherited the name Austrian economics over time. But the research tradition has continued in the US after many of the pioneers fled Europe to do their work in universities in the US. The continued further development of Austrian economics in the USA nurtures and enhances the innovative free market traditions of customer capitalism.

These two parallel streams of corporate commercialism in the US, harnessing technology and organization to profitably serve customer needs, and the continuous refinement of free market economic principles and institutions to make that commercialism viable, combine in the true story of capitalism. Capitalism is for the benefit of all: first and foremost for consumers, whom corporations and other producers are aiming to serve and please. The economic activity of doing so creates jobs and meaningful employment for many. Corporations aim to gain the support of the communities in which they establish offices and factories, improving community life, especially for the families that live and work and school their children there. And for investors, the success of corporations in serving customers can result in the profits that pay dividends and spark stock appreciation. And the system requires the institutional support of a prevailing set of economic thinking to strengthen the culture and mindset that attracts the best people to roles as entrepreneurs, managers, investors and workers.

Customer-focused corporations and the economics of entrepreneurial value creation are the true story of capitalism.

No businesses are “small”. They’re all productive nodes in a tightly connected knowledge-building value-creating network.

There are roughly 32 million businesses in the US, of which 99.9% are what the government calls “small”. This classification of business accounts for about half of GDP and of total employment (making it just as productive as “big business”), and usually more than half of new job creation (making it more dynamic than big business). It’s often where innovation first enters the market, since small business is more open to risk taking than big business. If we remove the Fortune 500 and the Russell 5000, we’ve still got 32 million, rounded up, so let’s think of them as a community.

Within the 32 million, there is a wide range of size, whether measured by revenue or number of employees. The government in the form of the SBA (Small Business Administration) uses a range of up to 500 employees and a revenue of $7 million per year. But they also relax this range in different classification categories; their “small” financial and insurance business range goes up to 1,500 employees and $38.5 million in revenues. Clearly, there’s no consistency or integrity in their definitions, and not much useful information.

A better way to look at these businesses is as an integrated network of productivity, information flow, knowledge-building, innovation and value creation. 

Productivity:

Dr. Samuel Gregg in his book The Next American Economy identifies the decline in the formation of new entrepreneurial businesses as responsible for the significant decline in American productivity. These businesses have an intensified motivation to be productive; it’s hard to get capital, so they need to make the most of what they’ve got and find agile ways to borrow, rent or originate capital. They can’t afford productivity-sapping bureaucracy. They find ways to accelerate cash flows. They adopt new technological innovations quickly so as to take advantage of productivity enhancements. Productivity is essential for them.

Knowledge-building:

Bartley J. Madden in his book Value Creation Principles, identifies knowledge-building proficiency as the fundamental driver of firm performance. In the integrated 32-million strong network of businesses we are analyzing, information flows faster and more freely as a result of more network nodes, more connections between nodes, and lack of barriers to learning such as bureaucracy. These businesses know they must learn at speed, apply their learning fast and use it to serve customers better. There’s no learning time to lose.

Dynamic Efficiency:

Efficiency is an economic concept that hasn’t been very helpful for business in general. It tends to mean doing less with less: cutting costs, saving on inputs, not risking innovation, not attempting experiments with uncertain outcomes. But economist Jesus Huerta de Soto developed the contrasting concept of dynamic efficiency: fast adaptation to changing customer preferences, and rapid creation and adoption of new market knowledge, with an economy of time and agile decision-making.  This is the entrepreneurial method, and the way that the 32 million competes effectively with larger, better resourced but less agile firms.

Pure value creation:

Businesses generate cash flow as a result of the valuable customer experiences they enable. The value that customers perceive turns into willingness to pay, resulting in cash flow that is the life blood of small businesses who have less access to credit and debt to fund their working capital needs. The 32 million are acutely sensitive to cash flow, and therefore to customer value. They remove all obstacles to customer value, including bureaucracy, complicated service arrangements that obscure value visibility and take time, and any other obstructions they can identify. These businesses know that they must pursue pure value creation.

Customer focus:

The disciplines of dynamic efficiency and pure value creation demand an intense customer focus. The 32 million choose their customers carefully, develop a deep knowledge of them and their needs, nurture empathy to get on the same wavelength with customers regarding those needs, and are constantly listening for feedback and adjusting to any new signals that come through the feedback channel. This intensity of customer focus sustains the innovation and elevated quality of service that, in turn, secures continuity and strengthening of business relationships. That’s why these businesses are the backbone of the economy.

Unentangled with government:

The greatest barrier to all business-driven economic growth, progress and innovation is government. Both taxation and regulation are business-killers by intent. Big business becomes entangled with government. They develop big bureaucracies to comply with regulation, keeping them close to government and saddling the 32 million with disproportionate compliance costs if they’re forced to match big-business compliance practices. And big businesses assemble lobbying forces and budgets to design, write and pay for government approval for regulations that protect them and over-burden others. It’s this entanglement with government that condemns big business to permanent inefficiency, and also results in the kind of government-directed surveillance scandals that are currently being uncovered.

The 32 million is in no way small. It’s the vital, leading edge group that brings innovation, growth, development and dynamism to the economy. Let’s find another term than “small business”.

Austrian Economics Is On The Right Side.

Iain McGilchrist is a neuroscientist, psychiatrist and philosopher who devoted his research work to illuminating the proposition of hemisphere differences in brain function. We all have a left brain hemisphere and a right brain hemisphere, and they function (or “see the world”) differently. McGilchrist makes long lists of the differences in worldview attributable to the hemispheres.  We can selectively highlight a few here:

The left hemisphere (LH) deals with detail, the local, what’s in the foreground, and easily grasped. The right hemisphere (RH) deals with the whole picture, including the periphery and the background. this local versus global distinction is one of the major differences in the processing of the two hemispheres.

  • The RH is on the lookout for and better st detecting and dealing with what is new. The LH deals with what is familiar.
  • The LH aims to narrow things down to a certainty, while the RH opens them up into possibility. The RH is comfortable with ambiguity and holding pieces of information that appear to have contrary implications, whereas the LH makes an either/or decision in favor of one of them.
  • The LH’s world tends towards fixity and stasis, that of the RH towards change and flow.
  • The RH recognizes uniqueness and individuality. The LH tends towards more generalization.
  • The RH is essential for empathy, and emotional receptivity and expressivity are greater in the RH.

McGilchrist’s thesis is that the left hemisphere and its mode of thinking has become dominant in today’s world, and that dominance is a disaster for civilization. Why? What he calls the left hemisphere world 

  • has lost the broader picture
  • favors data over knowledge
  • has lost the concepts of skill and judgment
  • favors bureaucracy (procedures that are known and predictable)
  • elevates quantity as the only criterion versus quality
  • dismisses common sense
  • discards tacit knowledge
  • has a need for total control
  • has more anger and aggression
  • loses social cohesion
  • is characterized by passive victimhood

In the field of economics, we can clearly see McGilchrist’s left hemisphere versus right hemisphere dominance in action. Mainstream economics, the style that is practiced by government and the Federal Reserve, taught in academia and written about in the New York Times, exhibits a left-hemisphere dominated pattern. Austrian economics is more right-hemisphere, in stark contrast.

mainstream economicsAustrian economics
Principally concerned with mathematicization, modeling, aggregates and related variables (x causes y).Principally concerned with the economic system and its emergence as a result of the purposeful actions of individuals reasoning subjectively.
Empirical, working with data series and tables and numerical outcomes.Verbal and logical, working with language and reason, observing behavior to deduce motivation and purpose.
Captures data in re-usable mathematical symbols and algebraic formulae. Seeks to construct reusable/repeatable models.Deals with uncertainty, dynamics, constant flux, and flow.
Equations are solved, models are completed and self-sufficient. Point predictions.Descriptive and not predictive. Assumes constant change, uncertainty and non-linearity.
Positivist, adopting the methods of physical sciences.Humanist, adhering to the approach of social sciences.
The economy as a machine to be tuned.The economy as a complex adaptive system. Interaction of many components. Emergence.

The focus of Austrian economics on real people, individuals interacting in the pursuit of subjectively-assessed value, creating a dynamic flow of activity of benefit for all contrasts starkly with the mainstream economics focus on mathematical models and solving equations, aggregate quantities like GDP, and unremitting regulation and government intervention aimed at control.

Until we rebuild our institutions from a more balanced perspective, releasing the hold of the left hemisphere on our thinking and behavior, we are condemned to follow the downward spiral into a command-and-control economy.

192. Mark McGrath on Orientation and the Adaptive Entrepreneurial Method

When firms apply the principles of Austrian economics to business management, we call the result the Adaptive Entrepreneurial Method. It’s adaptive in that it is a continuous learning process, and it’s entrepreneurial in elevating customer value realization as the most important business purpose.

Key Takeaways and Actionable Insights.

The Adaptive Entrepreneurial Business Method

Businesses that follow the adaptive entrepreneurial method put customer value first.

Value in Austrian economics is customer value: contributing to customers’ feelings of being better off as a result of the interaction with an entrepreneurial business or service provider. A useful way to think about value is in terms of alignment and order. A value exchange is a harmonious alignment between customer and entrepreneur, in which both parties benefit and both parties’ interests are served. Order is represented by the customer’s decision, a point of clarity in a world of multiple choices, overlapping preferences and broad-based uncertainty.

Entrepreneurial businesses make value their purpose and identify it in alignment and harmony with customers. Everything else — cash flow, profits, growth — follows.

Entrepreneurial orientation enables the right interpretation of data and information for customer value realization.

Mark McGrath emphasizes the powerful role of entrepreneurial orientation in business success. Orientation is a mindset — a kind of internal operating system — that guides firms to translate information from customers, partners, competitors and the market into an effective, winning vision and mission.

The essence of orientation is learning. Uncertainty is assumed, and orientation is the unique set of filters through which entrepreneurs and management teams process the quantitative and qualitative data that customers and markets present. Mises called it economic calculation: the entrepreneurial capacity for combining a constantly changing stream of information into a business decision. The decisions are always reviewable and revisable; a learning mindset makes entrepreneurs comfortable with frequent decision changes in response to changing information and feedback. Principles — such as the primacy of customer value — remain the same; it’s actions that are adjusted.

Businesses that don’t learn can get locked into models that no longer reflect the realities of the marketplace, and lose their effectiveness.

People, ideas, and things.

Learning, adapting, and changing are difficult capabilities to master. Continuous change can feel disorienting absent the right mindset. How do companies achieve this mastery? Mark McGrath quotes Joh Boyd on the eternal verity of people, ideas, and things — always in that order.

The first critical component are the people engaged in and operating the business. They must be good at change, comfortable with constant flux. They must accept VUCA — volatility, uncertainty, complexity, and ambiguity — as the normal condition. At the same time, management must be conscious of how each new change or wave of change impacts people, and anticipates the effect it will have on them.

In this change-accepting environment, unlimited new ideas can emerge via the creative process. They can be tested, and marketplace results become the yardstick. When new ideas look promising in terms of the results they potentially enable, then things can be changed: capital can be redeployed in new combinations, marketing campaigns can be revised. When people are pre-prepared, smooth transitions are achievable.

Continuous Reorientation And Entrepreneurial Intent.

While entrepreneurial orientation is the firm’s operating system for processing information, it is not fixed. Adaptive firms are continuously reorienting, Active reorientation supports learning, recognizing that all perceptual models are only as good as the moment they were developed. They must be renewed to stay relevant. Challenging assumptions and reframing problems must be continuous in order for firms to thrive and use change to advantage. Effective orientation looks to the future rather than the present, emphasizing agility and avoiding clinging to outdated models.

Reorientation precedes intent and reshapes it. Entrepreneurial intent can be equated to what systems thinkers call vision. A vision is shared and provides a North Star for everyone in the firm, but that doesn’t preclude adjustment in continuous alignment with customers. The vision is to serve customers, and customers are also changing and adjusting. Thinking in terms of intent (rather than, say, implementing a rigid plan) permits greater flexibility in pursuit of the vision.

Entrepreneurial judgment is decision and action.

The theory of entrepreneurship emphasizes judgment — that mysterious-sounding capability of entrepreneurs to make economic calculations from a mix of data and intuition. That can sound like a kind of mulling over of options. But it’s much more active than that. The entrepreneurial method emphasizes deciding and acting. Decisions are recognized as hypotheses; it’s impossible to know exactly what to do, so action-oriented develop hypotheses about what actions could have the effect they desire. The hypotheses are carefully aligned with their intent in order to double-check the logic as far as possible. But the purpose is not to be “right” but to generate feedback information so that alignment can be better informed by reality.

Action — the implementation of decisions — is an experiment, a test of the hypothesis. Action produces interaction (with customers, with retailers, with competitors, with the changing market environment) and thereby provides new information in the form of feedback, which might indicate the need to change actions next time.

The number of hypotheses and tests can be narrowed; what’s important is that they reflect as wide a range of perspectives as possible — from those at the front line interacting with customers, whether in person or at the call center or online, from engineers and operatives, from finance and HR, and from all relevant points of view. The more diverse the range of perspectives, the more likely it is that different angles of view will provide new insights and illuminate blind spots. Make sure that internal communications are organized so as to make it possible for all perspectives — including dissenting Cassandras – to be recognized and acknowledged.

Candid self-assessment of people in business leadership roles is a good place to start the adaptive entrepreneurial journey.

Some elements of the adaptive entrepreneurial model require the discarding of standard ways of managing. For example, many businesses spend considerable time and effort developing plans that lock in budgets and resource allocations, and don’t make allowance for constant adjustment and change. It’s useful to take inventory of these practices and question whether they can be abandoned or reformed in pursuit of agility.

Additional Resources

The “Adaptive Entrepreneurial Method” Graphic (PDF): Mises.org/E4B_192_PDF1

“Destruction and Creation” by John Boyd (PDF): Mises.org/E4B_192_PDF2

Mark J. McGrath on LinkedIn: Mises.org/E4B_192_LinkedIn

“Orientation: Bridging The Gap In The Austrian Theory of Entrepreneurship” (AERC 2022) by Mark J. McGrath and Hunter Hastings (PDF): Mises.org/E4B_192_PDF3

This Is Value Entrepreneurship – The Business Method Fueled By Entrepreneurial Economics.

Entrepreneurship is the business driver – of revenue and growth, of the customer base and customer loyalty, of innovation, of cost reduction, of everything about business that constitutes success. It’s true of businesses of every scale – every firm must be entrepreneurial to succeed.

Value is the purpose of entrepreneurship. On the Mises Institute Economics For Business (E4B) website you’ll learn deep insights about value – that it’s not a thing but a feeling, that it’s the outcome of a learning process, that you can’t put a price on it, but people will pay for an expectation of value. There’s a lot to learn about value.

Combining the two in Value Entrepreneurship provides you with an understanding and a toolset to pursue new value for customers at every scale, in every firm, via every project, process and job. Value Entrepreneurship is the business system fueled by entrepreneurial economics.

Let’s first examine and prepare for entrepreneurship. Entrepreneurship is action. While MBA programs may focus on strategy and planning and finance, E4B’s alternative approach emphasizes action. Entrepreneurial action can be broken down into two components – the decision to act and the action itself.

The decision is a hypothesis. There is more uncertainty in business than can ever be resolved. You are never certain. The most you can expect is to narrow down your choices of possible actions to a small number. You develop a hypothesis of what could work based on two inputs. First, an analysis of whatever information or data is available to you that tells you something about prevailing market conditions and constraints. And second, the synthesis of your data-based conclusions with your instinct and intuition, your assessment of dynamics and what might change in the future, as well as your creativity and ideas. From analysis and synthesis, you generate hypotheses of all the things you could do that are aligned with your intent, and choose as many of those as you’re capable of implementing – that’s your capacity, which might be governed by available funding, staffing or capital goods such as your AWS service agreement.

With the decision made, you act. Decisions are hypotheses and actions are experiments. The purpose of an experiment is to generate learning. Find out what works and what doesn’t, so that you can do more of what works and abandon what doesn’t. If you run as many experiments as possible, the fittest business strategy will emerge. Complex systems theory refers to this process as explore and expand. That’s what entrepreneurship consists of: exploration followed by expansion.

We learn because action generates interaction – with customers, retailers, markets, competition, media, and the entire business ecosystem. Interaction, in turn, generates a feedback loop. Customers buy or don’t buy. They enjoy their experience, or they don’t. Or, most likely, they partially enjoy it but there are some drawbacks that the entrepreneurial business can respond to and rectify if they can properly gather the right knowledge.

That brings us to the second part of Value Entrepreneurship – the value part. We just referred to the customer’s experience. That’s what value is – an experience, subjectively felt and evaluated by customers. Value is formed and experienced entirely in the customer’s domain. As you’ll appreciate as you enter more deeply into this way of thinking, the customer is the driver of your business. Customers are the sole determinants of business success or failure. They determine what gets produced by buying or not buying – by not buying, they ensure that production stops and business resources are redeployed to new uses. 

Customers are always evaluating, and thereby producing value. They do this from the context of their own system. Let’s take an example of a consumer household and its systems (although we must emphasize that the value entrepreneurship model applies equally to the world of B2B, not just B2C). Let’s take one sub-system: food and nutrition for the family. There’s a system of deciding what to eat and drink, there’s a system of shopping, whether online or offline or both, there’s a system of storage, perhaps involving freezing, refrigeration, and room temperature. There’s a system of preparation and cooking, involving a lot of home appliances. There’s a system of cutlery and place settings, and another for washing these. Taken altogether, it’s a complex system. And it may be continuously changing. What if the family Is becoming more conscious about healthy eating? What if they start substituting lower-calorie foods for higher-calorie versions? What if they start reading ingredient labels? What if they buy more fresh food and less manufactured food? What if they discover new preparations like blenders? 

We can see the physical manifestations of these changing experiences in the market. The periphery of the supermarket where the fresh foods are sold becomes bigger and the center contracts. Healthy cookbooks appear on amazon and social media. Fresh fruit appears in more convenient packaging and new varieties flourish. New brands of healthier crackers and desserts abound.

The point about value is that it is formed in the customer’s system, that system is complex, and it’s always changing. The role of the value entrepreneur is to observe the system, understand the system, fit into this system and make a contribution. It’s possible to identify gaps, maybe gaps the customer is not even aware of. Most importantly, there’s the potential to identify the system the customer will prefer and move to in the future, ideally before they get there themselves. This is value innovation – imagining and inventing the future. Whether in the present or the future, the entrepreneur’s contribution is to help the customer to feel satisfied that they’re making the best choices within their own system. Their system is life, and entrepreneurs help make the system work for them.

Entrepreneurs and entrepreneurial businesses facilitate this feeling of value – make it possible, make it robust, make it repeatable. They are rewarded by customer purchases, and value flows back to the firm as cash flow, to be reinvested in more production and more innovation. The value entrepreneurship loop is continuous. 

191. Allen Mendenhall: Putting Humanness and Ethics Back Into Business Economics

We are living through a particularly bad moment in history for free markets and capitalism. Government, not business, is promoted as the solution to all problems. Young people have never known any other environment, and one of the consequences is the skepticism about capitalism that they learn in school, college, and university. One solution to this problem lies in better business education — shaping how young minds think about business by shedding light on the social and individual benefits of capitalism that might otherwise be deliberately shadowed by misinformation and misdirection.

Allen Mendenhall is leading the way with a new business curriculum at Troy University.

Key Takeaways and Actionable Insights

There are unmerited concerns among young people today about the ethics of capitalism and business.

Business is too often cast as the “bad guy” in the movie of life. Business is portrayed as exploitative and greedy, and businesspeople as self-serving. Historical scandals like Enron and WorldCom are cited as case studies. But this presentation is a caricature; there’s no evidence to support it. Business is the essential component of the capitalist system that has raised standards of living and quality of life all over the globe and especially in the West, where markets are somewhat freer.

Business didn’t have the same bad rap in the past. In the nineteenth century, there was a great celebration of the civilization-advancing commercial republic powered by the protestant work ethic. The image of the businessperson was a positive trope — it was a good role to be a businessperson creating value for others. Businesspeople were the good guys. They innovated, collaborated and served. We’ve lost that imagery.

A lot of the unmerited concern emanates from educational institutions, especially universities.

Who is teaching young Americans to be skeptical about capitalism and business? A large portion of the blame goes to educational institutions, and especially universities. There’s an anti-business and anti-capitalism bias among the teaching profession in higher education that is communicated to students.

In this academic anti-business campaign, there’s a special role for economists, who have dehumanized economics by trying to make it a mathematical science. All their equations and computer models have the effect of taking humanness — the role of subjectivism, individual preference, and individualized emotion — out of economics. They try to reduce human behavior to a predictive data-driven algorithm.

The heritage of economics is humanizing.

The mathematical approach to economics is not the tradition of the Austrian school approach, which embraces a humanizing perspective. Commerce cultivates virtue; the pursuit of honorable profit leads businesses to act with good faith and integrity in joining with partners to produce products and services that are valued and welcomed by customers because they serve their ends in their search for betterment in their lives.

The concept of honorable profit is often alien to students, and requires new learning: that profit is an emergent result of all the detailed interactions of individuals in a market, sending price signals to producers to indicate what society wants them to produce. Profit is a result of these signals indicating that society wants the producers to continue offering their goods and services.

Understanding value is central to understanding the ethics of capitalism.

The emergence of profit is an outcome of the generation of value for customers. Value is central to the ethics of business, and Professor Mendenhall’s new course at Troy University places it squarely in the center. Value is subjectively determined by the customer, and the purpose of business is to help them realize the value they seek with the right products and services responsive to their wants, preferences and goals.

But here’s where the plot twists. The big corporate business community — representing less than 1% of businesses by count but the biggest proportion of GDP by dollar revenues – has been incentivized by Wall Street to pursue shareholder value (goosing stock prices) and stakeholder value (the diversion of value away from customers in favor of non-customer interest groups). Value for customers and even profit now takes a back seat to supposedly serving constituencies such as climate activists, victim groups, and, of course, government. Stakeholder value can act as cover for the CEO who fails to generate profit: they can claim to be focused on socially more important things.

The generation of value for customers, guided by the confirmation signal of profit, is no longer primary — except in Professor Mendenhall’s Troy University curriculum.

The perspective of entrepreneurship can help students appreciate ethical business.

While young people express disdain and distrust for capitalism, they often have a more positive attitude about the concept of entrepreneurship. They realize that entrepreneurs are problem solvers, and that they add value to people’s lives. People benefit from the risks entrepreneurs take and the personal sacrifice they make. Entrepreneurial innovation makes lives better.

Students appreciate this, and can even identify some corporate CEO’s to whom they are willing to grant ethical approval — individuals such as John Mackey or Richard Branson. And many young people see entrepreneurship as aspirational — they want to start their own businesses and make a lot of money (i.e., profit!). Looking at business from an entrepreneurial perspective generates more positive attitudes, and we can show that all businesses started entrepreneurially, and are sustained by their continuing entrepreneurial performance, i.e., profitably delivering value for customers. If there are questions about corporate ethics, they relate to their non-entrepreneurial functions — such as HR (whence a lot of corporate wokeness emanates), legal (the people who write the opaque and deceptive terms and conditions that justify surveillance), finance (directing activities like stock buybacks that divert value from customers), and compliance (keeping corporations closer to government and more distant from markets).

Part of Allen’s approach to his students is to teach the entrepreneurial mindset — not just for business, but for life in general. He calls it “unleashing the inner entrepreneur” and includes what he calls “the economics of your dreams”, the secret of win-win, the creativity of the market, the entrepreneurial principles of career building, starting a profitable business, and character and leadership.

He also covers personal finance skills — developing knowledge of stocks and bonds and mutual funds and other financial instruments, insurance, retirement planning (even at age 18!), investing, spending, and, of course, personal management of student loans. It’s the entrepreneurial approach to life.

We should develop a new value proposition for business schools as humanness schools.

Business schools today are part of the problem. They don’t focus enough on how business can be the catalyst for positive change. They should be committed to solving problems affecting not just business, but humanity as a whole. But reading business school leaders’ and graduates’ speeches and their books demonstrates that they’re not trying to help humanity as a whole but a few selected businesses and a few particular industries. They’re not dedicated to helping ordinary people, as they should be.

Allen’s new curriculum aims to redress that imbalance.

Additional Resources

AllenMendenhall.com

“Corporate Wokeness Hurts The Groups It Purports To Help” (AEIR) by Allen Mendhall: Mises.org/E4B_191_Article1

“Troy professor: Students ‘very enthusiastic’ over anti-woke business scholars program” (Yellowhammer News) by Dylan Smith: Mises.org/E4B_191_Article2

Allen Mendenhall on Fox Business—”Ending Wokeism in the Corporate World”: Mises.org/E4B_191_TV