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Bridging the Gap between Entrepreneurship Teaching and Economics

January 31, 2014 in Economics

By Matt McCaffrey

Starting with Menger, Böhm-Bawerk, and Wieser, Austrians have always emphasized the importance of the entrepreneur in economics. The role of entrepreneurship also featured prominently in the works of earlier economists such as the French liberals, and Chris Brown and Mark Thornton have even argued that the notion of the entrepreneur was a key to the founding of modern economics. At the same time though, Austrians (along with other scholars such as William Baumol) have also lamented the serious neglect of the entrepreneur in contemporary economics, which has led, among other things, to an underestimation of the welfare-enhancing power of markets, and an undue faith in the power of governments and regulators to tinker with the market process.

It should come as welcome news then that entrepreneurship studies is one of the fastest-growing fields among the business disciplines (along with related fields such as strategic management and strategic entrepreneurship). But sadly, these fields have sparked less attention than they probably should. One possible reason is that there is often a gap between the economic theory of the entrepreneur and the business practice of entrepreneurship. One way to think about it is that business research tends to focus on the practical aspects of new venture creation, whereas economists are usually interested in the economic function of entrepreneurship—the underlying (or perhaps overarching) economic and social significance of entrepreneurs. (Peter Klein makes this point by distinguishing between “occupational entrepreneurship” and “functional entrepreneurship.” Business scholars and practitioners focus mainly on the former, economists on the latter.)

A problem then is to bridge this gap and to bring economic insight to the field of practical business. This is especially important in teaching courses in entrepreneurship, which often focus so much on the business trees that they miss the economic forest. It’s true that entrepreneurship textbooks usually include something about Schumpeterian “creative destruction,” and repeat some well-worn facts about the importance of small business in the economy. But beyond these brief nods to economic ideas, many entrepreneurship courses don’t have much to say about the bigger picture of entrepreneurial behavior. The unfortunate result is that a lot of the richness of the economic point of view gets lost amongst (nevertheless important) details of new venture creation.

However, Austrians enjoy an advantage in that the Austrian tradition excels in explaining the market economy from the ground up, incorporating the entrepreneur at every opportunity. …read more


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