The difference between the capitalist-entrepreneur is that he doesn’t ‘just’ risk opportunity cost, but also capital. (A worker gets his wage, a capitalist-entrepreneur get’s interest with entrepreneurial profit/loss. (insert necessary caveats as discussed by Rothbard in MES)
The worker is risking capital, as well. Labor is a capital good. But, yes, you can distinguish between capitalist and entrepreneur (not all entrepreneurs are capitalists; some entrepreneurs risk other people’s capital).
It may be in Reisman’s framework, but not in Mises’ and Rothbard’s.
What is it in Mises’s framework (which has three types of goods: consumer, producer, medium of exchange)?
Labor is a producers’ good, but producers’ good is not synonymous with capital good. Capital goods are just one kind of producers’ good (factor of production).
Agreed, than we call entrepreneurial the act of seizing an opportunity, within the all-present framework or risk. Than I really find it improper to hold Kirzner’s definition as improper.
It is fully appropriate, as he who risks yet does not seek opportunities in no entrepreneur: the beaurocrat who seeks lifetime secure employment still faces the uncertainty of seeing his job cut, yet as he is not seeking to exploit any opportunity at all, I relay canto say that in his ‘bearing of risk’ (i.e. doing nothing at all) he is acting as an entrepreneur.
Agreed, than we call entrepreneurial the act of seizing an opportunity, within the all-present framework or risk. Than I really find it improper to hold Kirzner’s definition as improper.
It’s a very specific criticism. It’s sort of similar to the ‘chicken and the egg’ paradox. Is the primary function of the entrepreneur being a discover, or is discovery a corollary of the entrepreneur’s role as a risk bearer. Rothbard would argue that the latter is true. You can come to similar conclusions from Salerno’s essay. Salerno argues that discovery is a corollary of competition, and therefore the entrepreneur wouldn’t necessarily need to discover, but is only driven to discover for the sake of competing with fellow entrepreneurs.
In regards to the example of the bureaucrat, I repeat: entrepreneurship is an activity, or action, and it does not describe an individual.
Danny,
Labor is a factor of production. I don’t understand your differentiation between ‘producers’s good’ and ‘capital good’. For example, in Prices and Production Hayek uses ‘producers’s good’ to describe factors of production. A producers’s good is a good which is used towards the production of other products, which is exactly what a capital good is.
Again, if you agree that there are three types of goods (producers’s, consumers’s, and medium of exchanges) then you can’t differentiate between capital goods and producers’s goods, because that would imply that the two have different roles.
I’m not making this up. For Mises and Rothbard, capital goods are distinct from land and labor. And all three are producers’ goods/factors of production.
True; but Rothbard defines Capital good as a ‘reproducable means of production’; labor seems to be reproducable; so you might make the argument that the distinction needs something else.
It also doesn’t invade the theory that capital goods are reducible to labor and land and earn no net profit.
Let me think about this so more.
You can try to argue that Rothbard should regard labor as a capital good by his definition of the latter, but the fact of the matter is that he does not.
Where does Mises make the differentiation between capital goods and labor? I thought Mises rejects the differentiation between the concepts of land, labor, and rent.
…Rothbard defines Capital good as a ‘reproducable means of production’; labor seems to be reproducable
I’ve never read Man, Economy, and State. Could you provide a page number so I can read that in context? That seems like a really strange definition of ‘capital good’.
…nobody is saying that he is. But I don’t think the point of arguing is to repeat what others have said per se.
It is true that he did not think the land, labor, capital triad was useful for value and price theory, and thus he, unlike Rothbard (the ownership of land and labor played distinct roles from the ownership of capital goods in Rothbard’s production theory, whereas Mises, as far as I know, never really elucidated his production theory), downplayed the importance of the land/labor (original factors of production) vs. capital good (produced factor of production) distinction, especially as less important than the higher-order vs. lower-order and producer’s vs. consumers’ good distinction…
The modern theory of value and prices is not based on the classification of the factors of production as land, capital, and labor. Its fundamental distinction is between goods of higher and of lower orders, between producers’ goods and consumers’ goods. When it distinguishes within the class of factors of production the original (nature-given) factors from the produced factors of production (the intermediary products) and furthermore within the class of original factors the nonhuman (external) factors from the human factors (labor), it does not break up the uniformity of its reasoning concerning the determination of the prices of the factors of production.
and that he warned that, if misinterpreted, the definition of “capital good” as “produced factor of production” can possibly result in confusion regarding “real capital”…
Capital goods have been defined also as produced factors of production and as such have been opposed to the nature given or original factors of production, i. e., natural resources (land) and human labor. This terminology must be used with great caution as it can be easily misinterpreted and lead to the erroneous concept of real capital criticized below. (…)
We may acquiesce in the terminological usage of calling the produced factors of production capital goods. But this does not render the concept of real capital any more meaningful.
But, of course, no harm can result if, following the customary terminology, one occasionally adopts for the sake of simplicity the terms “capital accumulation” (or “supply of capital,” “capital shortage,” etc.) for the terms “accumulation of capital goods,” “supply of capital goods,” etc.
But when he did use “capital good” as a term, he either went ahead and used the “produced factor of production” definition that excludes original factors of production (labor and land)…
I. As a result of the providential care of our forebears we have at our disposal an ample stock of intermediate products (capital goods or produced factors of production) and of consumers’ goods.
II. The intermediary products or capital goods, the produced factors of further production, change hands in the course of events; they pass from one plant to another until finally the consumers’ goods reach those who use and enjoy them.
or, he used a more sophisticated definition, which still clearly excluded labor. This is his more refined definition of capital good…
"At the outset of every step forward on the road to a more plentiful existence is saving–the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption. The products accumulated for this purpose are either intermediary stages in the technological process, i.e. tools and half-finished products, or goods ready for consumption that make it possible for man to substitute, without suffering want during the waiting period, a more time-absorbing process for another absorbing a shorter time. These goods are called capital goods. "
And this is how he defines labor…
“The employment of the physiological functions and manifestations of human life as a means is called labor.”
“The employment of physiological functions and manifestations of human life” is not a “product” one can “accumulate” for the purpose of prolonging the period of production.
I’m just trying to make sure that people reading this who are interested in mastering Austrian economics as it has already been developed before trying to improve it don’t get confused.
FYI but we’ve kind of sidetracked from a discussion on termonology and discovery/risk to one on what is labor. Dont get me wrong, all of this is fascinating but it would be nice to have closure on the previous topics as well before moving to the next!
I can see the distinction between original factors of production and produced factors of production. I guess I never really soaked that part of Human Action when I read it. Since I usually distinguish between producers’s goods, consumers’s goods, and media of exchange (from Mises’s The Theory of Money and Credit) I never found it useful to dinstinguish between original factors and produced factors of production.
You make an interesting argument,
“The employment of physiological functions and manifestations of human life” is not a “product” one can “accumulate” for the purpose of prolonging the period of production.
This is going to take us back to a debate I’ve had on this forum before on what labor is and what it means to be employed. I think both Rothbard and Mises are moderately ambiguous when it comes to this topic. It’s hard to define what type of action actually constitutes employing one’s labor (and, this leads me to disagree with the notion that labor is the ‘employment of physiological functions’, since what you’re employing is the labor, labor is not the employment of itself).
Labor is a product, and while it may be difficult to compare the accumulation of labor with the accumulation of other goods, it nevertheless stands that you do need to accumulate energy in order to be able to carry out certain tasks.
Anyways, it might be fair not to categorize a laborer as a capitalist, but I think a laborer can be an entrepreneur when selling his labor.
For those interested, here is the first post for the General Theory live blog: Opening Comments on Keynes.
Why at all bother giving names to things and happenings in the real world? Like capital, good, production and others. Is this just a meaningless name-giving act of boredom or intellectual game playing? What are worth these names if they are not employed in a theory that properly explains real world phenomena? I believe these are very appropriate questions.
Then what is the point of making a distinction beetween factors of production and what is the point of making a distinction between class goods? Doesn’t there exist only one factor of production and doesn’t there exist only one class of goods? I believe the first distinction was introduced in economic theory as 1) an attempt to explain the origin and nature of the income of different individual owners of things that are all brought together for the purpose of a (capitalistic) production conduct , i.e., the landowner, the labour, the capitalist. The latter distinction is useful for explaining the pointless at first glance 2) act of production of goods that are not for direct consumption (that is do not yield direct want satisfaction, i.e. intermediate goods) but are used to produce what does yield direct want satisfaction, and the 3) act of exchanging something with easier to determine direct relationship to an individual’s want for something that has got an obscure indirect relationship to an individual’s want (medium of exchange).
There are several things that must be considered:
i) are these acts even worth exploring. is the knowledged gained from their study useful?
ii) are the names of the distinctions proper or they are messed up? (is labour also capital or not? and does this bring down the theory or not)
iii) capital is present in both demarcations
These are some of my thoughts. I have noticed that there are a lot of definitions for capital. The term is used to explain different things by different authors.
It is not like I am trying to be a moderator, but I think if the postings about this topic are separated to form another thread would be useful. We could discuss this matter there without spamming this thread.