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11-25-08 - Entrepreneurship Supplemental Reading Notes...

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Entrepreneurship – Supplemental Reading Notes – 11/25/08 Spechler: Austrian Neo-Classical Economics and the Libertarian-Perspective Marshall – If buyers feel the changes are worth their cost, they will survive and spread, gradually replacing older products and processes. Natura non-facet salta – Marshal – nature doesn’t take great leaps – a lot of his work – if we held everything else constant and change one thing – comparative statics – we analyze the change in equilibrium from one point to another. If one of those supply or demand factors change, what happens to equilibrium Schumpeter – more interested in the dynamic process. Late 19 th century Role of evolution – Charles Darwin Marshall – applies the theory of evolution to social situations – application of “social evolution” – the thought was that society is evolving to a higher level – applies to businesses in Schumpeter – businesses evolve to higher, more complex forms Small changes – incremental, marginal changes Adam Smith’s diamond water paradox – The fact that there is so much more water in the world makes water much less valuable, but diamonds are very rare Adam smith said that demand must not determine price is because of this paradox Water is essential to all life, but price of water is zero On the other hand, diamonds are nowhere near the practical value of water, but are very valuable. 95 years after this paradox, there wasn’t a resolution Stanley Jevuns – solution to this – the distinction is that the market price does not depend on the total amount, but the price is correlated to the marginal utility diamond trader who is tremendously thirsty – He might trade diamonds for water. MAIN IDEA: grow of the marginal utility - simultaneously discovered by Carl manger – Austrian economist and Varl Ross in Switzerland - general equilibrium theory – if you tweak one aspect of the model, how does the equilibrium readjust Austrian economists o Very conservative o Minimal government intervention
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Joseph Schumpeter: Thought that the entrepreneur should be a leader in innovation Thought that business went up and down according to a long-term business cycle o Boom o Bust Oscillation Some technology leads to the different booms Joseph Schumpeter o 1883-1950 o “Creative Destruction” o Austrian minister of finance right after World War I o Banker for some time o Austrian academic o Emigrated to the U.S before Hitler Business Cycles – 1939 Fundamental Phenomenon of Economic Development Criticizes traditional circular flow model Wants to investigate the sources of change He is NOT looking at comparative statics, he is looking more at Dynamic processes He is looking at LIFE-CHANGING innovations – focuses on the discontinuities Suppliers, through advertising, will create demand Advertisers –build up demand Economics – social science that attempts to show how society can use scarce resource to satisfy unlimited wants.
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