The problem of entrepreneurship for economists is that the best-developed and best-understood part of economic theory—neoclassical economics—is really mathematics. Business firms in that system are merely formulas, “production function.” There are no people, no institutions; it is a timeless paradigm of resources shifting and forth according to changes in relative prices and costs. This has meant that entrepreneurship, the most forceful, dramatic, and obvious phenomenon in all of economic life, has perforce been ignored by theoretical economists in their story of how economic events happen.
—Jonathan R. Hughes (1986 [1965]: x)
As the title of my book—An Entrepreneurial Theory of the Firm— shows, the goal of this work is to introduce the “most forceful, dramatic, and obvious phenomenon in all economic life”—namely entrepreneurship—into the theory of the firm. Indeed, the economic theory of the firm, like most of the rest of economic theory, does not really make room for entrepreneurial activity and thus does not account for the most fundamental aspect of the market process.
Firms have always puzzled economists. They are an empirical phenomenon that must be explained along with other phenomena that constitute the market system. However, firms have never been really incorporated in conventional economic theory, thus my purpose in the following pages is to give an explanation for the emergence and the growth of firms in the marketplace that would be consistent with the approach of th4e modern Austrian school. This is an inquiry into the nature of the relationship that exists between firms and markets.
—Frédéric E. Sautet, introduction to An Entrepreneurial Theory of the Firm, Foundations of the Market Economy (London: Taylor and Francis e-Library, 2003), 1.
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