Category Archives: Entrepreneurship

Happy 250th birthday, Jean-Baptiste Say

JB Say

JB Say, 1767-1832

Jean-Baptiste Say was born 250 years ago, on January 5, 1767.

Say translated Adam Smith into French, wrote his own *Treatise on Political Economy* in 1803, and coined the term entrepreneur. He worked at a life insurance company in England and established his own cotton spinning mill in France, employing as many as 5,000. His “Law of Markets” – later known as Say’s Law – was a foundation of classical and neoclassical economics, a contravention of Malthusian pessimism, and later a chief target of Keynesian antagonists.

Peter Drucker began the first chapter of his book *Innovation and Entrepreneurship* by quoting Say.

“The entrepreneur,” said the French economist J.B. Say around 1800, “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.”

Drucker later continued:

“Joseph Schumpeter was the first major economist to go back to Say. In his classic *The Theory of Economic Dynamics,* published in 1911, Schumpeter broke with traditional economics – far more radically than John Maynard Keynes was to do twenty years later. He postulated the dynamic disequilibrium brought on by the innovating entrepreneur, rather than equilibrium and optimization, is the ‘norm’ of a healthy economy and the central reality for economic theory and economic practice.”

Here’s is Thomas Sowell’s book *Say’s Law.*

Here is Steven Kates’s book *Say’s Law and the Keynesian Revolution,* and a video of a Kates lecture on the topic.

Here’s John Maynard Keynes’s book *The General Theory,* which was in significant part an attempt to refute his own clever misstatement of Say’s Law.

Here is Mark Skousen: “Say’s Law is Back.”

And here is the @JBSay twitter account (me).

— Bret Swanson

A Culture of “Futurity”

Yesterday I attended an event of the National Chamber Foundation and the American Enterprise Institute. The topic was “Challenges to Creating 20 Million New Jobs.” But, appropriately, and at the urging of one of the panelists, AEI president Arthur Brooks, we ended up talking about the importance of a “culture of entrepreneurship.” I mentioned I had just witnessed one of the great cultures of entrepreneurship at the three-day Gilder/Forbes Telecosm conference, this year focused on the technology companies of Israel, where a surge of venture capital and hyper-entrepreneurial activity has created a boom.

Today, David Brooks nicely captures this ethos of “futurity.” He worries that China has it, and we don’t.

It may seem like an ephemeral thing, but this eschatological faith in the future has motivated generations of Americans, just as religious faith motivates a missionary. Pioneers and immigrants endured hardship in the present because of their confidence in future plenty. Entrepreneurs start up companies with an exaggerated sense of their chances of success. The faith is the molten core of the country’s dynamism.

There are also periodic crises of faith. Today, the rise of China is producing such a crisis. It is not only China’s economic growth rate that produces this anxiety. The deeper issue is spiritual. The Chinese, though members of a famously old civilization, seem to possess some of the vigor that once defined the U.S. The Chinese are now an astonishingly optimistic people. Eighty-six percent of Chinese believe their country is headed in the right direction, compared with 37 percent of Americans.

Growth Clusters

Ed Glaeser, William Kerr, and Giacomo Ponzetto have a new paper on “Clusters of Entrepreneurship.”

Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when Öxed costs are lower and when there are more entrepreneurial people.

Romer’s transformative “Charter Cities”

Stanford economist Paul Romer has had lots of good ideas over the years. Particularly his ideas about the importance of ideas in the economy. But his “Charter City” idea explored at the recent TED conference is one of the best yet.

Maybe I like it so much because it so closely tracks the concepts offered in my long paper of last August called “Entrepreneurship and Innovation in China – 1978-2008 – Thirty Years of Decentralized Economic Growth”, a follow-on article in The Wall Street Journal, and a previous essay “Breaking Metcalfe’s Law” on the economic importance of the exchange of ideas.

Romer uses China’s “free zones” envisioned by Deng Xiaoping and initially implemented by one Jiang Zemin as the chief example of how his charter cities would work in practice. He explains how they might cut the political-economic Gordian knot of societies too stuck in the past to make obviously needed rule changes that open the floodgates of ideas and entrepreneurship. These were the key themes of my paper.

Also check out this working paper by Romer that surveys the economic growth literature (hat tip: Growthology).

Tech Killers

Michael Malone says Washington is killing Silicon Valley. Among the depressing metrics:

in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.

Citing in particular an amazingly large array of new accounting rules, including but not limited to Sarbanes-Oxley, Malone gets the key problem:

From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. They treat it as if it is a natural phenomenon that can be manipulated and exploited, rather than the fragile creation of several generations of hard work, risk-taking and inventiveness.

Technology: 2008 vs. 1992

See my comparison of the state of technology in 2008 versus 1992, when the last Democratic presidential transition took place. 

Today, an average consumer can buy a terabyte hard drive (1 million megabytes), on which she might store her family photos, videos and other digital documents for as little as $109.99. In 1992, a terabyte drive, if such a thing had existed, would have cost $5 million.

Go to for the full article: “How Techno-creativity Will Save Us.”

Closing the Frontier?

The frontier is the key to all growth. Dan Henninger rightly worries we are closing it off.

The greatest danger in the current economic crisis is that the United States will lose its historic appetite for risk. The mood now is that risk-taking got us into this mess. Risk, though, is the quintessential American trait that built the nation — from the Battle of Bunker Hill to the rise of the microchip. If we let risk give way to a new ethos of commercial reserve and regulatory restriction, the upward arc of the U.S. ascendancy will flatten. Maybe it already has.

The Anti-Innovation Bailout

Tom Hazlett tells it like it is:

The real problem entailed by the auto-maker subsidies will never be discussed because it can never be seen. The opportunity cost of shovelling capital to companies such as GM is that companies such as Boeing or United Technologies or Disney or start-ups unknown will be unable to use it to fund their projects. Propping up today’s US car manufacturers means beating down tomorrow’s economic star. In an era of technological leaps, those emergent stars tend to be leapers. The bail-out puts the public’s chips on the former, pulling stakes from innovative rivals.

As I Was Just Saying…

On the eve of the G20 global financial summit, Judy Shelton weighs in with yet another brilliant exposition on stable money:

At the bottom of the world financial crisis is international monetary disorder. Ever since the post-World War II Bretton Woods system — anchored by a gold-convertible dollar — ended in August 1971, the cause of free trade has been compromised by sovereign monetary-policy indulgence.

Today, a soupy mix of currencies sloshes investment capital around the world, channeling it into stagnant pools while productive endeavor is left high and dry. Entrepreneurs in countries with overvalued currencies are unable to attract the foreign investment that should logically flow in their direction, while scam artists in countries with undervalued currencies lure global financial resources into brackish puddles.

Malcolm Gladwell phones it in…

…just in time for the holiday shopping season, at least according to Michael Maiello of

Oh, and one of the Lakeside parents had a computer company called C-Cubed and [Bill] Gates got a job there and so on and so forth. Gladwell’s not surprising conclusion is that if Gates had been an eighth grader in Cambodia rather than Seattle in 1968, things might have turned out differently for him. Thank you, Mr. Gladwell! Now why does my cat’s breath smell like cat food?

Obama’s Entrepreneurial Lesson

From my article in Friday’s Wall Street Journal:

If Barack Obama ran for president by calling for a heavier hand of government, he also won by running one of the most entrepreneurial campaigns in history.

Will he now grasp the lesson his campaign offers as he crafts policies aimed at reigniting the national economy? Amid a recession, two wars, and a global financial crisis, will he come to see that unleashing the entrepreneur is the best way to raise the revenue he needs for his lofty priorities?

Read the whole op-ed here, and listen to a brief radio interview here.