Why Capital Needs Entrepreneurs

The productivity theory of capital dominates the popular view and public discussions. It presumes that capital generates the yield like a tree begets its fruits. In this view, more savings imply more investment, and more investment generates a higher capital stock, which in turn raises future yields. The belief is widespread that monetary assets grow and render automatically the returns. Yet already at the end of the 19 th century the Austrian economist von Eugen von Böhm-Bawerk exploded the productivity theory of capital. He showed that without entrepreneurial action, capital is stale and useless.

stocks_0.PNG

Entrepreneurial Capitalism

Destroying entrepreneurial capitalism in favor of state capitalism and socialism leads to economic decline. When America’s new democratic socialists promise more social justice and a higher living standard for the poor, they deceive themselves that more government interventionism and more control of business could reach these aims. The opposite is the case. In order to provide better living standards for all, one needs more entrepreneurial capitalism. There are no other means available to transform savings into profit-bearing investment than by the action of entrepreneurs who compete in a free market.

There is no escape from permanent efforts to rearrange the production process. Without entrepreneurial activity, capital is just a heap of capital goods. Without the entrepreneur, capital is dead. It takes the entrepreneurial activity to bring capital to life and to keep capital alive. The future levels depend on the overall conditions of the economy as they evolve over time. The need for constant renewal of real capital requires a flow of funds to maintain the production process. Financial assets will appreciate in tune with profits and thus depend on able entrepreneurs. Saving and investment will be wasteful when managers who lack foresight and prudence run the business or when institutional settings emerge that hamper, transform, and destroy these entrepreneurial qualities.

1 2 3 4
View single page >> |

Mises Institute is a tax-exempt 501(c)(3) nonprofit organization. Contributions are tax-deductible to the full extent the law allows. Tax ID# 52-1263436

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.