Entrepreneurship, Prophecy, Bubbles: A Complicating Aspect of Market and Non-Market Economic Systems

Entrepreneurs function as prophets, if sometimes only in a minor way, and this distinguishes them from mere speculators. Prophecy, not a scientific venture, is distinct from prediction in that it is designed mainly to elicit response; and the dynamics of response to prophecy are complex. Bubbles are shown to be typical if not inevitable products of entrepreneurial prophecy. By recasting the prevailing image of reality, entrepreneurial prophets redirect actors in ways that may appear at the time appropriate and yet at other times stupid or culpable. This illustrates that the validity of a rational market response is tied to the validity of the signals. In an entrepreneurial economy, however, signals of equal strength may be of varying validity. The course of events being uncertain, validation appears only post hoc. No prior theory can always be relied on for ex ante validation. The second section of the paper explores the relevance of entrepreneurship as described in the first section to the evaluation and comparison of economic systems. The main thrust is that advocacy or opposition to widespread entrepreneurship can be distinguished conceptually from advocacy or opposition to markets. Markets have been advocated as best for many things, for example for achieving Pareto-optimal distributions on the one hand, and for achieving optimal growth on the other; and yet those two goals are distinct. Whether either or yet another goal is pursued in a market economy depends on the actors, and on details of market structure and law. Similarly the scope allowed to entrepreneurship can vary, across market economies or over time. Entrepreneurship can also exist in non-market economies. The Soviet Union under Stalin, especially in the 1930’s, could be characterised not only as highly entrepreneurial, but indeed as giving rise to an enormous—albeit non-market—bubble. Thus both market economies and Soviet style economies have been characterized by more and less entrepreneurial epochs. Yet the suspicion is cultivated that socialist movements, including those that came to power, represent in general a reaction against entrepreneurship much more than against markets per se.