The substance of entrepreneurship and the entrepreneurship of substances

date15 August 2016
publishedDate15 August 2016
AuthorRaymond J. March,Adam G. Martin,Audrey Redford
The substance of
entrepreneurship and the
entrepreneurship of substances
Raymond J. March and Adam G. Martin
Department of Agricultural and Applied Economics,
Texas Tech University, Lubbock, Texas, USA, and
Audrey Redford
School of Economics, Management, and Project Management,
Western Carolina University, Cullowhee, North Carolina, USA
Purpose The purpose of this paper is to clarify the distinctions and complementary of William
Baumol and Israel Kirzners classifications of and insights into entrepreneurship, and thus providing a
more complete taxonomy of the substance of entrepreneurial activity. This paper also attempts to
clarify distinctions between unproductive and destructive entrepreneurship.
Design/methodology/approach This paper illustrates a more complete taxonomy of the
substance of entrepreneurial activity by examining entrepreneurial innovation in drug markets both
legal and illegal, identifying cases of productive, unproductive, superfluous, erroneous, destructive,
and protective entrepreneurship.
Findings This paper finds that the classifications of entrepreneurship (productive, superfluous,
unproductive, erroneous, protective and destructive) put forth by Baumol, Kirzner, and the
institutional entrepreneurship literature are complementary. While Baumol seeks to explain the
disequilibrating tendencies of entrepreneurship, Kirzner seeks to explain the equilibrating tendencies
of entrepreneurship within the institutional context.
Originality/value This paper utilizes case studies from legal and illegal drug markets to uniquely
and better explain the six cases of entrepreneurship. This paper also contributes to the literature by
clearly articulating the complementarity of Baumolian and Kirznerian entrepreneurship.
Keywords Rent seeking, Innovation, Entrepreneurial action, Regulatory policy,
Political entrepreneurship
Paper type Research paper
1. Introduction
The essential problem of the historian of entrepreneurship is that of interpreting, and causing
to seem intelligible, the creative activities of the mind (Knight, 1942, p. 130).
The task of a theory of entrepreneurship is to furnish us with linguistic tools with which to
understand the generation of novelty, of that which does not yet exist. Both William
Baumol and Israel Kirzner argue that the language of standard microeconomics is
ill-suited to the development of such tools. The neoclassical theory of production, despite
its many successes, reduces the supply side of the market to producers deciding how
much of a given good to produce in light of given production functions, given input prices,
and given demand conditions. Attempting to examine novelty in this language is rather
like trying to explain a symphony to someone with no concept of sound. And while such
shortcomings have been recognized for many decades economists have long recognized
the centrality of innovation in explaining economic development undergraduate
education in economics is still centered on this basic model.
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 2, 2016
pp. 201-220
©Emerald Group Publis hing Limited
DOI 10.1108/JEPP-10-2015-0030
Received 5 October 2015
Revised 14 May 2016
Accepted 15 May 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
Substance of
James Buchanan points toward a more fruitful language within which to develop a
theory of entrepreneurship the language of political economy (Buchanan, 1964).
This language is a sibling of standard microeconomics, but focusses on the institu tional
environment within which exchange activity takes place rather than on optimization
problems in an institution-less vacuum. And while political economy may not explain
the content of a novel entrepreneurial act which might, in the end, be an impossible
task it can tell us something about how entrepreneurial activity is shaped by
the environment within which it takes place. Buchanan (1980) argues that in a market
setting, entrepreneurial profit seeking tends to generate new gains from trade.
But when the same entrepreneurial element in human action confronts the institutions
of a redistributive state with the power to benefit some at the expense of others, profit
seeking becomes rent seeking. The form of these two activities is identical: the attempt
to win pure profits by seizing on a heretofore un-seized opportunity. But the substance
of these activities the production or destruction of wealth depends on its
institutional environment.
In addition to their shared skepticism regarding the usefulness of standard
microeconomics for the development of a theory of entrepreneurship, William Baumol
and Israel Kirzner are alikein appealing to the language of political economy to buildup
their individual theories. This essay argues that both Baumol and Kirzner utilize
institutional analysis in order to develop useful taxonomies of entrepreneurship that are
distinctive but complementary. By synthesizing the insights of both thinkers, we can
arrive at a more systematic and fuller appreciation of how institutions shape the
substance ofentrepreneurial activity. Eachoffers distinctive categoriesof entrepreneurial
activity that are not reducible to those identified by the other. We also combine their
insights with more recent work concerning institutional entrepreneurship, for which the
rules themselves are the object of creativity. We illustrate these concepts by examining
entrepreneurial innovation in the use and governance of chemical substances, both
medicinal and recreational. The creation of new chemical compounds captures the
essence of entrepreneurship. Compounds are mash-ups of a finite array of elements.
In a finite world, all entrepreneurial activity including both production and
exchange involvesrearranging existing materials or the claims oversuch materials into
new combinations. The formation of chemical compounds is an ideal instance of the
combination of productive factors to produce a novel product.
Medicinal and recreational substances have two more features that likewise make
them ideal for illustrating a taxonomy of entrepreneurial activity. First, the customer
base for substances is heterogeneous. Individuals exhibit a tremendous variety of
physical and psychological symptoms that they wish to find treatments for. Sometimes
similar symptoms have different causes. Customers also have diverse goals for
ingesting substances such as treating illnesses, getting in shape, or simple recreation .
This means that the successful entrepreneur needs to find not only the right chemical
but also the right customers, capturing a crucial element of entrepreneurial activity.
Second, the rules governing the use of chemical substances exhibit extremely wide
variation. They can be easily accessible over the counter, available with a prescription,
in the process of regulatory approval, restricted for certain uses, or completely illegal to
possess or sell. On top of these formal rules there are the informal norms that govern
the medical community and those that facilitate black market exchange of substances.
This wide variation in the institutional framework that governs the production, sale,
and use of chemical substances makes them a perfect candidate for examining the
relationship between institutions and entrepreneurship.

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