Return of the Invisible Men: the Microeconomic Value Theory of Inventors and Entrepreneurs

Abstract

I have already and repeatedly joined other voices in noting the virtual expulsion of the entrepreneur from contemporary mainstream literature of economics. I have also joined the call for the restoration of the entrepreneurs’ place in the theory, given the fact that no one seems to deny their importance for the workings of the free-market economy in general and for its growth and innovation in particular. Here, I begin by offering my own explanations for the entrepreneur’s exclusion. More important, I hope to show how inventors and entrepreneurs can be restored to their proper place in production and distribution theory and actually take first steps toward realization of that objective. I will offer theory that undertakes to explain their activities, that analyzes their remuneration and shows that discriminatory pricing is a normal state of affairs in this arena, even in the classic Schumpeterian model. Specifically, I will argue that in a wide range of cases competitive market forces make them into discriminatory price takers and that the vector of discriminatory prices that the supplier of innovation is forced to adopt will, if competitive pressures are sufficiently strong, tend to be Ramsey-optimal. Furthermore, I will argue that this fits right in with the Schumpeterian model, in which, however, the discrimination entails prices that differ over time, rather than differing among submarkets, as occurs in common models of differential pricing.

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Cite this paper

@inproceedings{Baumol2005ReturnOT, title={Return of the Invisible Men: the Microeconomic Value Theory of Inventors and Entrepreneurs}, author={William J. Baumol and Israel M. Kirzner}, year={2005} }