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Entrepreneurship, Exogenous Change and the Flexibility of Capital

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  • Horwitz Steven

    (St. Lawrence University)

Abstract

This paper applies Israel Kirzner's theory of entrepreneurship and the Austrian theory of capital to the theory of the firm. In particular, it explores why some firms are better able to react to exogenous change than others, especially when that change is negative. The argument is that firms that have structures of physical and human capital that are more "flexible" are better able to adapt to exogenous change. In this context, flexibility is understood in terms of Lachmann's notions of the substituability and complementarity of capital. Flexible capital structures are ones in which elements can be more easily substituted for. Such flexibility carries a trade-off in terms of lost productivity from using less specific (and less highly complementary) capital, but it is argued that this trade-off might be worthwhile in an environment of heightened structural uncertainty.Cet article applique la théorie entrepreneuriale d'Israel Kirzner et la théorie Autrichienne du capital à la théorie de la firme. Plus particulièrement, il explore pourquoi certaines entreprises sont plus à même de réagir face à des changements exogènes que d'autres, spécialement quand ces changements sont négatifs. L'argument est que les firmes qui possèdent des structures de capital physique et humain plus "flexibles" sont plus aptes à s'adapter à des changements exogènes. Dans ce contexte, la flexibilité est comprise au sens lachmanien de substituabilité et de complémentarité du capital. Les structures de capital flexibles sont celles dans lesquelles la substitution entre les composantes est plus aisée. Une telle flexibilité entraîne un compromis en termes de perte de productivité découlant d'un usage de capitaux moins spécifiques (et moins complémentaires), mais il est suggéré que ce compromis en vaut la peine dans un environnement encore plus structurellement incertain.

Suggested Citation

  • Horwitz Steven, 2002. "Entrepreneurship, Exogenous Change and the Flexibility of Capital," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 12(1), pages 1-13, March.
    • Handle: RePEc:bpj:jeehcn:v:12:y:2002:i:1:n:6
    DOI: 10.2202/1145-6396.1048
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    References listed on IDEAS

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    1. Roger Koppl, 2002. "Big Players and the Economic Theory of Expectations," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-62924-0.
    2. Israel M. Kirzner, 1996. "Essays on Capital and Interest," Books, Edward Elgar Publishing, number 1009.
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    Cited by:

    1. Mikayla Novak, 2023. "The Emancipatory Liberalism of Steven Horwitz: The Case of Women’s Economic Status," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 38(Winter 20), pages 55-71.

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