University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Management Department Faculty Publications Management Department 2010 The hiP losophical Foundations of a Radical Austrian Approach to Entrepreneurship Todd H. Chiles University of Missouri, [email protected] Denise M. Vultee Wayne State University, [email protected] Vishal K. Gupta Binghamton University (SUNY), [email protected] Daniel W. Greening University of Missouri, [email protected] Chris S. Tuggle University of Nebraska-Lincoln, [email protected] Follow this and additional works at: http://digitalcommons.unl.edu/managementfacpub Part of the Entrepreneurial and Small Business Operations Commons Chiles, Todd H.; Vultee, Denise M.; Gupta, Vishal K.; Greening, Daniel W.; and Tuggle, Chris S., "The hiP losophical Foundations of a Radical Austrian Approach to Entrepreneurship" (2010). Management Department Faculty Publications. 120. http://digitalcommons.unl.edu/managementfacpub/120 This Article is brought to you for free and open access by the Management Department at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Management Department Faculty Publications by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. Published in Journal of Management Inquiry 19:2 (2010), pp. 138–164; doi: 10.1177/1056492609337833 Copyright © 2010 Todd H. Chiles, Denise M. Vultee, Vishal K. Gupta, Daniel W. Greening, and Christopher S. Tuggle. Published by Sage Publications. Used by permission. digitalcommons.unl.edu The Philosophical Foundations of a Radical Austrian Approach to Entrepreneurship Todd H. Chiles,1 Denise M. Vultee,2 Vishal K. Gupta,3 Daniel W. Greening,4 and Christopher S. Tuggle4 1. University of Missouri 2. Wayne State University 3. Binghamton University (SUNY) 4. University of Missouri Corresponding Author–Todd H. Chiles, 443 Cornell Hall, University of Missouri, Columbia, MO 65211, email [email protected] Abstract The equilibrium-based approaches that dominate entrepreneurship research offer useful insights into some aspects of entrepreneurship, but they ignore or downplay many fundamental entrepreneurial phenomena such as individu- als’ creative imaginations, firms’ resource (re)combinations, and markets’ disequilibrating tendencies—and the genu- ine uncertainty and widespread heterogeneity these imply. To overcome these limitations, scholars have recently in- troduced a nonequilibrium approach to entrepreneurship based on Ludwig Lachmann’s “radical subjectivist” brand of Austrian economics. Here, this radical Austrian approach is extended beyond Lachmann to include the work of radical subjectivism’s other noted theorist: George Shackle. More important, the article extends entrepreneurship re- search by systematically comparing and contrasting the nascent, radical Austrian approach to entrepreneurship with three dominant equilibrium-based approaches: neoclassical, Kirznerian, and Schumpeterian economics. Specifically, the article (a) explicates the paradigmatic philosophical assumptions about the nature of individuals, firms, and markets that underlie these approaches; (b) demonstrates how metaphor is employed as a device to concretize these assump- tions; (c) examines the research questions that arise from the assumptions these metaphors reflect; and (d) uses the Jap- anese “beer wars” of the 1980s and 1990s to illustrate one methodological approach (hermeneutics) researchers can adopt to apply these assumptions, metaphors, and questions to study entrepreneurial phenomena from a radical subjectiv- ist perspective. Keywords: entrepreneurship, Austrian economics, radical subjectivism, philosophy of science, metaphor, hermeneutics Entrepreneurship is fundamentally a disequilibrium Busenitz, 2001), punctuated equilibrium (Shane, 1996), phenomenon: It focuses on creating new order rather or a general tendency toward equilibrium (Shane & Ven- than achieving equilibrium (McKelvey, 2004); it spot- kataraman, 2000). Though strategy and organization the- lights individual action as an “antiequilibrium force” that orists have noted this contradiction before in ways that introduces novelty, surprise, and instability rather than reflect the different concerns of their disciplines (Bromi- as a repetitive, predictable, stabilizing force (Stevenson ley & Papenhausen, 2003; Meyer, Gaba, & Colwell, 2005), & Harmeling, 1990); it emphasizes profit opportunities entrepreneurship scholars have barely begun to address in disequilibrium markets and the enterprising individu- it. The problem is especially critical in the entrepreneur- als motivated to exploit them rather than the absence of ship field because equilibrium-based theories entirely such opportunities, incentives, and entrepreneurs in equi- eliminate or severely circumscribe such central entre- librium markets (Venkataraman, 1997). Though most en- preneurial phenomena as (1) entrepreneurs’ choices, ac- trepreneurship scholars recognize this, they nonetheless tions, and opportunities; (2) genuine uncertainty associ- continue to privilege equilibrium: a state of rest where be- ated with capital investment and the passage of time; and liefs converge, products are homogeneous, and change is (3) the continual emergence of novel ideas, resources, and predictable (Kirzner, 1973). They make equilibrium their products that drive competitive market processes. ultimate reference point by employing economic the- To begin addressing these limitations, Chiles, Blue- ories grounded in competitive equilibrium (Alvarez & dorn, and Gupta (2007) recently introduced Ludwig 138 Philosophical Foundations of Radical Austrian Entrepreneurship 139 Lachmann’s “radical Austrian” approach, offering 185). This is especially salient for our purposes because, scholars a nonequilibrium alternative to equilibrium- as Pittaway (2005, p. 215) observed, equilibrium-based based economic theories of entrepreneurship. Here, we economic theories “have tended to eradicate meaning- extend the treatment of this radical subjectivist brand ful interpretations of entrepreneurship from their in- of Austrian economics beyond Lachmann to include quiry as a consequence of the philosophies used.” In ad- the work of radical subjectivism’s other noted theorist, dition, our analysis helps reduce the confusion that arises George Shackle.1 Though Chiles et al. (2007) paid lit- when scholars fail to recognize that different research tle attention to Shackle, we use his work to add depth approaches not only rest on different paradigmatic as- and nuance to the nascent radical subjectivist approach sumptions but also evoke different metaphors, raise dif- to entrepreneurship by elaborating the process of imag- ferent questions, and require different methodological inative choice and emphasizing the “kaleidic” nature of approaches.4 markets (Shackle, 1972). More important, we extend en- trepreneurship research by systematically comparing and contrasting the emerging radical Austrian approach Paradigmatic Philosophical Assumptions to entrepreneurship with three dominant equilibrium- based approaches: neoclassical, Kirznerian, and Schum- To understand how the radical subjectivists’ philo- peterian economics. We focus on these three approaches sophical assumptions differ from those that inform equi- because they are widely regarded as central to entre- librium-based theories, it is helpful to clarify where schol- preneurship research (Chiles et al., 2007; McMullen & ars stand on the key philosophical issue of ontology (the Shepherd, 2006; Miller, 2007; Shane, 2000) and because nature of existence). Specifically, it is useful to know they emphasize market equilibrium/disequilibrium: (1) whether their perspective on this issue is more objectiv- Neoclassical economics provides the archetypal market ist, emphasizing the idea that existence is independent of equilibrium theory in which entrepreneurship is treated variations in the human mind; or more subjectivist, em- as a factor of production; (2) Kirzner’s traditional brand phasizing the extent to which existence depends on such of Austrian economics highlights how entrepreneurs variations (Johnson & Duberley, 2000). We array our four drive markets from disequilibrium toward equilibrium; economic approaches to entrepreneurship along these di- and (3) Schumpeterian economics spotlights how entre- mensions (from more objectivist to more subjectivist) to preneurs create market disequilibrium by radically dis- form a continuum of paradigms (see Table 1): (1) Positiv- rupting a market in equilibrium, only to take it to a new ists assume the social world exists independent of indi- equilibrium over time.2 In contrast, the radical Austrian viduals’ knowledge of it. (2) Postpositivists assume the approach emphasizes how entrepreneurs think and act social world has an actual, substantial existence but can in ways that may drive markets farther from equilib- be apprehended only imperfectly by individuals because rium—an outcome scholars have identified as the only of the contested nature of human knowledge. (3) Critical uniquely Austrian “prediction” (Foss, 2007), but one realists assume the social world has a material presence that entrepreneurship scholars have largely overlooked. apart from individuals’ knowledge of it, but they empha- At the heart of our argument, we (1) explicate the para- size its changing and structured nature and admit some digmatic philosophical assumptions about the nature of role for human cognition to influence it. (4)