The Impossibility of Entrepreneurship Under the Neoclassical Framework: Open vs. Closed-Ended Processes

Abstract:

In spite of its use to explain market processes, neoclassical economics still has not integrated entrepreneurship into its analyses. This explanatory gap is the consequence of the analytical closed-endedness of the “market” processes described by the neoclassical framework, where social interactions do not result in new unpredictable information. However, entrepreneurship as profit-seeking under uncertainty is an open-ended process characterized by a creatively reflexive and emergent interactive behavior in society. This open-endedness involves the generation of novel, complex, and extensive future information that is not what anyone intended it to be. Neoclassical economics, with its predetermined assumptions on economic behavior, cannot really account for the fundamental uncertainty of open-ended processes because it cannot explain reflexivity or emergence. Therefore, it cannot explain entrepreneurship as either an innovatively cohesive or disruptive behavior that converges toward future market situations.

Keywords::

• complexity
• emergence
• entrepreneurship
• institutions
• reflexivity

JEL Classification Codes::

• B40
• B50
• D01
• D02
• L26

Notes

¹ These actions do not only concern the clients of an entrepreneur, but also his/her suppliers, competitors, the government, influential individuals, and other institutional decision-makers.

² I view entrepreneurship here as a broader concept than just referring to pecuniary profit-seeking under uncertainty. Profit refers to its Latin root, proficere, which means to make a progress relative to one’s perceived initial situation (Giménez Roche 2011). Therefore, “profit” can be pecuniary, but also social, humanitarian, or a mixture of any aspect of human action (Mises 1998, 253-255). Furthermore, this means that entrepreneurship is a form of behavior that can be assumed by any agent in the market — from laborers to managers — and it is not limited to business leaders (Schultz 1975).

³ For more on how the neoclassical framework confuses modeling reality with actually theorizing about it, see Victoria Chick and Sheila Dow (2005, 368-369).

⁴ More recent discussions on dynamically unstable systems can be found in Richard Day (1994), John Foster and Werner Hölzl (2004), and Paul Ormerod (1998).

Additional information

Notes on contributors

Gabriel A. Giménez Roche

Gabriel A. Giménez Roche is an associate professor of economics at the Groupe ESC Troyes en Champagne School of Management (France). The author thanks an anonymous reviewer and the editor, Christopher Brown, for their valuable comments and suggestions that improved the quality of this article.