Being an economist in the field of entrepreneurship makes for a scary experience. The reason is that many of the “new” disciplines in business schools are developed without and sometimes as a contrast to existing, older disciplines. Rather than making use of what we have learned over the centuries in philosophy, economics and other disciplines, entrepreneurship and (though to a lesser extent) strategic management borrow individual concepts or theoretical approaches stripped of their contexts.

It is true that economics as a field, as well as most economists, have done pretty much everything possible to make sure others discount their discipline. The outcome of any type of matheroizing on strictly rational actors in specific situations under perfect information is, as one would expect, very limitedly applicable on real phenomena. For this, economists have themselves to blame; they have willingly adopted the Lange-Lerner view of the world, later formalized and introduced large-scale by Paul Samuelson, where any problem can be parameterized and mathematically solved. The number of babies that have been thrown out with this bathwater is approaching infinity.

Nevertheless, economics has amassed an impressive body of knowledge since the early and mid-18th century. Especially the theories of classical economics are as valid today as they were a century ago; what is not of much value is an empirical test of some formal model or the model itself. As long as economists stick to attempting to understand the world (rather than predict it), they’re actually doing very well. It would be a terrible loss to disregard this great tradition the way modern “neoclassical” (mathematical) economists have.

Yet this is exactly what is being done. One could go so far as saying that there is a quite generally dismissive attitude toward anything that bears the resemblance of economics in business schools. My own experience is from the study of entrepreneurship, which is an almost-discipline in the process of trying to find its soul and purpose. There should be no doubt that there is real value in the study of entrepreneurship, but this cannot be done in contrast or as a challenge to economics. In fact, the understanding for the market process that economists have gained should be an important part of – and a framework for – the study of the entrepreneur, entrepreneurship, and anything related.

Unfortunately, this is hardly the case. Instead of understanding the market process, entrepreneurship scholars use their rather rudimentary understanding and simplistic theories attempting to distance themselves from economists. Again, this is primarily the fault of economics and economists, since they’ve gone overboard with putting the formalization cart before the theory horse. And since they’ve done this, non-economists want to avoid being associated with this perceived-as-ridiculous approach. There is some sense to it, but it is done in the wrong way. It can and should be argued that theory must drive research in the study of the social world, not be a product of it. But theory is not and should not be discipline specific; theories about the market should be as usable and useful in the study of innovation and entrepreneurship as in economist or strategic management. (Of course, I’m assuming those theories are good theories and not simply formal models.)

For this reason, if I’m allowed to speculate, entrepreneurship scholars neither mind nor hesitate to stumble into the area where economists have been unchallenged for decades or even centuries. This is the case when Clayton Christensen, the renowned Harvard professor of entrepreneurship, writes on the problem of capitalism in the Harvard Business Review. In this article, Christensen addresses a jumble of things as though they were the same and based on assumptions about their relationships that are as unstated as they are unproven. One need only read the first page of the six-page article for a whole bunch of questions of fundamental importance to emerge. He begins by posing the questions:

despite historically low interest rates, corporations are sitting on massive amounts of cash and failing to invest in innovations that might foster growth. That got us thinking: What is causing that behavior? Are great opportunities in short supply, or are executives failing to recognize them? And how is this behavior pattern linked to overall economic sluggishness? What is holding growth back?

These questions have already been answered at least one time too many. But to an entrepreneurship scholar, it sometimes appears as though ignorance of other disciplines is not a problem but in effect something to be (almost) proud of. To address a question of growth, one must start by defining what it is. Christensen dismisses “most” growth theories for being macroeconomic (one cannot but sympathize with him – anything macroeconomic is usually wrong, at least post Keynes) and then states that to understand the causes of growth one must “crawl inside companies—and inside the minds of the people who invest in and manage them.”

Is this true? Not necessarily. This assumes that the market is only (or close to it) companies and that only what happens within companies is important. Well, that disregards (dismisses?) the huge literatures on economic organization, vertical integration, and so on. In fact, how can we say anything about what goes on “within” a company unless we first know what it is and what it does in the market? The interesting thing here is that we do not know. Christensen seems to just assume that we all know what a company is, even though a to his work closely related field (strategic management) has published a huge literature on the theory of the firm. Surely he’s aware of this?

Discussing economic growth, he seems to accept the legal definition of a company. Well, that is very problematic, since it does not necessarily relate to economic growth. In fact, hasn’t it been pretty much established that economic growth is the generation of value through better allocation of resources effectuated by exchange? If A and B engage in an exchange transaction, both are – by definition – better off. Well, that means the world is better off. If A and B are entrepreneurs, then they are both better off in the sense that they are better positioned to satisfy consumer wants after the exchange has taken place. If either A or B is a consumer, then the consumer is better off by getting a product “worth” more than the money given up – and the seller (and competitors) gets important market feedback that there is real demand to be satisfied.

Note what’s missing in this picture: the company.

What’s even more disturbing is that, if one takes into account the literature, the company is unaffected internally by the price mechanism – it is non-market. Well, if that is the case, then what happens within the company does not drive growth until it actually produces output that is exchanged in the market.

And certainly we must consider the political milieu under which corporations operate. If they are sitting on a bunch of cash, which presumably to a not insignificant extent can be due to the Federal Reserve’s creation of new credit, but not investing it – perhaps there is a reason for this? And perhaps the reason is political or “regime” uncertainty? Funny how neither new credit creation nor regime uncertainty are engendered within and therefore discoverable if we “crawl inside companies.”

My own work, while addressing a bunch of phenomena, has a strong undercurrent: one cannot discuss or even attempt to understand entrepreneurship without considering the market process and, therefore, the context within which entrepreneurship takes place. Interestingly, this is almost nonexistent in entrepreneurship studies. It has to be introduced to entrepreneurship scholars.

The study discussed in Christensen’s article appears to not bother with such things. It also does not bother with the already established theories and empirical data. Instead, it takes the opportunity to ask alumni who run companies what they “think.” And while doing this, capital is (inadvertently?) redefines as simply “cash” (broadly understood) and therefore completely lacking of a productive dimension. One must wonder what anyone could ever expect to learn from such a study. Yet it obviously fits very well as an article featured in the highly regarded Harvard Business Review.

What scares me, as an economist studying entrepreneurship is the complete separation between entrepreneurship and the theory of the market. To me, this is a complete impossibility: entrepreneurship is a core component in the market process, in fact the driver of it. And entrepreneurship always takes place in the market arena – where entrepreneurs react on each other’s actions, and attempt to foresee the future states of the market so that they can invest in the most profitable ventures. How can one study this while disregarding economics, the study of the market?

Of course, the economics I talk about is not the mainstream economic theory from which the entrepreneur has since long been expunged. Instead, classical economics, and the modern heterodox schools of thought that continue this tradition (like the Austrian school), has always placed the entrepreneur and entrepreneurship at the center. Entrepreneurship scholars do well in only glancing at mainstream economic models, but they desperately need to consider theories of the market process.