Austrian Perspectives on Entrepreneurship, Strategy, and Organization is a part of the Cambridge “Elements” Series, which joins series like the Routledge Focus and Oxford University Press “Very Short Introductions” in publishing short, focused surveys of a very specific topic in something that fits in the space between literature review journal article (like you might find in the Journal of Economic Literature or Journal of Economic Surveys) and a research monograph (one of the authors has it listed under “selected miscellaneous writings” on his CV). Part of the Cambridge sub-series “Elements in Business Strategy,” Austrian Perspectives on Entrepreneurship, Strategy, and Organization’s seven short sections come in at about 60 easy-to-read pages that will introduce newcomers to an exciting research agenda and bring others up to date on what is happening in the field.

Foss, Klein, and McCaffrey build a couple of bridges by helping entrepreneurship scholars see exactly what “Austrian economics” is and by helping Austrian economists see how their insights have been incorporated into the study of management and entrepreneurship. It is also very helpful for people like me who teach undergraduates and the occasional class of MBA students who struggle to find clear language and clear taxonomies. They help clarify what economists mean when they say “individualism,” which is not a philosophical or moral commitment but, as they put it, “ontological individualism; that is, the position that ultimately only individuals can truly act.”

In a lot of mainstream economics since the second World War, “entrepreneurship” has been a black box when it has not been wholly absent. The authors give us a clear summary of why entrepreneurship is necessary, what entrepreneurs do, how entrepreneurs are rewarded, and, importantly, how we can better understand the firm in light of advances in the theory of entrepreneurship. For scholars and teachers looking for a way to organize their own inquiries and explanations, Austrian Perspectives on Entrepreneurship, Strategy, and Organization will be a good place to start.

So why are entrepreneurs important? They explain this in light of some of the things that make “Austrian” economics distinct. It’s called “Austrian” economics because many of the ideas originated in Vienna after Carl Menger published his Principles of Economics in 1871, and the word “Austrian” was a derogatory label from German scholars who asked, essentially, “Can anything good come out of Austria?” The answer, as Foss, Klein, and McCaffrey show, is a pretty clear “yes.”

I want to highlight one particular insight, which emerges from their summary of some work done by Ludwig Lachmann on expectations and entrepreneurship. I paraphrase: everyone has a different interpretive framework born of different knowledge and experience. Therefore, everyone has different expectations. The entrepreneur helps to reconcile and harmonize these expectations by taking control of resources and deploying them as part of a strategy. Foss et al. reproduce a dictionary definition of “strategy” as “a plan of action designed to achieve a long-term overall aim,” and if an entrepreneur’s strategy is successful, she earns a peculiar brand of income called profit. As W.H. Hutt emphasizes, profit is unique in that it is residual rather than contractual: it is what is left over after contractual income (wages paid to laborers, interest and rent paid to capitalists and resource owners) has been paid out. Entrepreneurs who exercise good judgment are rewarded with profits while entrepreneurs who exercise bad judgment are saddled with losses.

This brings me to one of the things that makes their contribution unique. Entrepreneurial judgment takes center stage, which will come as no surprise to people already at least sort of familiar with the authors’ work that they lean heavily on Foss and Klein’s 2012 book from Cambridge, Organizing Entrepreneurial Judgment: A New Approach to the Firm. They argue that “judgment serves as the ultimate foundation of competitive advantage” and emphasize how entrepreneurs exercise judgment in trying out different capital combinations with profits and losses telling them which combinations bring about coordination and harmony and losses telling them which combinations bring about discoordination and disharmony. The entrepreneur plays an indispensable function because 

“under dispersed knowledge (Hayek, 1948), genuine uncertainty (Knight, 1921; Mises, 1949), and sheer ignorance (Kirzner, 1973), current prices cannot reflect all combinations of complementary capital gods, that is, in all their ‘multiple specificities.’ Under these circumstances, some combinations are simply not imagined by any entrepreneur (Shackle, 1972). Markets that can price such combinations therefore logically do not exist.”

“Missing markets” problems–market failures–are all over economics. The unique Austrian, entrepreneurial perspective explains how, in spite of our irremediable ex ante ignorance of the whole universe of possible capital combinations and their possible prices, coordination nonetheless emerges. Their contribution is very much an exercise in exploring and understanding how, as James M. Buchanan explained, the “institutions of exchange, of markets, are derived, therefore, from the mutual interactions of individuals who are continuously engaged in making ordinary choices for more rather than less.”

Foss, Klein, and McCaffrey pack a lot of value into sixty pages–which should be no surprise, given what the “Elements” series is supposed to accomplish. It’s a useful introduction for people who don’t know this literature, it’s a good refresher for people who haven’t thought about it in a while, and I think it’s also a good jumping-off point for teachers looking to organize lectures and classroom activities. Yes, markets tend toward equilibrium, but this Element points us to the journey, and that’s where all the entrepreneurial action is.