Economics - General

Schumpeter, Hayek and the Learning Economy

As I well know, technical command of high-level calculus and mathematical modeling are prerequisites to success in 21st century graduate schools of economics. Economists generally create a mathematical model of how they believe the world functions and solve the equations to find the optimum (i.e.: quantity, price, tax rate, etc.). Perfect information is often assumed.
An enlightening essay (“Entrepreneurship“) by Mark Casson describes how Learning Economics–a branch of Economics which lends itself to models which generally can not be solved mathematically–may provide a superior description for the roots of economic growth than neoclassical theory.

In their mathematical models of economic activity and behavior, economists began to use the simplifying assumption that all people in an economy have perfect information (see information). That leaves no role for the entrepreneur. Although different economists have emphasized different facets of entrepreneurship, all economists who have written about it agree that at its core entrepreneurship involves judgment. But if people have perfect information, there is no need for judgment. Fortunately, economists have increasingly dropped the assumption of perfect information in recent years. As this trend continues, economists are likely to allow in their models for the role of the entrepreneur. When they do, they can learn from past economists, who took entrepreneurship more seriously.

This is not an entirely new concept in the field of economics. Schumpeter stated that entrepreneurs work through a process of “creative destruction” whereby old technologies are rendered obsolete. Hayek (Friedrich, not Salma) believed that the market process was a essentially a “discovery process” through which innovative ideas were accepted and poor concepts discarded. One can clearly see how innovative ideas in communication (e.g.: the internet, cell phones), health care (e.g.: pharmaceuticals, surgical procedures using lasers or robots), and other fields has influenced the quality of contemporary life.