In Dr. Burt Folsom's lecture titled "The Myth of the Robber Barons" he offers a historical perspective on some of the early captains of industry in the United States in the 19th century. He refutes the commonly held view that the so-called "robber barons" - the likes of those such as John D. Rockefeller, Andrew Carnegie, and Cornelius Vanderbilt - were exploitative manipulators who only gained market power through unethical means and at the detriment of consumers. As Dr. Folsom proves, this is far from the case. In fact, and to no surprise, it was the government who caused many if not all of the issues typically attributed to the entrepreneurs of the American industrial revolution. Dr. Folsom outlines two types of entrepreneurs during this period, although both undoubtedly still exist to this day: "market entrepreneurs" and "subsidized entrepreneurs." I will spend the next portion of this paper outlining the nature of each.

The Market Entrepreneur

The market entrepreneur seeks to profit by identifying unmet consumer demands and satisfying them better or more cheaply (or both) than any other entrepreneur. This entrepreneur always faces uncertainty and therefore always bears the risk of losing his investment, i.e. not making a profit. The entrepreneur has no guarantee of recouping any of his money in the event that the product/service he provides is not actually valued by consumers as he estimated. There are two primary types of entrepreneurship. One involves working within relativity of the current capital structure - making changes here and there to increase efficiency and further satisfy the demands of consumers. The other type of entrepreneurship involves upending the existing capital structure by introducing a completely new good or service to the market that better meets consumer demand than the previously existing capital structure. This is known as disruptive entrepreneurship, and is also sometimes referred to as "creative destruction." The entrepreneur exists, in the words of F.A. Hayek, in a state of "rivalrous competition." This means that the entrepreneur must compete with other entrepreneurs to best provide value to consumers, and failing to do so will result in losing investments and potentially being driven out of the market. This sort of entrepreneurship is the "driving force," in the words of Ludwig von Mises, of the economy. This means that entrepreneurial discovery of better ways to meet consumer demand fuels economic growth and leads to greater prosperity and increased standards of living. Economic growth could not occur without entrepreneurial activity.

The Subsidized Entrepreneur

I will start by saying this: the only similarity between the market entrepreneur and the subsidized entrepreneur is their desire to make a profit. The term subsidized "entrepreneur" is, then, a misnomer. He does not bear uncertainty in the way that a legitimate entrepreneur does, as his failure will likely only result in a bailout of more funds to squander rather than a loss like that faced by the legitimate entrepreneur in the event that his venture proves unprofitable. It is very unlikely that this type of "entrepreneur" will be profitable. He has much less of an incentive to carefully invest the subsidized funds he is given, as their loss will not result in long term financial harm to him - it will simply revert him back to the state he was in before he convinced the state to give him a handout. This means that his investments will not be as carefully managed as those of a true entrepreneur, and therefore will be less likely to result in a profit. To be frank, it is unlikely that the subsidized "entrepreneur" would produce a profit anyways, seeing as he is already admitting his perceived inability to provide his good or service profitably under free market conditions by taking the subsidy. His incentive is - rather than to provide consumers with better and cheaper goods and services than those that already exist - to find ways to convince the government that he needs more subsidized funds. This can only harm the economy.

Which Will Prevail?

As explained by Dr. Folsom in his lecture, it is clear that the "market entrepreneur" will prevail over those artificially upheld by government subsidization. Historically, this is evidenced to be true through the shipping example and the railroad example provided by Dr. Folsom. Economically, this is also necessarily true due to the nature of the entrepreneurial process. Without a functioning system of profit and loss in which the effects of each are allowed to manifest to their fullest degree, successful ventures would not be possible. Additionally, the perverse incentives oftentimes created by subsidization (for example, the Union Pacific and Central Pacific rail companies blowing up each other's curved and unusable tracks) result in vast amounts of waste in both resources and funding.

Markets are the solution. You cannot subsidize your way to prosperity. Facilitating economic freedom is the only way to achieve desirable, efficient outcomes.

In-Class Discussion:

1. In class, I will discuss the difference between market entrepreneurs and subsidized "entrepreneurs."
2. In class, I will discuss the perverse incentives created when the state subsidizes an industry.
3. In class, I will discuss the importance of entrepreneurship in facilitating economic growth.