Much of my recent work deals with the theory and practice of entrepreneurship, and I have often referred to an “entrepreneurship research bubble,” characterized by a huge increase in research funding, faculty positions, courses, centers, degree programs, books, articles, etc. Indeed, the academic field of entrepreneurship has exploded in the last decade (see pp. 23-24 of the new book for some stats). While this is certainly good for students and scholars of entrepreneurship, it also has the predictable effect of attracting marginal projects, activities, and researchers to the field, many of which will likely not survive the inevitable shakeout. Of course, the field as a whole will probably be much stronger after the crisis, liquidation, and restructuring (and I sure hope to be one of the survivors!). More generally, Austrian-style business cycles exist in the world of ideas as well as the world of goods.
I was reminded of all this when reading some Rothbardian remarks from 1983 on the state of the libertarian movement. Murray was deeply concerned about the influence of outside funding, and how its rapid infusion, and sudden withdrawal, was distorting the movement’s intellectual structure of production:
[T]he libertarian movement has experienced all the syndromes of an “Austrian” business cycle in the real world. A massive and sudden infusion of funds in 1977-80 led to an artificial lengthening of the structure of production, an overinvestment in new and expanded institutions. Unknown nerds were plucked from obscurity, vaulted into positions of prominence and power, and given hundreds of thousands, even millions of dollars, to play with. After the hubris came the inevitable disillusion and drastic contraction, with the attendant painful liquidation of people and institutions that we see in every panic depression phase of the cycle. That liquidation is now taking place, unfortunately dragging many estimable people and organizations down with it.
Follow Circle Bastiat
Here is Rothbard six years later in May 1989, at the Michigan Libertarian Party Convention, held in Southfield. This is an excerpt where he discusses the prospects of the libertarian movement in the time of Ronald Reagan and Watergate: http://www.youtube.com/watch?v=wi10n6DU_9M
While I think you are right in observing that human capital can form part, and be affected by, intertemporal discoordination, I think Rothbard is wrong in his excerpt! Rothbard is not observing the symptons of a business cycle, but of something else entirely. He sees an increase in investment in the libertarian movement, and when this investment stream wanes he observes a surplus of intellectual capital. This could have just been a bad investment! Bad investments can occur independent of a business cycle. Or, perhaps what we saw is a shift in preferences, from libertarian movement output to something else — these changes in preferences lead to losses for the industries whose products are no longer in demand.
The general argument ought to be that intellectual capital, such as entrepreneurship research, is just as much a group of economic goods as is any other physical, tangible economic good.
Jonathan, I think Rothbard is speaking metaphorically, and somewhat loosely, here. He’s simply saying that these intellectual booms and busts share important features with an Austrian-style business cycle, such as overinvestment in long-term, intellectual-capital-intensive activities, human resources that are heterogeneous and cannot be costlessly redeployed from one activity to another once the funding dries up, etc. He’s also trying to be funny — this came from a newsletter aimed at movement insiders who would be familiar with Austrian business-cycle theory and likely get a chuckle out of the comparison.
Drawing an analogy with European Agriculture as it was 20 years ago, I’d argue that there is a general problem of state subsidised over production, made all too apparent by the mountains of un-saleable bachelors graduates, and the lakes of unwanted Masters and doctorates.
Rothbard’s humour is clear, though I wonder in what sense the Austrian Business cycle analogy does apply;
Perhaps some bachelors degrees can be seen as analogous to “capital goods”, but I would argue that many masters and perhaps doctorates too, are “consumers goods”
If we were to view graduate and post grad qualifications as “capital goods”, then, most are known to be “mal investments”, unlikely to ever recoup costs, before they are even enrolled upon.
If, on the other hand, they are considdered as a currency, then there is little doubt that it is a grossly over printed and inflated one, which has lost much of its credibility with the private sector.
Cui Bono?
I had a meeting a couple of weeks ago with the quasi religious order that is the British Government’s coercive nature conservation body.
I was meeting with the lower orders, whom I suspect are true believers (I suspect their bosses to be totally cynical).
Even if they are not, they are probably encouraged to pretend to be true believers, by the otherwise dismal employment prospects for anyone who wasted 3 years on an ecology degree, or even worse, compounded that waste with a higher degree.
The state, thus recruits those with little or no alternative choice of where to use their mal investment.
How will it end?
Despite the clear evidence of general overproduction, I do not expect the state sector to want to cut the number of people wasting their time in education. Too much propaganda effort has been invested in praising the virtues of “education”
Although there does seem to be some evidence of a Catch 22 effect, Where the father of one of the characters was paid not to grow alfalfa, and was so efficient at not growing alfalfa, that he had bought extra land on which not to grow alfalfa…
What of genuine researchers who reach unwelcome conclusions?
I’m pretty sure that some “quality” scheme will be imposed to deal with that…