I see a lot of people in the US have been happy to declare yesterday labor AND capital day (See for example Mark Perry at the American Enterprise Institute here). The argument is that you not only need labour to produce, but you equally need capital. That is all fine – even though I think it is a bit childish. For most Americans labor day is a just another holiday with no political significance. Celebrating the role of labour in the economy does not mean Americans think less of capitalists after all most Americans deep down fully well know that capital is at least as important as labour in the production of goods and services.
That said, if you really want to celebrate anything it is neither labour nor capital, but rather the entrepreneur as any fan of Joseph Schumpeter and Israel Kirzner would tell you.
The real difference between a communist or nazi command economy and a free capitalist economy is not the lack of capital in a command economy. After all capital is just accumulation of savings. Command economies can easily produce capital. Stalinist Russia or Nazi Germany are good examples of this.
The entrepreneur – the most underappreciated factor of production
What command economies cannot do is to unleash the entrepreneurial spirits that you have in capitalist economies. The role of the entreprenur is hugely underappreciated in modern economics.
To me the entrepreneur has two key roles in a capitalist economy.
First, the entrepreneur roots out misallocation of the system – the entrepreneur is the equilibrating force in the economy. He plays the role of the Walrasian auctioneer in the sense he buys cheap and sells expensive and that ensure the markets clear – it is all about arbitrage. Without the entrepreneur we would need the communist bureaucrat to ensure that “markets” would clear.
Adam Smith’s famous butcher both provided capital and labour, but most importantly he was the entrepreneur who spotted the need for meat and provided that to the consumers. Not because he loved the consumers, but because of his love for profit (not confuse with the rent on capital).
The entrepreneur is the economic agent who brings consumer, labour and capital together. When we try to live without the entrepreneur we get misallocation and economic disaster.
Second, the entrepreneur has the role of the inventor. The Steve Jobs and Graham Bell of the world. The people with ideas. There is no room for these people in command economies. They flourish in capitalist economies to the great benefit of themselves, consumers, laborers and capitalists.
But hadn’t it been for great economists like Israel Kirzner the most important agent in the capitalist economy would have been totally unappreciated.
So let the political pundits celebrate labor and capital day on the first Monday of September, but let at least the economists celebrate Entrepreneur Day on the first Tuesday of September.
Happy Entrepreneur Day!
PS Entrepreneurs would be the last people in the world to take the day off on Entrepreneur Day.