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Foresight? Who needs it?

An exploration into the relationship of the entrepreneur and the phenomenon of time preference

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By Mason Mohon | USA

We’ve all heard in our times of distress “the world will keep on spinning without you.” This statement is probably true and normally puts one at ease, making one realize they don’t have to conquer reality in this instance. But while it may be true for individuals, there is a larger, broader group of people this idea may not apply to. Those are the entrepreneurs.

There are many ways to view the entrepreneur and many subjects that touch on the idea of the entrepreneur. Business, self-help, finance, and economics all, at one point or another, take a look at this idea. But what is it? What is an entrepreneur, and what do they do?

In my opinion, the greatest definition of an entrepreneur is someone who sees problems not as such, but rather, as opportunities. This nails a very basic meaning of what an entrepreneur does, but how do they do it? The Misesian view of entrepreneurship is someone who acts with foresight. Because they are acting under uncertainty, a good entrepreneur must have very keen foresight.

But why does this foresight keep the world spinning? The “problems” that entrepreneurs see are seen by them as demand, a way to make a profit. I covered this in my previous article on the entrepreneurs titled The Market is Brutal, and That’s a Good Thing which can be found here, but to cover it briefly again, the entrepreneur benefits everyone. Nothing they do is useless, it is always to benefit another person, while also benefiting themselves. If an entrepreneur were to engage in action that helped nobody else and paid no attention to demand, the result would be the entrepreneur falling flat on their face. This is the glorious brutality of the market, known as creative destruction.

These people may not literally spin the earth, but they sure do help us develop our lives and aid in the division of labor. A successful economy not only needs entrepreneurs but needs them to both be able to be successful and be able to fail. To give them the ability to be successful, they must have foresight, which brings us to the idea of time preference. In the first chapter of Democracy – The God that Failed, Hans Hoppe articulates this idea of time preference by explaining it as when individuals prefer goods. High time preference means that one prefers a good sooner rather than later, and low time preference is the opposite.

This phenomenon more or less explains why capitalism civilizes society. One with low time preference will begin to use his current wealth as future wealth, whether it is through saving or investing makes no difference. This is because the individual expects to gain more in the future and can afford to have less now. If these expectations prove correct, they time preference rate will further lower because this actor will begin to participate in the same type of action more and more, because it is so profitable.

The result of this is civilization increases, meaning that we develop new medicines, nutritions, health care, and increased life expectancy. The impacts of lower time preference are a net benefit. Entrepreneurs in the Misesian view have a very low time preference, being able to take a serious hit in the short run for a potential goal in the long run. They look forward to the future and this also benefits everyone.

So a successful economy needs entrepreneurs to be able to both succeed and fail, but there is a burden that entrepreneurs face which decreases their foresight. This burden is taxation. Taxation is when the state coercively takes money from individuals, which causes a rise in time preference because they have fewer present good, AND fewer future goods because the state will continue to tax. The result is less foresight and less willingness to invest in the future because one knows they now have less wealth along with less future wealth. Taxation causes people to be more present-oriented because it takes from the goods of the future, not just the present.

Imagine if the state were to tax less – a lot less – so entrepreneurs, investors, and all other individuals can all be more future-oriented. Imagine the effect this would have on human health and technological development. This is why the state should curb its levels of taxation as much as it can because every tax hinders the process of civilization.

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