This is not to disparage "normal" entrepreneurship, which is needed to consolidate and extend every revolutionary breakthrough. Without the emergence of thousands of gas stations and repair shops, Henry Ford's revolution in the auto industry would have gotten nowhere. Normal entrepreneurship keeps the economy going. But normal or revolutionary, every capitalist venture has the potential for a dual yield: a financial profit and a knowledge profit. One without the other is barren (although a knowledge profit will always pay off somehow, at some time, for someone, if only in the knowledge of what not to do).
In a revolutionary enterprise however, the capitalist invests in a totally new product, process, service, or line of research. In so doing, he exposes himself to major reversals, failure, bankruptcy -- but also to major profits in money and knowledge that will yield yet more profits and knowledge, not only for himself but for hundreds of other, "normal" entrepreneurs, as well.
This risk and uncertainty, this potential for failure, does more than arouse fear in political elites. It also offers a rationalization for the exercise of governmental power to prevent failure. At the heart of this rationalization is the problem of how to distinguish an investment from a gamble. Many people don't see that there is any difference at all. An entrepreneurial investment, they will tell you, is a gamble. It is not. A gamble does not test a falsifiable proposition of any sort; it merely tries a random chance. And win or lose, it cannot produce valuable knowledge. The gambler, rolling the dice, is engaged in a kind of performative utterance. "Let it be a seven" he cries, playing God -- or praying to Him. The investor may do a lot of praying, but his investment is not a gamble. It can't be, for he must work, think, plan, to identify a profitable opportunity to make his investment come up seven. And that working, thinking, and planning -- whether or not it pays off in sevens -- will of necessity pay off in knowledge.
In entrepreneurial risk-taking, gambling is simply a metaphor. But metaphors are very powerful instruments of thought. It matters, deeply whether you compare your beloved to a summer's day or to a baby -- or to a pinball machine. By the same token, the gambling-investment metaphor has had immeasurable repercussions on the way we think about capitalism. For if gambling is bad, which most people believe; and if gambling with other people's money is criminal, which it is; and if everyone believes that he or she has a stake in how large sums of money are used, which seems to be the case in democracies; then it follows that gamblers who call themselves investors are players in a lottery or vendors of a scam.
Furthermore' if the primal capitalist act, investment, is just a roll of the dice, a "speculation," then social critics and political elites can put anyone who indulges in such acts in a perfect double bind. If he succeeds, they needn't credit him for it, either intellectually or morally. If he fails, they can blame him for recklessness. Either way, one thing is obvious: The entrepreneur-gambler, the "cowboy capitalist," deserves little place, and very limited consideration, in the affairs of government and the economy.
But the virtual absence of these vital and creative, tenacious and sacrificial souls from the economic and moral ledgers of society depletes and demoralizes the culture of capitalism. It leads to a failure to pass on to many youths a notion of the sources of their affluence and the possibilities of their lives. It leads to a persistent illusion among intellectuals that we live in an "age without heroes." It leads to a public sense of entitlement to the bounties of "society," to a "social surplus," which in fact is the product of the labor and ingenuity of particular men and women, and which will slip away unless they are permitted to reinvest it.
Above all, the theory of capitalism without capitalists allows politicians to pretend that economies grow chiefly because of their own economic policies, rather than because particular individuals risk their wealth and work in the creation of new goods and services for others. Thus, politicians may ignore the impact of their so-called wealth-creating schemes and industrial policies on the actual creators of wealth and industry. Whether they endorse new income surtaxes on the nation's personal savers or new social security gouges against proprietors, whether they impose new national security snarls on high-tech exporters or new police powers and penalties on immigrants and their employers, whether they commit any variety of assault against real entrepreneurs, politicians may still pretend to be "pro-growth and pro-entrepreneur."
The problem is not merely "liberalism" or "social democracy." Ironically enough, in the entire post-World War II era, the worst assaults against America's entrepreneurs occurred under two Republican administrations, full of businessmen and conservative economists. For eight years, the regime of Dwight D. Eisenhower refused to retrench America's 90% tax rates on "unearned" incomes; and twice, in 1969 and 1971, Richard Nixon signed into law taxes that virtually extinguished the real return (after inflation) on capital gains. Neither administration thought that entrepreneurs were as important as balanced budgets and other macroeconomic aggregates. During the early Eisenhower years, the number of business starts remained less than one-seventh the level today, and the tax-cutting economies of Europe and Japan began to surge ahead of a torpid America. Even today, the Reagan Administration has managed to adhere to its tax-cutting mandate only in the teeth of fierce opposition from conservative economists with Adam Smith ties and balanced-budget fetishes.
