With the emergence of big data and artificial intelligence, the feasibility of central planning has again become a popular topic. The essential feature of the planned economy is the use of systematic and institutional force to negate entrepreneurship and deprive individuals of the freedom to choose, especially the freedom to start a business and innovate. Can big data revive the planned economy? The essence of this question is: Can big data displace entrepreneurship? The impossibility of a big data-based planned economy is demonstrated from five perspectives (i.e. the nature of knowledge, the nature of entrepreneurial decisions, the distinction between risk and uncertainty, the importance of ideas, and the evolutionary view). In other words, big data cannot replace entrepreneurship. The false belief that central planning is possible with big data is extremely naïve.

This chapter discusses the difference between arbitrage and innovation, the unpredictability of innovation, and the four uncertainties: technological feasibility uncertainty, commercial value uncertainty, related technology uncertainty, and uncertainty brought about by politics, culture, and policies. The uncertainties of innovation means there cannot be a unified plan for innovation. Instead, innovation relies on the special skills and expertise of entrepreneurs. Innovation can only come from decentralized decisions, with each entrepreneur making his own judgment and the market determining the winner and loser. The market itself is an error correction mechanism. It can encourage the most creative and ambitious people to create wealth for society, but also guarantees that these people (entrepreneurs) do not bring about fatal disasters.

This chapter discusses the relationship between the rule of law and innovation, holding that the rule of law protects rights, not interests. Protecting interests is incompatible with market competition and hinders innovation and entrepreneurship. By comparing Great Britain and France during the first and second industrial revolutions, this chapter shows that the protection of rights is related to the rise and fall of a country. Innovation grows out of an ecosystem of free competition. Artificial prohibitions on innovation stifle it.

The first chapter primarily discusses entrepreneurship from the perspective of F.A. Hayek’s theories of knowledge, holding that indescribable “soft knowledge” is the most critical to entrepreneurs. Without understanding the importance of soft knowledge, it is impossible to understand entrepreneurship. Using the case of how F. Tudor, the American entrepreneur, created a mass market for ice, the author emphasizes the four points of entrepreneurship: alertness to profitable opportunities, imagination of the future, simplification of complexity, and perseverance and patience.

This chapter analyzes the relationship between entrepreneurs and capitalists. It argues that the function of capitalists is to select entrepreneurs, and without capitalists there would be no entrepreneurs. The government can replace neither entrepreneurs nor capitalists. State-owned enterprises cannot produce entrepreneurs. The chapter also discusses corporate governance. Existing corporate governance theories focus exclusively on conflicts of interests between investors or shareholders and operators. In fact, there are two types of conflicts. One is the conflict of interests, and the other is the conflict of cognitions. Given that the future is uncertain and indeterminate, and that different people have different imagination and judgements, the conflict of cognitions is more challenging than the conflict of interests. The best corporate governance structure allows entrepreneurship to play the biggest role, as opposed to incentivizing and disciplining professional managers. The legal rules of corporate governance must be general, flexible, and entrepreneur friendly.

This chapter discusses the six standards of a good market theory. A good market theory must be able to explain how humanity can cooperate in the extended order based on division of labor. It must explain how the reputation mechanism works in promoting human cooperation. A good market theory should be a theory about how the economy develops and changes, not only a theory about how the market reaches equilibrium and stability. Entrepreneurship is the soul of the market economy. Without entrepreneurs, a true orderly market is not possible, and neither is true progress. A good market theory must be able to explain economic fluctuations and business cycles. Economic fluctuations and business cycles are related to entrepreneurial decisions and innovations. A good market theory should be of rights-priority (putting rights above interests) rather than utilitarian (putting interests above rights). In terms of all these standards, neoclassical economics is not a good theory of the market.

This chapter discusses mainstream economics’ misunderstanding of monopoly law. Mainstream economics’ conceptions of competition and monopoly are incorrect. Ignoring entrepreneurship is the primary reason for this misunderstanding. Entrepreneurship and competition are two sides of the same coin. In markets with free entry, competition always exists because competition is the essence of entrepreneurship. True monopolies necessarily come from governmental – or related entities’ – limits on market entry or preferential treatment. As long as freedom of entry exists, entrepreneurs will always attempt to find new opportunities and innovative methods to overthrow the current market leader. Entrepreneurship is the best anti-monopoly law because it is more conducive to the breakdown of monopolies than any legal provisions or policies.

This chapter uses three classic examples to explain what entrepreneurship is NOT. Entrepreneurial decisions are different from managerial decisions, and cannot be understood within the neoclassical rational model. First, entrepreneurial decision-making is not scientific decision making, which is based on data and calculations, instead, it mainly depends on intuition, imagination, and judgement. Second, entrepreneurial decision-making is not about finding a solution under given constraints, instead it changes constraints. Third, entrepreneurial decision making is not solely profit focused, the entrepreneur has non-profit goals. Imagination is the most important for entrepreneurial decisions under an uncertain and indeterminate future. This means that mainstream economics’ externality theory, anti-monopoly theory, and corporate governance theory must all be revised. This also means industrial policy has lost its theoretical basis. This chapter is the core of the entire manuscript. It is extremely important for our understanding of the market economy.

Hatred for the rich, hatred for business activities, and hatred for entrepreneurs have been common throughout human history. Based on the existing literature, this chapter divides people’s prejudice and hostility towards entrepreneurs into two causes. One is psychological and the other is epistemological. Envy is the psychological cause. A misunderstanding of knowledge is the epistemological cause. Because most people do not understand the importance of soft knowledge, entrepreneurial money making appears to refer to getting “something from nothing.” By combining psychological envy with epistemological ignorance, we get a good understanding of intellectual prejudice towards entrepreneurs. In order to reduce hostility towards entrepreneurs, economists have a responsibility to establish a correct market theory.

This chapter addresses the relationship between entrepreneurs and “common prosperity.” It argues four points both theoretically and empirically: (1) profit is a responsibility system under which everyone earns income only when he or she creates value for others; (2) entrepreneurs are the primary driver of wealth creation; (3) ordinary people are the biggest beneficiaries of the market economy and entrepreneurs; and (4) because the function of the entrepreneurship itself cannot be inherited, income distribution in the market is highly mobile and, “wealth cannot survive more than three generations” is the iron law of the market economy!

This chapter provides further evidence of the uncertainty and unpredictability of innovation through a detailed description of the competitive process between airships and airplanes before the end of the 1930s. Both the airship and airplane were created by the imagination of entrepreneurs. While Count Zeppelin, the inventor of the airship, once predicted that the airplane would just be a footnote in the history of aviation, looking back more than 100 years later, contrary to his prediction, the airship became a footnote in aviation history. This is the most detailed and complete case study in the book and is extremely enlightening for understanding entrepreneurship and innovation.

This chapter first argues that the disagreement between advocates and opponents of industrial policy is actually a disagreement between the two different market theory paradigms. One is the “neoclassical economics paradigm” and the other is the “Mises–Hayek paradigm.” The chapter then analyzes the challenges faced by industrial policy from the perspectives of both cognitive limitation and incentive distortion. The basic conclusion is that industrial policy is destined to fail. Ignorance of entrepreneurship is the fatal weakness of industrial policy advocates. The two primary justifications for industrial policy are “externalities” and the “coordination failure” of the market. With a correct understanding of entrepreneurship, however, these two justifications are untenable. The chapter also argues that the “comparative advantage strategy” of a nation is endogenously created by entrepreneurs, not determined by so-called “endowments.”

This chapter starts with the argument that the greatest benefit of the market is to make the best use of everyone’s enthusiasm and creativity, instead of making efficient allocation of given resources, as proposed by mainstream economics. The chapter analyzes the traditional theories (neoclassical growth theory and Keynesian economics) that economists use to explain economic growth. Their common shortcoming is ignoring the role of entrepreneurs. The chapter then outlines the entrepreneur-centric “Smith–Schumpeterian growth model” and the two functions of entrepreneurs (i.e. arbitrage and innovation). Arbitrage is the discovery of disequilibrium and exploitation of lucrative opportunities in markets under existing technological conditions and resources. Innovation creates or commercializes new things that did not exist, or breaks away from routines. With this perspective, it also gives a brief analysis of China’s economic growth over the last few decades.