There are two major paradigms of the market: the neoclassical static equilibrium theory and the Austrian School (and Schumpeterian) dynamic non-equilibrium theory. The most important difference between the two is their different understandings of the entrepreneur’s status and function in the market. The market in neoclassical economics is a market without entrepreneurs. On the contrary, entrepreneurs are central to the market in Austrian School economics and Schumpeterian economics. The neoclassical model is not a good market theory and its market failure theory is wrong. By placing entrepreneurs at the center of the market, the Austrian School of economics provides a better understanding of the market. This chapter also points out the eight paradoxes of the neoclassical model. These eight paradoxes show that neoclassical economics totally distorts our understanding of the real market.

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.