Frederick Lavington on Entrepreneurship

Theory, Reality, and Normative Behaviour

Abstract

Frederic Lavington (1881–1927) played a significant role as a node between Marshall’s and Keynes’s eras. While Marshall trusted on the individual chivalrous entrepreneur, Keynes no longer depended on such an individual and placed his hopes on semi-autonomous bodies guided by public authorities. Although Lavington was a devotedly orthodox Marshallian, he was also a revolutionary theory developer, and he was located in the transition period between the two important figures. He recognised an inherent instability in the modern economies of the time but still held an optimistic view of capitalism. Lavington relied on able entrepreneurs as a group, who he believed could eliminate the contradictions between individual rational calculations and collective disturbing consequences. Lavington’s insight on capitalism can be understood as a threefold-layer structure, at the core of which is an entrepreneur. This structure comprises the following: (1) theory construction, related to revolutionary devices such as liquidity preference and portfolio selection, (2) contemporary recognition, related to the trade cycle and (3) normative behavour, related to leaders in industry. The first is concerned with rational behaviour under uncertainty; the second, with unexpected disturbances and the third, with a coordination problem: if the captains of industry work well in business organizations, the gap between the micro- and macro-layers tends to reduce. Although he was very close to Keynes in the light of points (1) and (2), Lavington shared almost the same view of Marshall in the light of point (3). This duality had made evaluations on him extremely difficult. JEL Classification: B10, B31, L16