Evolution of entrepreneurship theory
January 10, 2011 Leave a comment
Here’s a major challenge. You have 7000 words to explain the evolution of entrepreneurship thought from the early 18th Century to the present day and you have to explain it in such a way that it is knowledgeable while being accessible to undergraduate students. That is no easy task. It is also the draft chapter I just completed for a 3rd edition of Enterprise and Small Business, a great UK text book edited by Profs. Sara Carter and Dylan Jones-Evans (assuming my draft chapter is acceptable of course). It did make me realize though how interesting the history of entrepreneurship thought is. Read Full Paper at Center for Entrepreneurial Learning and Leadership’s Working Paper Series.
Here is an extract:
Most readers will notice that the word entrepreneur has a French origin. Hoselitz (1960) suggests that it originated during the Middle Ages when the term entrepreneur was applied to “..the man in charge of the great architectural works: castles and fortifications, public buildings, abbeys and cathedrals” (Hoselitz, 1960, p. 237). Remains of this interpretation can be found inscribed on the older public buildings in France. Given the origins of the word it should not be surprising that the early thinkers were French economists. In most entrepreneurship texts Cantillon is recognized as the first to use the term ‘entrepreneurship’ in an economic context (Hébert and Link, 1988; Binks and Vale, 1990). His Essai Sur la Nature du Commerce en Général was published in 1732. Cantillon introduced an economic system based on classes of actors and entrepreneurs are one of the three classes. There are ‘landowners’ who are financially independent aristocracy. ‘Hirelings’ and ‘entrepreneurs’ were viewed to be financially dependent on others. Hirelings earned fixed incomes while entrepreneurs were “…set up with a capital to conduct their enterprise, or are undertakers of their own labour without capital, and they may be regarded as living off uncertainty” (Cantillon, 1931, p. 55). For Cantillon individuals who purchased a good at a certain price, used that good to produce a product and then sold that product at an uncertain price could be considered ‘entrepreneurs’. Risk and uncertainty play central parts in his theory of the economic system. Successful entrepreneurs were those individuals who made better judgments about changes in the market and who coped with risk and uncertainty better than their counterparts.
While much economic thought had focused on the role of the entrepreneur in economic systems before the 1920s many contemporary researchers trace the origins of modern thought in entrepreneurship back to Joseph Schumpeter’s work (1934; 1963). Schumpeter’s theories of the economic system and the role of entrepreneurship within it have been widely discussed (MacDonald, 1971; Shionoya, 1992; 1997). His principle contribution can be found in his book ‘The Theory of Economic Development’ and an article ‘The Fundamental Phenomenon of Economic Development’. Schumpeter introduced a concept of entrepreneurship which is quite different from the others discussed so far. His theory is focused on economic development and the role of the entrepreneur in the development process. Schumpeter argues, somewhat contrary to the established thought of the time, that the important question in capitalism is not how it supports existing structures and markets but how it creates and destroys them. In contemporary thought ‘creative destruction’ is now seen as one of the crucial functions of entrepreneurial activity within an economy. The function of the entrepreneur in this new theory was the person who innovates or makes ‘new combinations’ of production possible. The concept of ‘new combinations’ covered five potential cases:
- The introduction of a new good or a new quality of a good;
- The introduction of a new method of production;
- The opening of a new market;
- The development of a new source of supply or raw-materials or half manufactured goods;
- The carrying out of a new organization of any industry (Kilby, 1971).