A Contemporary View of Joseph A. Schumpeter's Theory of the Entrepreneur

Article excerpt

In the late 1700s as the modern world started developing, a major transition took place in human activity. The workplace began to change from one of nature to one of artificial environments. Seasons were replaced with work shifts; the sun was replaced with artificial light; the outside ambient was replaced with factory-controlled weather; and work activity was changed from agrarian to shop assembly. Out of this major transition in human activity, a new sociologically distinct individual emerged and later became known as the entrepreneur. Although economic writers began recognizing the entrepreneur as early as 1725 with the writings of Richard Cantillon and continued through Adam Smith, Jean-Baptiste Say, John Stuart Mill, and others, (1) it was Joseph A. Schumpeter who in the 1930s succinctly recognized and defined the role and activities that the entrepreneur contributed to the economic system. (2)

By many accounts Schumpeter has long been considered a neoclassical economist. (3) William Waters attempted to clarify Schumpeter's view when he explained that "to Schumpeter neoclassical principles are useful elements to begin to explain an economy, but they do only that. The valid and more complete explanation goes beyond the static micro principles of the conventional science to a dynamic and evolutionary one." (4) Even though this label as a neoclassical economist has been somewhat undeserved and has led to the partial mislabeling of Schumpeter, it has more importantly led to a misunderstanding of Schumpeter's description of the role and actions of the entrepreneur. In The Theory of Business Enterprise, Schumpeter stated that the entrepreneur is pecuniary, (5) and therefore from a neoclassical perspective this description has most often been translated into the entrepreneur having the characteristic of being a capitalist and profit motivated. However, being pecuniary is not the same as being profit motivated.

In an institutional system of market capitalism, the participants--whether day laborers, professionals, household providers, or entrepreneurs--are all pecuniary. By definition, being pecuniary means seeking payment of money or expecting money from efforts. (6) In modern society all participants in a capitalistic market structure are pecuniary. For example, if the day laborer is told by his or her employer that although work effort, quality of work, and so on are all excellent but no additional payment for work will be forthcoming, that day laborer would most likely discontinue employment. This action results from the institutional system that requires pecuniary payment in order to obtain food, clothing, shelter, and so on. If all participants in a system of market capitalism are pecuniary, then Schumpeter's description of the entrepreneur was definitive of the institutional system of market capitalism and not necessarily a unique description of the sociologically distinct individual known as the entrepreneur.

This view is further substantiated by the first work of Schumpeter published in Germany in 1908, Wesen und Hauptinhalt der theoretischen Nationalokonomie (The Nature and Essence of Theoretical Economics). (7) Although it was Schumpeter's first published book, it has never been translated into English and is all but nonexistent in U.S. libraries. In this work, Schumpeter described the entrepreneur as being neither hedonic (hedonistic) nor utilitarian. (8) Therefore, it seems a more natural conclusion to view the entrepreneur as being driven by motivational forces outside the strict orientation of the neoclassical model of market capitalism. It is difficult without an English translation of the full 1908 text to adequately interpret the German language context Schumpeter used to express the full economic meaning of hedonic. However, a plausible explanation could be that the entrepreneur does not necessarily follow the strict self-interest pursuit of maximizing profits as depicted by the neoclassical model of market capitalism. …