Academic journal article Journal of Economic Issues

Institutional Destruction of Entrepreneurship through Capitalist Transformation

Academic journal article Journal of Economic Issues

Institutional Destruction of Entrepreneurship through Capitalist Transformation

Article excerpt

Emerging out of the beginning of the Industrial Revolution was a different kind of individual who later became known as the entrepreneur. The entrepreneur has been a driving force for change and has been responsible for shaping the material lifestyle for different socioeconomic institutions ever since (McDaniel 2002, 4-11). The position here is that not all entrepreneurial efforts have had results that are beneficial to society but rather much benefit has been derived from the efforts of many of the entrepreneurs. However, the entrepreneur has been given little credit for those beneficial contributions over the past three centuries. While entrepreneurs exist in all economic institutions, they are most visible in capitalism. Part of the reason for this visibility is the economic freedom given to the entrepreneur to innovate within a capitalistic structure, and this economic freedom is not present in other socioeconomic systems. Moreover, in market capitalism it is the capitalist who receives kudos for the succ ess of the economic structure, and the entrepreneur is often overlooked and undervalued. The distinction must first be clearly made between the entrepreneur and the capitalist in order to better understand the role and contributions of the entrepreneur in a modern capitalist economy.

If it is the entrepreneur and not the capitalist who has been responsible for the industrial and technological advancements of the past 300 years, then a clearer distinction needs to be made between them. Further, if the capitalist receives undue credit for these advancements and this undeserved credit diminishes the importance and value of the entrepreneur, then the social economy is in danger of losing the creative innovations brought about by the entrepreneur (Schumpeter 1947, 134). Once this dichotomy between the entrepreneur and the capitalist is understood, then the transition from entrepreneur to capitalist can be seen as it erodes the creative nature of the entrepreneur.

Differentiating the Entrepreneur and the Capitalist

Since the beginning of the Industrial Revolution, economists have attempted to understand and incorporate the entrepreneur into economic literature. One of the earliest attempts to explain the entrepreneur, a French term for risk taking, was made by Robert Cantillon before 1734 (Oser and Blanchfield 1975). Cantillon correctly separated the activities of the capitalist from those of the entrepreneur. By the late 1 700s Jean Baptiste Say used the term entrepreneur to describe the economic activities of changing resources from a lower productive use to a higher productive use (1821). In this same era, Adam Smith began combining the activities of the entrepreneur with the activities of the capitalist (1776, book 1, chap. 1). By the mid 1800s John Stuart Mill started associating the activities of the entrepreneur with the activities of the capitalist through risk taking (1871). Mill correctly recognized both endeavors as taking a risk but confused the underlying issues by combining both endeavors. Risk was viewed as only one activity, and the risk of each group was viewed as one collective risk assumed and directed by the capitalist.

Out of the heritage of Smith and Mill, current microeconomic market analysis has failed to adequately accommodate the contributions of the entrepreneur. Risk is assumed to be the supreme domain of the capitalist, and profit is assumed to be of ultimate importance and the only reward for taking risks. Smith often referred to the entrepreneur as a capitalist who attempted to gain profits from risk taking. Although Smith adequately described the activities of the entrepreneur, he missed a great opportunity to emphasize the separate nature and activities of the entrepreneur. As a result, neoclassical microeconomics has developed an entire theoretical body of knowledge based on the efforts of the capitalist with the complete absence of the entrepreneur.

This theoretical framework went almost unchallenged until Joseph A. …

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