Academic journal article Independent Review

Entrepreneurship

Academic journal article Independent Review

Entrepreneurship

Article excerpt

The theory of entrepreneurship is one of the weakest links in modern economics. Despite an extensive and diverse literature (see Hebert and Link 1988; Casson 2003), entrepreneurship remains "the phenomenon which is most emphasized yet least understood by economists" (S. M. Kanbur, quoted in Hebert and Link 1988, xvii). The entrepreneur "is at once one of the most intriguing and one of the most elusive in the cast of characters that constitutes the subject of economic analysis" (Baumol 1993, 2). Many microeconomic theory and industrial organization texts omit mention of entrepreneurship altogether because neoclassical economics posits no need for it (Hebert and Link 1988, 156-57; Baumol 1993, 14). A few define entrepreneurship perfunctorily as the confluence of business decision making and ownership, and they attribute the "law" of diminishing returns to the fixity of entrepreneurial capital within the firm (see, for example, Hirshleifer 1976, 228, 259). Survey texts expand this narrative by describing entrepreneurship as a factor of production, linking it to risk taking and innovation and tying entrepreneurial compensation to uncertainty and profits.

The economic literature on entrepreneurship per se typically defines the entrepreneur descriptively (that is, atheoretically). The term entrepreneur originally denoted anyone who undertook a project, and it subsequently grew to mean a merchant, employer, or manager (Hebert and Link 1988, 45-46). It has become synonymous in its loosest usage with self-employment and occasionally with self-unemployment. Several social science disciplines, including economics, sociology, psychology, history, and political science, have produced descriptive definitions (Casson 2003, 9); there are at least a dozen "distinct themes within the economic literature" alone (Hebert and Link 1988, 152). Virtually all of the economic themes are geared toward business enterprise, many are complementary, some are contradictory, and most lack empirical content. Nearly everything that might be said about entrepreneurship has been said at one time or another, in one way or another. Developing a "new" theory at this juncture consists largely of combining existing ideas in new ways-an entrepreneurial exercise in itself. The upshot is "a lack of any singular notion of just who the entrepreneur is and what he does that makes him vital to the economic process... .The concept of the entrepreneur admits no single, accepted definition in the literature of economics or its related disciplines. As a consequence, economic theory and policy dealing with entrepreneurship are bound to be ambiguous" (Hebert and Link 1988, xvii, xiii). For many economists, as for others, a

realistic description of an entrepreneur would be one who is "at once a product and an agent of the historical process, at once the representative and the creator of social forces which change the shape of the world and the thoughts of man." In short, an entrepreneur is an innovator: someone who changes the factors of production to create something new. During the last couple of decades, the weight of evidence seems to be that such individuals are very few in number and that they reflect "general forces acting in the economy" more than they mold them. (Folsom 2003, 3, quoting Robert Thomas in part, footnotes omitted)

The entrepreneur is viewed nowadays as a mildly heroic figure, despite having been reviled (along with commercial pursuits generally) from classical antiquity until fairly recent times (he continues to be reviled whenever a "labor theory of value" binds analytical thinking). The entrepreneur serves the consumer's interest by looking at things as they are and seeing profitable ways to change them for the better (Mises [1949] 1996, 336-38). He is recognized as the individual who creates society's wealth and fosters economic growth (Schumpeter 1934; Leibenstein 1978; Baumol 1993). For all of this effort, he usually is assumed to be compensated out of the economic value that his efforts create. …

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