While the majority of accounts of the Industrial Revolution agree that invention and innovation were crucial in one way or another, the possible reasons for invention are a subject of hot debate. Exogenous growth theory sees invention as occurring outside the economic system. Scientific advance, amateur tinkering or sheer random discovery may all be factors. There are different versions of endogenous growth theory. A composite of the main lines of approach would start with profit-seeking as the motivation for invention. Profit-seeking in turn is encouraged by the opportunity to gain favourable market positions. The size of the market and the cost of invention are important components in the likely rate of profit. This emphasis on invention, and subsequent innovation, through profit-seeking is sometimes called neo-Schumpeterian. Once the process of invention has begun it might be accelerated in various ways. Earlier inventions, by making new processes possible, open up new opportunities for learning-by-doing, perhaps in turn leading to a series of microinventions or even a new macroinvention. Human capital is important in endogenous growth theory: inventors themselves possess human capital while, in addition, a good and relatively cheap supply of skilled labour facilitates research and development, because the construction of prototype machines needs more skilled labour than does mass-producing existing varieties.
The neo-Schumpeterian emphasis on profit-seeking, while it has an obvious similarity with Schumpeter’s own position, is not identical with it. From a neo-classical perspective, as innovation promotes profit opportunities (using profit in the Schumpeterian sense of higher than normal returns), all businessmen are potentially likely to innovate since businessmen, by definition, seek profits. Of course, lack of capital and constraints on entering unfamiliar lines of business prevent many businessmen from adopting specific changes, but in principle it is usual and normal for businessmen to innovate. Both exogenous and endogenous growth theories, therefore, tend to lay the emphasis on the importance of the original invention, rather than on subsequent innovation, on the grounds that entrepreneurial behaviour is the norm rather than the exception. Schumpeter’s insistence on the scarcity of entrepreneurs is not often taken up in modern theoretical approaches, although, as we shall see, it finds an echo among some historians.