Schumpeter's Entrepreneurs and Commons's Sovereign Authority
McFarling, Bruce, Journal of Economic Issues
In 1934, Joseph Schumpeter argued the following:
If someone who has never seen or heard of such a state were to observe that a farmer produces corn to be consumed as bread in a distant city, he would be impelled to ask how the farmer knew that this consumer wanted bread and just so much. He would assuredly be astonished to learn that the farmer did not know at all where or by whom it would be consumed. Furthermore, he could observe that all the people through whose hands the corn must go on its way to the final consumer knew nothing of the latter, with the possible exception of the ultimate sellers of the bread; and even they must in general produce or buy before they know that this particular consumer will acquire it. The farmer could easily answer the question put to him: long experience, in part inherited, has taught him how much to produce for his greatest advantage; experience has taught him to know the extent and intensity of demand to be reckoned with. To this quantity he adheres, as well as he can, and only gradually alters it under the pressure of circumstance [Schumpeter 1934, 5-6].
Growing interest in the study of technological change over the last decade has led to a resurgence of interest in Schumpeter's concept of the entrepreneur. In Schumpeter's theory, the entrepreneur is responsible for introducing change into a commercially organized economic system. An innovation in this environment is not an automatic adjustment, but a break with the past. It is making this break that identifies an individual as an entrepreneur. As he claimed,
. . . Past economic periods govern the activity of the individual--in a case like ours--not only because they have taught him sternly what he has to do, but also for another reason. During every period the farmer must live, either directly upon the physical product of the preceding period or upon what he can obtain with the proceeds of this product. All the preceding periods have, furthermore, entangled him in a net of social and economic connections which he cannot easily shake off. They have bequeathed him definite means and methods of production. All these hold him in iron fetters fast in his tracks [Schumpeter 1934, 6].
Schumpeter's treatment only identifies actual entrepreneurs. Empirical study of entrepreneurship calls for an appropriate reference group for purposes of comparison. It is inappropriate to use the members of the population as a whole, as this includes: the entrepreneurs, who evidently had both the opportunity and inclination to innovate; those who had the inclination but not the opportunity; those who had the opportunity but not the inclination; and those who had neither opportunity nor inclination. If we choose to limit the reference group to those with the inclination, then entrepreneurial activity demonstrates the opportunity. If we choose to limit the reference group to those with the opportunity to innovate, then entrepreneurial activity demonstrates the inclination. The former aims to classify individuals on the basis of unobservable characteristics, while the latter aims to classify individuals on the basis of observable, social circumstance. It is therefore preferable on empirical grounds to specify those with the opportunity to innovate as a reference group for the study of entrepreneurs.
A consideration of the authority of different individuals in an organization is required to identify the reference group of those with the opportunity to innovate. Schumpeter's theory does not consider the role of authority in organizational behavior, and therefore as originally conceived it does not provide a sound theoretical basis for empirical study of entrepreneurship. To address this flaw in the concept of the entrepreneur, this paper considers the Schumpeterian entrepreneur from the perspective of John Commons's concept of sovereign authority.
Commons's theory of the artificial selection of institutions under sovereign authority has certain similarities with Schumpeter's theory: each implies that innovation will have disruptive consequences, and each identifies processes that will result in the re-establishment of stability. …