Assignment on Entrepreneur & Entrepreneurship-

Introduction:

An entrepreneur is a person who has possession of a new enterprise, venture or idea and is accountable for the inherent risks and the outcome. An entrepreneur is someone who organizes, manages, and assumes the risks of a business or enterprise. An entrepreneur is an agent of change. Entrepreneurship is the process of discovering new ways of combining resources.  Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who takes over the world"innovations, finance and business acumen in an effort to transform innovations into economic goods. But there is a long story of the two words.

Entrepreneur:

The term was originally a loanword from French and was first defined by the Irish-French economist Richard
Cantillon. Entrepreneur in English is a term applied to a person who is willing to launch a new venture or enterprise and accept full responsibility for the outcome. Jean-Baptiste Say, a French economist, is believed to have coined the word "entrepreneur" in the 19th century - he defined an entrepreneur as "one who undertakes an enterprise, especially a contractor, acting as intermediatory between capital and labour".

The entrepreneur leads the firm or organization and also demonstrates leadership qualities by selecting managerial staff. Management skill and strong team building abilities are essential leadership attributes for successful entrepreneurs. Scholar Robert. B. Reich considers leadership, management ability, and team-building as essential qualities of an entrepreneur. This concept has its origins in the work of Richard Cantillon in his Essai sur la Nature du Commerce en (1755) and Jean-Baptiste Say (1803 or 1834) in his Treatise on Political Economy.

Entrepreneurs emerge from the population on demand, and become leaders because they perceive opportunities available and are well-positioned to take advantage of them. An entrepreneur may perceive that they are among the few to recognize or be able to solve a problem. Joseph Schumpeter saw the entrepreneur as innovators and popularized the uses of the phrase creative destruction to describe his view of the role of entrepreneurs in changing business norms. Creative destruction encompasses changes entrepreneurial activity makes every time a new process, product or company enters the market.

When the market value generated by this new combination of resources is greater than the market value these resources can generate elsewhere individually or in some other combination, the entrepreneur makes a profit. 

Entrepreneurship:

We move on to discuss the more recent theories of entrepreneurship. Among these, we concentrate on Schumpeter, Knight, Kirzner, and Schultz, but we also include some more recent contributions by Shane, Venkataraman, and Casson. These theories are then compared to the definition and modeling of entrepreneurs in more formal mathematical (and neo-classical) economic models.

Early Definitions

According to van Praag (1999), Richard Cantillon was the first economist to acknowledge the entrepreneur as a key economic factor in his posthumous "Essai sur la nature du commerce en general" first published in 1755 (Cantillon, 1959).

Cantillon saw the entrepreneur as responsible for all exchange and circulation in the economy. As opposed to wage workers and land owners who both receive a certain/fixed income or rent, the entrepreneur earns an uncertain profit from the difference between a known buying price and an uncertain selling price (Hebert and Link, 1988). Cantillon's entrepreneur is an arbitrageur, an individual that equilibrates supply and demand in the economy, and in this function bears risk or uncertainty.

Later, Jean-Baptiste Say (1767-1832) provided a different interpretation of the entrepreneurial task (Say, 2001). Say saw the entrepreneur as the main agent of production in the economy. Rather than emphasizing the risk-bearing role of the entrepreneur, Say stressed that the entrepreneur's "... principle quality is to have good judgment." (Hebert and Link, 1988, p. 38). Say regarded the entrepreneur as a manager of a firm; an input in the production process. The entrepreneur acts in the static world of equilibrium, where he assesses the most favorable economic opportunities. The payoff to the entrepreneur is not profits arising from risk-bearing but instead a wage accruing to a scarce type of labor. Say highlighted, in that way, that the role of the entrepreneur is separated from that of the capitalist.

In his "Principles of Economics," the early neo-classical economist, Alfred Marshall, also devoted attention to the entrepreneur. In addition to the risk bearing and management aspects emphasized by Cantillon and Say, Marshall introduced an innovating function of the entrepreneur by emphasizing that the entrepreneur continuously seeks opportunities to minimize costs (Marshall, 1964).

Schumpeter and Knight

Joseph Schumpeter presented most of his ideas on entrepreneurship in his book The Theory of Economic Development published in 1911 (Schumpeter, 1949). Schumpeter opposed the existing views of the entrepreneur as a risk bearer and a manager of a company. Instead, Schumpeter argued that an entrepreneur is an innovator--an individual who carries out one of the following five tasks (3): (1) the creation of a new good or a new quality; (2) the creation of a new method of production; (3) the opening of a new market; (4) the capture of a new source of supply; or (5) the creation of a new organization or industry (Schumpeter, 1949, p. 66). The entrepreneurial task is thus to identify new combinations and react to these by exercising the leadership to profit from them. The entrepreneur is not (necessarily) the one who invents new combinations but the one who identifies how these new combinations can be applied in production (Schumpeter, 1949). This line of reasoning implies that a business owner is considered an entrepreneur only if he is tarrying out new combinations."

An illustration of the role of the Schumpeterian entrepreneur versus that of a manager can be given in terms of the production function. Where the manager combines the input factors in the production function to achieve the highest technical efficiency, the entrepreneur shifts the production function outward by his innovations. Hence, the entrepreneur moves the economic system out of the static equilibrium by creating new products or production methods thereby rendering others obsolete. This is the process of "creative destruction" which Schumpeter saw as the driving force behind economic development (Schumpeter, 1949).

Knight's entrepreneur, in his role of a business owner, can most easily be reconciled with neo-classical theory. However, when describing the entrepreneurial tasks in his later contribution, Knight moves beyond what is typically part of a neo-classical theory of business owners by emphasizing that the entrepreneur is more than a passive optimizing agent, cf. the three tasks above. This could be a consequence of the fact that a passive optimizing firm owner would receive zero profit in a competitive setup, leaving a very limited role for the original Knightian entrepreneur (cf. Baumol, 1968). The Schumpeterian theory is much more difficult to reconcile with the neo-classical paradigm. In the Schumpeterian theory, the entrepreneur moves the economy out of the static equilibrium. If anything, we can interpret Schumpeterian entrepreneurship as a change in the production function or, more specifically, total factor productivity; the extraordinary something that increases output using the same amounts of input.

Kirzner and Schultz

After World War II, mainstream economics became increasingly focused on equilibrium analysis, often in neo-classical frameworks inspired by Walras' static general equilibrium model. As argued by, e.g., Baumol (1968) and discussed above, this model leaves only little room for Schumpeterian entrepreneurs and is difficult to reconcile with many of the early theories of entrepreneurship. This is perhaps the reason why the main contributions to entrepreneurship theory continue to be developed outside a standard neo-classical framework. Some of the most prominent of these are Kirzner and Schultz who argue that entrepreneurs deal with situations in which the economy is in disequilibrium.

Kirzner (1973) is a modern exposition of an Austrian approach to entrepreneurship. He criticizes neo-classical economics along two dimensions. First of all, he rejects the idea that the economy is in equilibrium. Second, he argues that equilibrium analysis should incorporate a theory of how the economy converges to equilibrium. Kirzner argues that the economy is in a constant state of disequilibrium due to shocks constantly hitting the economy. Furthermore, economic agents suffer from "utter ignorance"--they simply do not know that additional information is available. (8) In this world, the alert entrepreneur discovers and exploits new business opportunities and eliminates (some of the) "utter ignorance" and thus moves the economy toward equilibrium, which is the state where no more information can be discovered.

Schultz (1975) also argues that entrepreneurship is closely connected to situations of disequilibria and that entrepreneurship is the ability to deal with these situations. In disequilibrium, agents are acting sub optimally and can reallocate their resources to achieve a higher level of satisfaction. Entrepreneurship is the ability to coordinate this reallocation efficiently, and it follows that agents have different degrees of entrepreneurial ability. Contrary to Kirzner, Schultz argues that, in disequilibrium, individuals know that opportunities to increase satisfaction exist but the reallocating process requires time. A better allocation of resources can be achieved either by experimenting (trial and error) or by investing in human capital. Schultz argues that entrepreneurship exists in all aspects of life. Thus, housewives and students are entrepreneurs when reallocating their time for housework or student activities (Schultz, 1975). Furthermore, since entrepreneurship is an ability that can be augmented by investment, Schultz argues that a market for entrepreneurship exists and that it is possible to analyze entrepreneurship within the conventional supply and demand framework (Hebert and Link, 1988).

Recent Theories

Recent theories of entrepreneurship build on the works described above. Shane and Venkataraman (2000) state that "entrepreneurship involves the nexus of two phenomena: the presence of lucrative opportunities and the presence of enterprising individuals" (Shane and Venkataraman, 2000). Their theory is inspired by the Kirznerian entrepreneurial discovery process but they emphasize that prior information is needed to complement the new information in the discovery of business opportunities. In this respect, they are similar to Schultz who argues that human capital is an important determinant of entrepreneurial ability.

Casson (2003) tries to encompass both the Schumpeterian and the Knightian definitions by arguing that entrepreneurs are individuals who specialize in decision making. The Schumpeterian entrepreneur applies information about inventions to create new combinations and is ultimately the one who decides if the new combinations are profitable. The Knightian entrepreneur assesses the unique situations arising in the future and makes decisions about how to exploit these situations to make a profit. However, while it is true that both the Knightian and the Schumpeterian entrepreneurs are decision makers, many decision makers are not entrepreneurs according to their theories.

One of Cantillon's remarkable contributions to economic thought is that he was the first to stress and analyse the entrepreneur.7 To this real-world mer­chant, banker and speculator, it would have been inconceivable to fall into the Ricardian, Walrasian and neoclassical trap of assuming that the market is characterized by perfect knowledge and a static world of certainty. The real-world marketplace is permeated by uncertainty, and it is the function of the businessman, the 'undertaker',, the entrepreneur, to meet and bear that uncer­tainty by investing, paying expenses and then hoping for a profitable return. Profits, then, are a reward for successful forecasting, for successful uncer­tainty-bearing, in the process of production. The crucial Smithian-Ricardian and Walrasian (classical and neoclassical) assumption that the economy is perpetually in a state of long-run equilibrium fatally rules out the real world of uncertainty. Instead, it focuses on a never-never land of no change, and hence of perfect certainty and perfect knowledge of present and future.

Historical Development/Evolutionary process of entrepreneurship:

The Evolution of Entrepreneur Definitions

The Origin & Meaning of the Word Entrepreneur:

13th Century

The earliest definition we found was from the 13th century, where we

learn the words root.  The origin of the English word entrepreneur

comes from the French word “entreprendre”, which can be translated to

to do something or to undertake.

16th Century

In the 16th century, we see the first mention of business used in the

definitions.  Therefore, we find entrepreneur defined as someone who

undertakes a business venture.

18th Century

Richard Cantillon (in about 1730 in academia) ascribed to a

definition which added a risk component to the definition.  Therefore,

an entrepreneur was someone who undertakes a business venture with no

guarantee of profits. said another way an entrepreneur is ?the bearer

of risks inflicted by changes in market demand.

The word itself, the term entrepreneur stems from the French

literally, between taker,  or go between  with early references having

been traced to the eighteenth century economists Richard Cantillon,

Anne- Robert_Jacques Turgot, and Francois Quesnay.

The term was even used as early as the Middle Ages to denote an actor

With reference to warlike action or in particular, a person in charge

Of large-scale construction projects such as cathedrals, bearing no

Risks but simply carrying the task forward until resources was

Exhausted. By the Seventeenth Century, the term was associated with

risk bearing, with the entrepreneur being "a person who entered into a

contractual relationship with the government for the performance of a

Service or the supply of goods. The price at which the contract was

Valued was fixed and the entrepreneur bore the risks of profit and

Loss from the barging." In France, during the eighteenth century, the

Term was used in a variety of ways. Cantillon, in 1725, associate

Entrepreneur with risk-bearing, yet Cantillon clearly distinguished

Between entrepreneurs who provided capital versus those who relied on

Their own labor and resources.

19th Century

During the 19th century, three economists post views on

Entrepreneurship:  John Baptiste Say, John Stuart Mill, and Alfred

Marshall.  This is the first century in which we begin to see the

One of the first uses of the word was in the late 1700s by Jean

Baptiste Say, an economist who is credited with developing the concept

of entrepreneurship. He described an entrepreneur in terms of

behavior. "He is called upon," said Say, "to estimate, with tolerable

accuracy, the importance of a specific product, the probable amount of

demand, and the means of production; sometimes to employ a great

number of hands; again to buy or order raw materials, to combine the

workers, find consumers, to exercise a spirit of order and economy. In

the course of such operations there are obstacles to be surmounted,

anxieties to be overcome, misfortunes to be repaired, and expedients

to be devised."

During the 19th century the "ability to take calculated risks" was

added to the definition. By mid-20th century, the importance of

innovative talent -- the ability to find and profitably introduce new

and better products, services and processes -- was recognized and

included in the entrepreneur's "job description."

Throughout:

 The theoretical history of entrepreneurship, scholars from multiple disciplines in the social sciences have grappled with a diverse set of interpretations and definitions to conceptualize this abstract idea. Over time, "some writers have identified entrepreneurship with the function of uncertainty-bearing, others with the coordination of productive resources, others with the introduction of innovation, and still others with the provision of capital" (Hoselitz, 1952). Even though certain themes continually resurface throughout the history of entrepreneurship theory, presently there is no single definition of entrepreneurship that is accepted by all economists or that is applicable in every economy.

Although there is only limited consensus about the defining characteristics of entrepreneurship, the concept is almost as old as the formal discipline of economics itself. The term "entrepreneur" was first introduced by the early 18th century French economist Richard Cantillon. In his writings, he formally defines the entrepreneur as the "agent who buys means of production at certain prices in order to combine them" into a new product (Schumpeter, 1951). Shortly thereafter, the French economist J.B. Say added to Cantillon's definition by including the idea that entrepreneurs had to be leaders. Say claims that an entrepreneur is one who brings other people together in order to build a single productive organism (Schumpeter, 1951).

Over the next century, British economists such as Adam Smith, David Ricardo, and John Stuart Mill briefly touched on the concept of entrepreneurship, though they referred to it under the broad English term of "business management." Whereas the writings of Smith and Ricardo suggest that they likely undervalued the importance of entrepreneurship, Mill goes out of his way to stress the significance of entrepreneurship for economic growth. In his writings, Mill claims that entrepreneurship requires "no ordinary skill," and he laments the fact that there is no good English equivalent word to encompass the specific meaning of the French term entrepreneur (Schumpeter, 1951).

The necessity of entrepreneurship for production was first formally recognized by Alfred Marshall in 1890. In his famous treatise Principles of Economics, Marshall asserts that there are four factors of production: land, labor, capital, and organization. Organization is the coordinating factor, which brings the other factors together, and Marshall believed that entrepreneurship is the driving element behind organization. By creatively organizing, entrepreneurs create new commodities or improve "the plan of producing an old commodity" (Marshall, 1994). In order to do this, Marshall believed that entrepreneurs must have a thorough understanding about their industries, and they must be natural leaders. Additionally, Marshall's entrepreneurs must have the ability to foresee changes in supply and demand and be willing to act on such risky forecasts in the absence of complete information (Marshall, 1994).

As the above discussion demonstrates, throughout the evolution of entrepreneurship theory, different scholars have posited different characteristics that they believe are common among most entrepreneurs. By combining the above disparate theories, a generalized set of entrepreneurship qualities can be developed. In general, entrepreneurs are risk-bearers, coordinators and organizers, gap-fillers, leaders, and innovators or creative imitators. Although this list of characteristics is by no means fully comprehensive, it can help explain why some people become entrepreneurs while others do not. Thus, by encouraging these qualities and abilities, governments can theoretically alter their country's supply of domestic entrepreneurship.

Entrepreneur as an Innovator:

Physician and economist Fran çois Quesnay published his economic theories in 1758 and focused on the entrepreneur's ability to organize and innovate. He was something of an entrepreneur himself. Poor and orphaned at thirteen, he trained himself in medicine and economics and became a physician at the court of Louis XV.

Another famed economist, Adam Smith, maintained that people are naturally industrious, not entrepreneurial. With the publication of his Inquiry into the Nature and Causes of the Wealth of Nations in 1776, entrepreneurs lost standing; indeed, one later economist said Smith rendered the entrepreneur invisible.

It was Jean-Baptiste Say who resuscitated entrepreneurs and emphasized their role in an economy. After reading Smith's book, Say published his own in 1803. In it he came up with the concept (if not the exact words) of “supply creates its own demand.” He deemed entrepreneurs critical to the operation of every sort of industry because they organize the “factors of production” in order to achieve the “satisfaction of human wants.” He noted that entrepreneurs aren't merely managers but also forecasters, risk-takers, and project appraisers — indeed, the indispensable ones who make an economy work.

Later, in 1848, John Stuart Mill popularized “entrepreneur” in his Principles of Political Economy, but the concept lapsed back into obscurity by the end of the nineteenth century.

Joseph Schumpeter:

Joseph Alois Schumpeter (8 February 1883 – 8 January 1950) was an Austrian-American economist and political scientist. He popularized the term

Schumpeter and entrepreneurship

The research of entrepreneurship owes a lot to his contributions. He was probably the first scholar to develop its theories. He gave two theories, sometimes called Mark I and Mark II. In the first one, the early one, Schumpeter argued that the innovation and technological change of a nation comes from the entrepreneurs, or wild spirits. He coined the word Unternehmergeist, German for entrepreneur-spirit. He believed that these individuals are the ones who make things work in the economy of the country. In Mark II, expanded as professor at Harvard, he asserted that the actors that drive innovation and the economy are big companies which have the resources and capital to invest in research and development. Both arguments might be complementary today.

The English literature uses the term entrepreneurship, from the French "entreprise". When studying entrepreneurship and Schumpeter, it is helpful to keep in mind he used the German term (Unternehmergeist), acknowledging these "fiery souls" or "spirits".

Schumpeter and Innovation:

Schumpeter identified innovation as the critical dimension of economic change. He argued that economic change revolves around innovation, entrepreneurial activities and market power and sought to prove that innovation-originated market power could provide better results than the invisible hand & price competition. He argues that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators. He said that these temporary monopolies were necessary to provide the incentive necessary for firms to develop new products and processes.

Schumpeter's View of Entrepreneurship:

Austrian economist Joseph Schumpeter’s definition of entrepreneurship placed an emphasis on innovation, such as:

• new products
• new production methods
• new markets
• new forms of organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can define the function of the entrepreneur as one of combining various input factors in an innovative manner to generate value to the customer with the hope that this value will exceed the cost of the input factors, thus generating superior returns that result in the creation of wealth.

Entrepreneur as a Risk-Bearer:

Richard Cantillon:

Richard Cantillon (1680s – May 1734) was an Irish-French economist and author of Essai sur la Nature du Commerce en Général (Essay on the Nature of Trade in General), a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and merchant at an early age. His success was largely derived from the political and business connections he made through his family and through an early employer, James Brydges. During the late 1710s and early 1720s, Cantillon speculated in, and later helped fund, John Law's Mississippi Company, from which he acquired great wealth. However, his success came at a cost to his debtors, who pursued him with lawsuits, criminal charges, and even murder plots until his death in 1734.

Essai remains Cantillon's only surviving contribution to economics. It was written around 1730 and circulated widely in manuscript form, but was not published until 1755. Despite having much influence on the early development of the physiocrat and classical schools of thought, Essai was largely forgotten until its rediscovery by Jevons in the late 19th century. Cantillon was influenced by his experiences as a banker, and especially by the speculative bubble of John Law's Mississippi Company. He was also heavily influenced by prior economists, especially William Petty.

Essai is considered the first complete treatise on economics, with numerous contributions to the science. These contributions include: his cause and effect methodology, monetary theories, his conception of the entrepreneur as a risk-bearer, and the development of spatial economics. Cantillon's Essai had significant influence on the early development of political economy, including the works of Adam Smith, Anne Turgot, and François Quesnay.

Cantillon is one of the few economists cited by Adam Smith, who directly borrows Cantillon's sustenance theory of wages.  Large sections of Smith's economic theory were possibly directly influenced by Cantillon, although in many respects Adam Smith advanced well beyond the scope of Cantillon. Some economic historians have stated that Adam Smith provided little of value from his own intellect, notably Schumpeter and Rothbard. In any case, through his influence on Adam Smith and the physiocrats, Cantillon was quite possibly the pre-classical economist who contributed most to the ideas of the classical school. Illustrative of this was Cantillon's influence on Say, which is noticeable in the methodology employed in the latter's Treatise on Political Economy.

Entrepreneur as an Organizer: 

Jean Baptiste Say:

The French economist Jean Baptiste Say (1767-1832), one of the founders of the classical school, is best known for his law of markets. He was the first academic teacher of economics in France.

Jean Baptiste Say was born on Jan. 5, 1767, in Lyons of a Protestant merchant family. Though he became a deist, he retained the deep-rooted sense of moral earnestness he inherited from the martyrs of the revocation of the Edict of Nantes. His outlook was no less affected by his mercantile upbringing and education. After serving two business apprenticeships in England, he entered an insurance firm in Paris, and at the suggestion of his employer he read Adam Smith's Wealth of Nations. Thereupon he decided to become an economist, abandoning business to write economic articles for a republican periodical, La Décade philosophique, of which he was editor.

In his major work, A Treatise on Political Economy (1803), Say improved upon Smith's Wealth of Nations in form and content. His tripartite division of the classical doctrine into production, distribution, and consumption set a precedent which was followed in standard treatises for more than a century. He gave precision to the concept of the entrepreneur, whom Smith had failed to distinguish from the capitalist investor. Viewing the entrepreneur as buyer and coordinator of the services of land, labor, and capital, Say envisaged production essentially as a market phenomenon. This led him to his famous "law of markets," according to which production, by generating income flows without any leakage into monetary hoards, automatically assured effective demand for aggregate output. Siding with James Mill and David Ricardo, but against Thomas Malthus, he held that general gluts were impossible. Controversy over "Say's law" continues to this day, especially since it was attacked by John Maynard Keynes. Moreover, Say repudiated the labor-cost theory of value and stressed utility as the cause of value. The subsequent development of general equilibrium economics owes much to Say's contribution.

Say's introduction to economics, the ideological flavor he imparted to it, and the social purpose he hoped it would fulfill are all reflections of his life and times. In his teaching, as in his voluminous writings, which include a Catechism of Political Economy (1817) and A Complete Course in Practical Political Economy (1828-1829), his aim was to lay a new moral foundation of society by revealing economics as a science of laws of nature which cannot be violated without bad effect. Say was thus an apostle of economic liberalism, utterly opposed to government intervention in business and to all socialistic schemes. For him, moral legitimacy attaches to a social order in which individual self-interest is the only guiding rule.

Essential elements in J.B Says definition:

1.      Moral qualities for work judgments.

2.      Perseverance and knowledge about the business world.

3.      Command over sufficient Capital.

4.      Uncertainty of profit.

Conclusion:

The sprit of entrepreneurship laid the foundation of economic development for many developed countries. Entrepreneurship constitutes the driving force of the dream in every country. Entrepreneurship constitutes the driving force of economic freedom and emancipation. Our future development rests on entrepreneurial ventures to be founded by creative individuals.