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Richard Cantillon (1680-1734) was born in France and belonged to the French School of thought although he was an Irish economist. He appears to be the person who introduced the term entrepreneur to the world. \u201cAccording to Cantillon, the entrepreneur is a specialist in taking on risk, \u2018insuring\u2019 workers by buying their output for resale before consumers have indicated how much they are willing to pay for it\u201d (Casson & Godley, 2005p. 26). The workers\u2019 incomes are mostly stable, but the entrepreneur risks a loss if market prices fluctuate.<\/p>\n\n

Cantillon distinguished entrepreneurs from two other classes of economic agents; landowners, who were financially independent, and hirelings (employees) who did not partake in the decision-making in exchange for relatively stable incomes through employment contracts. He was the first writer to provide a relatively refined meaning for the term entrepreneurship<\/em>. Cantillon described entrepreneurs as individuals who generated profits through exchanges. In the face of uncertainty, particularly over future prices, they exercise business judgment. They purchase resources at one price and sell their product at a price that is uncertain, with the difference representing their profit (Chell, 2008; Hebert & Link, 2009).<\/p>\n\n

Farmers were the most prominent entrepreneurs during Cantillon\u2019s lifetime, and they interacted with \u201carbitrageurs\u201d \u2013 or middlemen between farmers and the end consumers \u2013 who also faced uncertain incomes, and who were also, therefore, entrepreneurs. These intermediaries facilitated the movement of products from the farms to the cities where more than half of the farm output was consumed. Cantillon observed that consumers were willing to pay a higher price per unit to be able to purchase products in the smaller quantities they wanted, which created the opportunities for the intermediaries to make profits. Profits were the rewards for assuming the risks arising from uncertain conditions. The markets in which profits were earned were characterized by incomplete information (Chell, 2008; Hebert & Link, 2009).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"9ff20083-6af9-4a73-b2e5-6dcc56d66885"}],"header":"Richard Cantillon (1680-1734)"},{"position":{"x":41.87643020594965,"y":27.239608764648438},"alwaysFullscreen":false,"content":[{"params":{"text":"

Adolph Reidel (1809-1872), formed the German School of thought, picked up on Cantillon\u2019s notion of uncertainty and extended it to theorize that entrepreneurs take on uncertainty so others, namely income earners, do not have to be subject to the same uncertainty. Entrepreneurs provide a service to risk-averse income earners by assuming risk on their behalf. In exchange, entrepreneurs are rewarded when they can foresee the impacts of the uncertainty and sell their products at a price that exceeds their input costs (including the fixed costs of the wages they commit to paying) (Hebert & Link, 2009).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"a712671b-879c-4c4c-80d9-cac239de0ed1"}],"header":"Adolph Reidel (1809-1872)"},{"position":{"x":63.1578947368421,"y":15.14755884806315},"alwaysFullscreen":false,"content":[{"params":{"text":"

Frank Knight (1885-1972) founded the Chicago School of Economics and belonged to the American School of thought. He refined Cantillon\u2019s perspective on entrepreneurs and risk by distinguishing insurable risk as something that is separate from uncertainty, which is not insurable. Some risks can be insurable because they have occurred enough times in the past that the expected loss from such risks can be calculated. Uncertainty, on the other hand, is not subject to probability calculations. According to Knight, entrepreneurs can\u2019t share the risk of loss by insuring themselves against uncertain events, so they bear these kinds of risks themselves, and profit is the reward that entrepreneurs get from assuming uninsurable risks (Casson & Godley, 2005).<\/p>\n\n

Frank Knight made several contributions to entrepreneurship theory, but another of note is how he distinguished an entrepreneur from a manager. He suggested that a manager crosses the line to become an entrepreneur \u201cwhen the exercise of his\/her judgment is liable to error and s\/he assumes the responsibility for its correctness\u201d (Chell, 2008, p. 33). Knight said that entrepreneurs calculate the risks associated with uncertain business situations and make informed judgments and decisions with the expectation that \u2013 if they assessed the situation and made the correct decisions \u2013 they would be rewarded by earning a profit. Those who elect to avoid taking these risks choose the relative security of being employees (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"f8cd5775-6dbe-4918-bc33-d2c4a8f2ee40"}],"header":"Frank Knight (1885-1972)"},{"position":{"x":30.549199084668192,"y":72.24388122558594},"alwaysFullscreen":false,"content":[{"params":{"text":"

Jean-Baptiste Say (1767-1832), also from the French School, advanced Cantillon\u2019s work, but added that entrepreneurship was essentially a form of management. Say \u201cput the entrepreneur at the core of the entire process of production and distribution\u201d (Hebert & Link, 2009, p. 17). Say\u2019s work resulted in something similar to a general theory of entrepreneurship with three distinct functions; \u201cscientific knowledge of the product; entrepreneurial industry \u2013 the application of knowledge to useful purpose; and productive industry \u2013 the manufacture of the item by manual labour\u201d (Chell, 2008, p. 20).<\/p>\n\n

<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"a5086694-d253-40f3-8491-986ee5c0d47d"}],"header":"Jean-Baptiste Say (1767-1832)"},{"position":{"x":52.059496567505725,"y":92.75169372558594},"alwaysFullscreen":false,"content":[{"params":{"text":"

Alfred Marshall (1842-1924), from the English School of thought, was one of the founders of neoclassical economics. His research involved distinguishing between the terms capitalist, entrepreneur, and manager. Marshall saw capitalists as individuals who \u201ccommitted themselves to the capacity and honesty of others, when he by himself had incurred the risks for having contributed with the capital\u201d (Zaratiegui & Rabade, 2005, p. 775). An entrepreneur took control of money provided by capitalists in an effort to leverage it to create more money; but would lose less if something went wrong then would the capitalists. An entrepreneur, however, risked his own reputation and the other gains he could have made by pursuing a different opportunity.<\/p>\n\n

Let us suppose that two men are carrying on smaller businesses, the one working with his own, the other chiefly with borrowed capital. There is one set of risks which is common to both; which may be described as the trade risks of the particular business \u2026 But there is another set of risks, the burden of which has to be borne by the man working with borrowed capital, and not by the other; and we may call them personal risks (Marshall, 1961, p. 590; Zaratiegui & Rabade, 2005, p. 776).<\/em><\/p>\n\n

Marshall recognized that the reward capitalists received for contributing capital was interest income and the reward entrepreneurs earned was profits. Managers received a salary and, according to Marshall, fulfilled a different function than either capitalists or entrepreneurs \u2013 although in some cases, particularly in smaller firms, one person might be both an entrepreneur and a manager. Managers \u201cwere more inclined to avoid challenges, innovations and what Schumpeter called the \u2018perennial torment of creative destruction\u2019 in favour of a more tranquil life\u201d (Zaratiegui & Rabade, 2005, p. 781). The main risks they faced from firm failure were to their reputations or to their employment status. Managers had little incentive to strive to maximize profits (Zaratiegui & Rabade, 2005).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"d4c53501-2876-463f-95ed-d168a41e534f"}],"header":"Alfred Marshall (1842-1924)"},{"position":{"x":39.016018306636155,"y":12.282975514729817},"alwaysFullscreen":false,"content":[{"params":{"text":"

Amasa Walker (1799-1875) and his son Francis Walker (1840-1897) were from the American School of thought, and they helped shape an American perspective of entrepreneurship following the Civil War of 1861-1865. These scholars claimed that entrepreneurs created wealth, and thus played a different role than capitalists. They believed that entrepreneurs had the power of foresight and leadership qualities that enabled them to organize resources and inject energy into activities that create wealth (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"09aa2da4-2e30-4da7-9f55-85286d6ce341"}],"header":"Amasa Walker (1799-1875)"},{"position":{"x":18.07780320366133,"y":16.18922551472982},"alwaysFullscreen":false,"content":[{"params":{"text":"

Adam Smith (1723-1790), from the English School of thought, published An Inquiry into the Nature and Causes of the Wealth of Nations<\/em> in 1776. In a departure from the previous thought into entrepreneurship and economics, Smith did not dwell on a particular class of individual. He was concerned with studying how all people fit into the economic system. Smith contended that the economy was driven by self-interest in the marketplace (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"797074b8-ffcb-43a7-aabc-403ff5473cdf"}],"header":"Adam Smith (1723-1790)"},{"position":{"x":32.151029748283754,"y":55.512142181396484},"alwaysFullscreen":false,"content":[{"params":{"text":"

Also from the English School, David Ricardo (1772-1823) was influenced by Smith, Say, and others. His work focused on how the capitalist system worked. He explained how manufacturers must invest their capital in response to the demand for the products they produce. If demand decreases, manufacturers should borrow less and reduce their workforces. When demand is high, they should do the reverse (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"bf621af3-f053-404c-8350-9ed43aba8a24"}],"header":"David Ricardo (1772-1823)"},{"position":{"x":50.800915331807786,"y":81.55390421549478},"alwaysFullscreen":false,"content":[{"params":{"text":"

Carl Menger (1840-1921), from the Austrian School of thought, ranked goods according to their causal connections to human satisfaction. Lower order<\/em> goods include items like bread that directly satisfy a human want or need like hunger. Higher orde<\/em>r goods are those more removed from satisfying a human need. A second order good is the flour that was used to make the bread. The grain used to make the flour is an even higher order good. Entrepreneurs coordinate these factors of production to turn higher order goods into lower order goods that more directly satisfy human wants and needs (Hebert & Link, 2009).<\/p>\n\n

Menger (1950 [1871], p. 160) established that entrepreneurial activity includes: (a) obtaining information about the economic situation, (b) economic calculation \u2013 all the various computations that must be made if a production process is to be efficient, (c) the act of will by which goods of higher order are assigned to a particular production process, and (d) supervising the execution of the production plan so that it may be carried through as economically as possible (Hebert & Link, 2009, p. 43).<\/em><\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"8cd31ba9-c8d8-4183-9c58-cad1746a65b1"}],"header":"Carl Menger (1840-1921)"},{"position":{"x":25.171624713958813,"y":33.37672551472981},"alwaysFullscreen":false,"content":[{"params":{"text":"

Jeremy Bentham (1748-1832), from the English School of thought, considered entrepreneurs to be innovators. They \u201cdepart from routine, discover new markets, find new sources of supply, improve existing products and lower the costs of production\u201d (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"b4b353a8-ac01-43fe-b27f-e5baf1ca932f"}],"header":"Jeremy Bentham (1748-1832)"},{"position":{"x":62.47139588100686,"y":6.032975514729818},"alwaysFullscreen":false,"content":[{"params":{"text":"

Joseph Schumpeter\u2019s (1883-1950) parents were Austrian, he studied at the University of Vienna, conducted research at the University of Graz, served as Austria\u2019s Minister of Finance, and was the president of a bank in the country. Because of the rise of Hitler in Europe, he went to the United States and conducted research at Harvard until he retired in 1949. Because of this, he is sometimes associated with the American School of thought on entrepreneurship (Chell, 2008).<\/p>\n\n

Whereas Menger saw entrepreneurship as occurring because of economic progress, Schumpeter took the opposite stance. Schumpeter saw economic activity as leading to economic development (Hebert & Link, 2009). Entrepreneurs play a central role in Schumpeter\u2019s theory of economic development, and economic development can occur when the factors of production are assembled in new combinations<\/em>.<\/p>\n\n

Schumpeter (1934) viewed innovation as arising from new combinations of materials and forces. He provided the following five cases of new combinations.<\/p>\n\n

\n\t
The introduction of a new good \u2013 that is one with which consumers are not yet familiar \u2013 or of a new quality of good.<\/li>\n\t
The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.<\/li>\n\t
The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.<\/li>\n\t
The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.<\/li>\n\t
The carrying out of the new organisation of any industry, like the creation of a monopoly position \u2026 or the breaking up of a monopoly position (Schumpeter, 1934, p. 66).<\/li>\n<\/ol>\n\n
Another concept popularized by Schumpeter \u2013 in addition to the notion of new combinations \u2013 was creative destruction<\/em>. This was meant to indicate that the existing ways of doing things need to be dismantled \u2013 to be destroyed \u2013 to enable a transformation through innovation to a new way of doing things. Entrepreneurs use innovation to disrupt how things are done and to establish a better way of doing those things.<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"7295ace7-09e0-4d84-a546-334747f304e7"}],"header":"Joseph Schumpeter (1883-1950)"},{"position":{"x":50.68649885583524,"y":62.543392181396484},"alwaysFullscreen":false,"content":[{"params":{"text":"
Amasa Walker (1799-1875) and his son Francis Walker (1840-1897) were from the American School of thought, and they helped shape an American perspective of entrepreneurship following the Civil War of 1861-1865. These scholars claimed that entrepreneurs created wealth, and thus played a different role than capitalists. They believed that entrepreneurs had the power of foresight and leadership qualities that enabled them to organize resources and inject energy into activities that create wealth (Chell, 2008).<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"26207874-e677-4792-ac59-2fe3322fb3b7"}],"header":"Francis Walker (1840-1897)"},{"position":{"x":96.68192219679635,"y":93.53307088216147},"alwaysFullscreen":false,"content":[{"params":{"text":"
References<\/strong><\/p>\n\n
Baron, R. A. (2004a). The cognitive perspective: A valuable tool for answering entrepreneurship\u2019s basic \u201cwhy\u201d questions. Journal of Business Venturing, 19(2), 221-239.<\/p>\n\n
Chell, E. (2008). The entrepreneurial personality: A social construction (2nd ed.). New York: Routledge.<\/p>\n\n
Duening, T. N. (2010). Five minds for the entrepreneurial future: Cognitive skills as the intellectual foundation for next generation entrepreneurship curricula. Journal of Entrepreneurship, 19(1), 1-22. doi:10.1177\/097135570901900101<\/p>\n\n
Hebert, R. F., & Link, A. N. (2009). A history of entrepreneurship. New York: Routledge.<\/p>\n"},"library":"H5P.Text 1.1","metadata":{"contentType":"Text","license":"U","title":"Untitled Text"},"subContentId":"573538d6-9d07-4ef1-9b83-1955d8d2d374"}],"header":"References"}],"hotspotNumberLabel":"Hotspot #num","closeButtonLabel":"Close","image":{"path":"images\/image-6104567ef1132.jpg","mime":"image\/jpeg","copyright":{"license":"CC BY-SA","title":"Evolution of Entrepreneuship Thought","author":"Lee A. Swanson","version":"4.0","year":"2017","source":"http:\/\/solr.bccampus.ca:8001\/bcc\/file\/8e676f38-cdc5-4f8c-8093-65591c2ac935\/1\/Entrepreneurship-and-Innovation-Toolkit-1575134366._print.pdf"},"width":1088,"height":472},"backgroundImageAltText":"Timeline diagram of the evolution of entrepreneurship. All relevant dates on the image are repeated in the image hotspots."}

Historical and Evolutionary Development of Entrepreneurship Thought

Workforce Development Curriculum Team