Schumpeters New Perspectives On Entrepreneurship Outlined In Entrepreneur

Passion Blog Pro Review

Entrepreneurship Guides

Get Instant Access

Since Schumpeter did not elaborate on the "various new vantage points" he had in mind, we are left with the inference that transpires from a comparative reading of Entrepreneur and Schumpeter's earlier statements on entrepreneurship. We singled out the 1911 edition of Theory as the obvious source representing his early views on the entrepreneur and then traced the shifts in Schumpeter's conception of entrepreneurship between this text and Entrepreneur. It is clear from these findings, reported below, that the most profound change in Schumpeter's conception of entrepreneurship is the depersonalisation of his earlier entrepreneur, the strong individual of almost superhuman powers of energetic will. This represents a radical revision of Schumpeter's conceptualisation of entrepreneurship. Shifting focus away from the person of the entrepreneur, Schumpeter now talks of entrepreneur-ship as a completely depersonalised function that is not associated with any person in particular.23 That Entrepreneur is the work in which Schumpeter first uses the expression "entrepreneurial function" is further significant as an indication that this article marks the shift in his reconceptualisation of entrepreneurship.24 It may come as a surprise, however, that Schumpeter, as reported in the following, chose to root his entrepreneurial function in a collective level situated in historical epochs.

We now proceed to add the details harvested in our comparative reading. One of the most significant changes in Schumpeter's conceptualisation of entrepreneur-ship is associated with a new perspective on his part, according to which social interaction cannot be viewed as an instance of causality. In the 1st edition of Theory, Schumpeter explicitly conceives of the entrepreneur as the main cause and hence the explanation of development, not only in the economic sphere, but also in politics, arts, and science (see Becker & Knudsen, 2002). While he would attempt to conceive social interaction and interdependencies as an instance of causality in 1911, Schumpeter had abandoned this approach in 1926 and would now insist that "we do not speak of cause and effect where there is an interdependency between two groups of facts." Both in Entrepreneur and Theory of 1926, economic change is brought about by the entrepreneurial function whose essence lies in recognising and carrying out new possibilities in the economic sphere. Yet, Schumpeter now portrays the entrepreneur as "the middleman" between producers and consumers.26 Since the entrepreneurial function now operates in terms of social interaction, Schumpeter would mainly conceptualise this function as an instance of interdependence, but not causality (as he previously did in 1911), a viewpoint that is expressed in Entrepreneur as well as in Theory of 1926. And throughout his writings from 1926 and onwards, Schumpeter would consistently rely on his newfound conception of entrepreneurship as an instance of social interaction that generally evades conceptualisation in terms of cause and effect.27 Here it should be noted that Schumpeter's distinction between causality and social interaction arises because of deep difficulties in conceiving social interaction in terms ofcausality, difficulties that continue to plague evolutionary explanations of economic change.

The shift in Schumpeter's thinking, from viewing entrepreneurship as an instance of causality to the much weaker idea of interdependence, is associated with the depersonalisation of the entrepreneurial function in terms of viewing the entrepreneur as "the middleman"28 between producers and consumers. Although the idea of the middleman function is implicit in Theory of 1911, it is in Entrepreneur that Schumpeter first presents an explicit and detailed account of this idea. And, as two of the other articles from the years 1926 to 1929 show (Schumpeter, 1927, 1929a),29 this idea represents a systematic shift in Schumpeter's conceptualisation of the entrepreneur. This view of the entrepreneur as "the middleman" is also associated with a significant downplay of the almost superhuman powers of leadership that were imputed to the entrepreneur in 1911. For example, Schumpeter had explained in 1911 that the entrepreneur is characterised by "the disposition to act" in terms of "the ability to subjugate others and to utilize them for his purposes, to order and to prevail, which leads to successful deeds - even without particularly brilliant intelligence."30 In the seventh chapter of Theory 1911, omitted in the revision of 1926, Schumpeter further explained that "inventions do arise when the entrepreneur needs them, and if the personality of the entrepreneur is not in place in order to make use of every new invention, the inventions will never turn into practice."31

In Entrepreneur and in Theory of 1926, the entrepreneur had lost much of these previous characteristics, or rather entrepreneurship had become a function that personifies no one in particular, and anyone on some occasions. Starting with Entrepreneur and the first revision of Theory, both submitted for publication in 1926, Schumpeter would forever abandon his previous views expressed in

Theory of 1911 that economic relations emanated from two distinct types of human nature, the static type and the dynamic type (the entrepreneur). Thus, en-trepreneurship had become a depersonalised function. Note here that Schumpeter retains the explanatory structure of Theory 1911. In Entrepreneur and his later works, entrepreneurship is still defined in terms of particular economic relations among human actors, but these economic relations are no longer an expression of differences in types of human nature, as in the static and the dynamic type defined in 1911.

While only a select few could possibly personify Schumpeter's early entrepreneur of 1911, anyone could, on some occasions, serve as the middleman of Entrepreneur or Theory of 1926. Nevertheless, Schumpeter retains that leadership is an integral aspect of entrepreneurship. This becomes clear in Entrepreneur when he makes the distinction between leadership, management, and administrative functions. In Entrepreneur, Schumpeter explains that entrepreneurship is associated with the will to dominate or win, a somewhat weaker characterisation of leadership than expressed in his earlier statements in 1911. Schumpeter further asserts that it is the exception for a leader to actually engage in leadership. Most of the time the leader would be occupied by administration and maintaining the daily routine of business. Only on rare occasions would he be engaged in what Schumpeter refers to as the essential function of leadership, the carrying out of new combinations. Leadership and the carrying out of new combinations are inextricably intertwined for Schumpeter. Keeping this in mind, we can explain how his new notion of entrepreneurship - with a somewhat weaker leadership component - is consistent with his earlier notion.

What has happened is that in Entrepreneur Schumpeter has shifted emphasis from the leadership aspect to the combinations aspect. The important implication for the conceptualisation of the entrepreneur is that while in Theory of 1911 there was a strong contrast between new combinations (instances of entrepreneurship) and the recurrent use of old combinations (the circular flow), these two cases now become part of one continuum. As pointed out in the following, this move is nicely related to Schumpeter's abandoning of the contrast between the dynamic type who was capable of carrying out new combinations and the static type who was not. Rather, the entrepreneur becomes a middleman that, on some occasions, may introduce new combinations provided he is capable of leadership and the circumstances are favourable.

Thus, a further move associated with the depersonalisation ofthe entrepreneurial function is Schumpeter's downplay of psychological factors as an explanation for the behaviour of the entrepreneur. In 1911, Schumpeter explained that the possible new combinations existed in the psyche of a small group of economic subjects and characterised "the act and the energy to act" in terms of a particular "mental constitution."32 In 1911, Schumpeter viewed entrepreneurship as an expression of a rare dynamic type of human nature, a particular gift bestowed upon a select few individuals. Whereas Schumpeter retained the idea of entrepreneurship as a personal attribute (as can be seen from footnote 20 in Theory of 1926, pp. 119-121), in Entrepreneur he lets go of the idea that differences in economic relations spring from two distinct types of human nature. In Entrepreneur, there is no longer a pure type of entrepreneurship (as in 1911), now there are shades of entrepreneurship. This conceptualisation is crucial in enabling Schumpeter to usher the dichotomy between the "static-hedonic" and the "energetic" types of Theory 1911 into a continuum: anyone can be an entrepreneur at some occasion - but no one will be so all the time.

Thus, one of the most important changes in Schumpeter's previous theoretical construction of Theory (1911) is that he abandoned the typological thinking according to which economic relations emanated from two distinct types of human nature, the static and the dynamic type. It is likely that Schumpeter's previous typological view was inspired by the thinking of some members of the German Historical School, e.g. Friedrich von Wieser and Karl Bucher,33 according to which economic ordering was an expression of types of human nature.34 Thus, Schumpeter's new depersonalised view of the entrepreneurial function marks a break with the typological thinking of the Historical School. The significance of this break is to associate entrepreneurship with the indeterminate emergence of economic relations rather than the pre-determined appearance of particular relations as an expression of either the static or the dynamic type. In Entrepreneur and Theory of 1926, Schumpeter thus had abandoned the idea of entrepreneurship as a particular gift bestowed upon a select few individuals, and now evaded individual-level psychological explanations of entrepreneurial behaviour. It is somewhat surprising to notice, however, that Schumpeter refers to social-level mentalities in Entrepreneur. In Entrepreneur Schumpeter introduces the concept of "mentality" as an aspect of private ownership. He explains that private ownership is associated with physical means of production and is "a correlate of the existence of a mentality prone to economic activity, whose most important derivates are an experimentally developed technique of production, a mode of economic calculation geared towards being useful for private enterprising, and a corresponding design of trade law and economic policy." Later in the text Schumpeter expands on this point in describing how "public administration" and "the competitive economy" would lead to the development of a mentality that detaches the economic agent from emotional and interest-led relations to individual enterprises, changes the motivation, deprives work of its personal character, introduces professionalization and reduces private ownership of production factors to majority ownership. That is, in Entrepreneur "mentality" is a social level concept situated in a particular historical situation, and the "mentalities" associated with "public administration" and "the competitive economy" lead to a process that it is common to characterize as "rationalisation."

When we consider Schumpeter's use of the term mentality in Entrepreneur it is difficult not to think of Max Weber. Yet it is curious that Schumpeter refrains from using the term "rationalisation." After all, in his essay, The Sociology of Imperialisms, published 1918-1919, Schumpeter had described how competitive capitalism "inevitably democratised, individualised, and rationalised"35 the economic agent. The quoted passage from Imperialisms is one of the few places in his earlier works that Schumpeter provides a reference when he writes about rationalisation.36 The reference, however, is to an article by Lederer,37 not to Weber's work. Therefore, to draw the immediate conclusion that Schumpeter was merely influenced by, or perhaps even was copying Weber is probably unfounded. By writing about the rationalizing effect of competitive capitalism, Schumpeter rather attempted to develop his own views on a topic that had been widely discussed owing to Weber's work, and because of now long-forgotten contributors to this debate.38 This is not said to belittle Weber's stature, but merely a caution against drawing too hasty conclusions. And when we consider that Schumpeter in Entrepreneur argued that certain "mentalities" associated with competitive capitalism had a rationalizing effect, the emphasis is shifted so that it is Marx rather than Weber that comes to mind. Whatever its source, it is clear that Schumpeter in Entrepreneur associated entrepreneurship with the social-level concept of "mentalities," whereas he earlier had emphasised individual-level psychological factors to explain the behaviour of the entrepreneur. It is further the case that this move from an individual- to a social-level explanation for entrepreneurial behaviour is associated with the depersonalisation, or de-personification, of entrepreneurship.

It is not the point that Schumpeter generally shifted his emphasis from the individual to the social level, however. Such a conclusion is unwarranted. But his re-conceptualisation of the entrepreneurial function clearly led to a shift in this particular unit of analysis, from the individual to the social level. In Entrepreneur, Schumpeter went a step further when he argued that besides a few questions belonging to theoretical economics, "it is advisable at all times... to interpret the action of the group as primary and essential, and to understand the autonomy of the economic unit as a derivate that has to be explained in each particular instance." Even if Schumpeter maintained that the private economic subject was the carrier of the entrepreneurial function, he also insisted that leadership, the most important aspect of this function, "is never purely embodied in concrete persons." Thus, Entrepreneur presents Schumpeter's depersonalised entrepreneurial function as representing an underlying collective level, which is expressed through the actual behaviour of the economic units. Moreover, it is clear that Schumpeter views the underlying collective level as situated in historical epochs encompassing long periods of time. Theory of 1926 conveys a similar but somewhat downplayed view. Since Schumpeter must have finished revising Theory immediately after he had submitted Entrepreneur, it is conceivable that he chose to modify some of the statements of Entrepreneur.

As we have emphasised, the important new contribution was the introduction of the entrepreneurial function - or rather, a new way to conceptualise this function and thereby highlight what in Schumpeter's opinion was the essence of entrepreneurship. In Entrepreneur, the function of entrepreneurship consists of two aspects that are closely connected. First, Schumpeter distilled the essence of his earlier conceptualisation of entrepreneurship in stating that "[t]he basic function of the entrepreneur is to combine the production factors into the product."39 This firmly places the entrepreneur at the very centre of the collective production process. Note also that this definition of entrepreneurship, in contrast to the previous conceptualisation as it appeared in Theory (1911), does not rely on psychology and is firmly set in economics. It is the entrepreneur who purchases the production factors, combines them into a product, and sells them to the consumers. The conclusion Schumpeter draws of this conceptualisation is to define the essence of the market economy in terms of the combining function performed by a "private economic subject," i.e. an independent economic unit. A further analysis of how the combination-process actually takes place leads Schumpeter to characterise the entrepreneur as a "middleman"40 between the consumers and the owners of the means of production (and productive services).41 The entrepreneur acts as the buyer on the market of means of production and as the supplier on the market for consumption goods. In this sense, he is at the very core of the market-economy, and to Schumpeter the entrepreneur is indeed the defining criterion of the market-economy. A number of important implications that follow from Schumpeter's depersonalised conception of entrepreneurship, to be considered in the next section, are then further developed in Entrepreneur.

Was this article helpful?

0 0
The Productive Entrepreneur

The Productive Entrepreneur

Entrepreneurs and business owners. Discover 45 Insightful Tips To Motivate, Encourage And Energize You To Become A Successful Entrepreneur. These Tips Will Move You Forward Towards Your Goals As An Entrepreneur. Use It As A Handbook Whenever You Need To Get Motivated.

Get My Free Ebook

Post a comment