The Nature and Role of the Entrepreneur

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1. Both Knight and Schumpeter laid great stress on the importance of the entrepreneur. What similarities and differences, if any, do you find in these authors’ conception of the nature and role of the entrepreneur?

To Schumpeter, the main function of an entrepreneur is an innovator who induces forward shifts in the market through the improvements which he introduces. Schumpeter classifies innovation under five different types, namely: (1) the creation of a new good or an improvement in the quality of an existing good; (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’s entrepreneur exists in tandem with the banker or the capitalist. It is the capitalist that finances the business venture and assumes the uncertainty brought about by the entrepreneur.

Knight, on the other hand, contended that the main role of the entrepreneur is to assume uncertainty himself and to function as some sort of an “insurance agent” to stakeholders. To Knight, an entrepreneur is an individual who carries out the following tasks: (1) initiate useful changes or innovations; (2) adapt to changes in the economic environment; and (3) assume the consequences of uncertainty related to the company.

Schumpeter and Knight had some similar points in their conceptualization of an entrepreneur. Both believed that innovation and initiation of change is a vital task of an entrepreneur. Since entrepreneurs generate capitalistic development, Schumpeter and Knight also considered them the driving force behind economic growth. The main difference between the two authors is their approach to uncertainty. Schumpeter firmly believed t...

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...921). Risk, Uncertainty, and Profit. Boston, MA: Hart, Schaffner & Marx.

Knight, F. H. (1942). Profit and Entrepreneurial Functions. The Journal of Economic History, 2, 126-132.

Landreth, H., & Colander, D. (1994). History of Economic Thought. Boston: Houghton Mifflin Company.

Marshall, A. (1890). Principles of Economics (8th ed.). London: Macmillan and Co., Limited.

Roncaglia, A. (2006). The Wealth of Ideas: A History of Economic Thought. Cambridge, UK: Cambridge University Press.

Samuelson, P. A. (1947). Foundations of Economic Analysis. Cambridge, MA: Harvard University Press.

Schumpeter, J. (1981). History of Economic Analysis. London: George Allen & Unwin.

Schumpeter, J. A. (1934). The Theory of Economic Development. (R. Opie, Trans.) Cambridge, Massachussets: Harvard University Press.

Schumpeter, J. A. (1949). Economic Theory and Entrepreneurial History.

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