Table of Contents
Introduction
Scholars view an entrepreneur as an individual who runs a small business and assumes all the reward of a given business venture or goods or services offered for sale. There exist theoretical perceptions of an entrepreneur and these theorists can be grouped into, the neoclassical economist view, the physiocratic view; and the Austrian school of thought.
The Neoclassical economist views an entrepreneur as someone who coordinates different factors of production to provide a product, a process or service. While the Physiocrates see the entrepreneur as the pivot of the economy and catalyst for economic change and development. Kirzer and Schumpeter from the Austrian school of thought view an entrepreneur respectively as an individual who is alert to profitable opportunities in exchange and trade; an innovator and catalyst for economic change (ABU, 2018). Notwithstanding, this essay will describe the Neoclassical Economist view, the Physiocratic and the Austrian School of Thought on entrepreneur.
Neoclassical Economists View
Entrepreneur is a French word, which means “one who go between” or taker. The Neoclassical economic theory regards entrepreneur as someone who co-ordinates different factors of production to produce a product, a process or a new service (ABU, 2018). The notion of economic theory is concerned with two major societal questions.
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First how does a society utilize scarce resource to create and build wealth! Second, how does society distribute the created wealth amongst its members (Ebrary, 2020). The classical capitalist economic theory espoused the view that self interest or the invisible hand will guide participating individuals toward entrepreneur behavior. The school of thought posits a traditional manager-owner, the entrepreneur.
The neoclassical theory is considered a mainstream view of economics and the framework considers a perfect market with (a) many buyers and sellers, with neither group yielding a positive influence on market prices, (b) prices set by the market themselves, (c) products and services equivalent in substance, but differ in price, and (d) buyers and sellers have access to complete knowledge of the market and transactions occurring (ibid).
The Physiocratic View
The French School of Economic Thought who launched this view referred to as the Physiocrates. They see entrepreneur as the pivot of the economy and a catalyst for economic change and development. For instance, Cantillon a French Economist was the first to recognize the crucial role of entrepreneur in economic development (ABU, 2018). Cantillon made a revolutionary break with these schools of thought.
He removed the ethical and political concerns in order to focus on the economic features of human actions (Rothband, 1995 cited in Brown, 2014). In addition, it helped inaugurate the Physiocratic School of economics in 1756. He influenced classical economist such as Adam Smith, David Hume, as well as French Liberals Turgot and Condillac. Cantillons essay began by discarding the mercantilist notion that money was wealth and built his analysis of commerce with analysis of property rights of landowners; the establishments of villages, market towns, and cities.
He also provided an analysis of labor and wage rate differentials that conclude with the remarkable finding that the true cost or intrinsic value of something is its opportunity cost. He showed that there was mutual independence among the economic classes and that the economy would be self regulating because entrepreneurs would obey the command of price signals (Brown, 2014).
The Austrian School of Thought
Kirzer from the Austrian School of Thought views an entrepreneur as one who is alert to profitable opportunities for exchange and trade. An entrepreneur acts as middle man to facilitate exchange. This is essentially an intermediary function (ABU, 2018).
Schumpeter another member of the Austrian School of Thought sees an entrepreneur as an innovator and a catalyst for economic change. Others like Knight see an entrepreneur as a calculated risk taker, while Shackles refers to him as a creative and imaginative someone, who imagines opportunities. Similarly, Casson sees him as one possessing different skills from others;
Izedonmi sees him as a vital key for economic revolution and a veritable source of rural and urban transformation. He is an owner/manager of a micro-enterprise or macro enterprise. All entrepreneurs are managers in some sense, in that, they manage business venture(s) but all managers are not entrepreneurs (ibid).
This is mostly the macroeconomic field where Austrians are being heard and where Austrian theory is tremendously influential. Neither government nor mainstream economist recognize the role of the entrepreneur in the economy. The Austrian school, on the contrary, defines that role, and builds a cogent theory of innovation, economic theory and strategic and organizational management studies. The elements of Austrian economics for building this bridge are individualism, subjective value, Entrepreneurship, Austrian Capital Theory and Innovation (Hastings, 2019).
Individualism
The Austrian school unit of analysis is individualistic, that is both as producer and as consumer. The consumer is king, the all for the economic ship. An entrepreneur is the creator of the commodity, laying down the roles accepted by the consumer. These two roles interact in form of the betterment for all (ibid).
Subjective Value
Austrian value theory is unsurpassed in its ability to help producers with the critical economic task of value creation. Value is a consumer perception, and occurs exclusively in the consumers mind; hence it is the consumer who creates the value. Subjective means that value is personal, emotional, idiosyncratic and inconsistent (ibid).
Entrepreneurship
In Austrian economics, the role of the entrepreneur is to sense, through the application of empathy, the dissatisfaction of consumers – the signal that they are not experiencing the value they seek and to re-arrange resources into a solution that addresses that dissatisfaction (ibid).
Austrian Capital Theory
In the real world, as opposed to the world of economic models, Austrian capital theory (ACT) provides a guiding light to entrepreneurs on how to assemble, organize, and manage their companies. In Austrian economics, capital is heterogeneous, meaning, every unit of capital is different; and entrepreneurs can combine this in innumerable ways (ibid).
Innovation
Modern mainstream economics lacks a theory of innovation, primarily because there is no role for the entrepreneur. In Austrian economics, innovation emerges as the result of consumer sovereignty, subject value, and entrepreneurship (ibid).
Austrian economists can help businesses to innovate not through process and tactics, but through understanding the mind of the sovereign consumer through insightful tools such as the means- end chain, capacity development and dynamic resource allocation accelerated by consumer-response capabilities (ibid).
Conclusion
Entrepreneurship from the theoretical assumptions of the neoclassical economist view, the Physiocratic view; the Austrian School of Thought all have in common the productive capacity of the entrepreneur in society. The neoclassical economist perceives the entrepreneur as controlling the factors of production in delivery of goods and services, while the physiocratic view confirms the entrepreneur as an economic agent of change and development. Lastly the Austrian school connotes more philosophical meanings for the entrepreneur with bits of individualism, subjective value, Entrepreneurship, Austrian Capital Theory; and Innovation. To sum up the entrepreneurship significance would be less meaningful and effective to the entrepreneurial scholar without the above theoretical and philosophical school of thoughts.
