What Is an Entrepreneur?
An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or procedures.
Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and bring good new ideas to market. Entrepreneurs who prove to be successful in taking on the risks of a startup are rewarded with profits, fame, and continued growth opportunities. Those who fail, suffer losses and become less prevalent in the markets.
- Entrepreneurs are vital parts of capitalist economies, taking on large degrees of risk in order to innovate and found new companies.
- While economic thinkers have long known that business owners (aka "capitalists") are vital to economic growth and wealth creation, the word "entrepreneur" only appeared in the 1800s.
- Coined by economic philosopher Jean-Baptiste Say, the word comes from French, where it means "undertaker"—i.e. one who undertakes a new venture.
Who Coined It?
Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship." Though the concept of an entrepreneur has existed and was known for centuries, the classical and neoclassical economists interestingly left entrepreneurs out of their formal models of the economy: They assumed that perfect information would be known to fully rational actors, leaving no room for risk-taking or discovery. It wasn't until the middle of the 20th century that economists seriously attempted to incorporate entrepreneurship into their models.
Three thinkers were central to the inclusion of entrepreneurs in later iterations of economics: Joseph Schumpeter, Frank Knight, and Israel Kirzner. Schumpeter suggested that entrepreneurs—not just companies—were responsible for the creation of new things in the search of profit. Knight focused on entrepreneurs as the bearers of uncertainty and believed they were responsible for risk premiums in financial markets. Kirzner thought of entrepreneurship as a process that led to the discovery.
Even though he was the first to describe in detail capitalist production and the profit motive of business owners, it wasn't Adam Smith who coined the term "entrepreneur." One type of person strangely overlooked in Smith's free-market masterpiece, "The Wealth of Nations," is the entrepreneur. This is because the term was actually coined afterwards by an admirer of Adam Smith's book.
Entrepreneur is a French word probably coined by the economist Jean-Baptiste Say from the word entreprendre, which is usually translated as "undertaker" or "adventurer." Say studied Smith's book and, while agreeing on all points, found that the omission of enterprising businessmen was a serious flaw.
Say's View on Entrepreneurship
Jean-Baptiste Say pointed out in his own writings that it was entrepreneurs who sought out inefficient uses of resources and capital and moved them into more productive, higher yield areas. Simply put, entrepreneurs seek opportunities for profit and, by doing so, create new markets and fresh opportunities. By constantly disrupting the balance of competition, entrepreneurs prevent monopolies from forming and create a wide diversity of products that keep consumers consuming and producers producing.
In return for taking these risks, successful entrepreneurs like Bill Gates and Henry Ford reap fortunes far beyond those of normal agents in the economy.
Say put the focus on entrepreneurs because he was one. As a cotton manufacturer, he saw how an entrepreneur must be able to recognize opportunities and manage them effectively. Say's "A Treatise on Political Economy, or the Production, Distribution, and Consumption of Wealth" captured the imagination of many people. Thomas Jefferson read the English translation and tried to convince Say to teach in his new nation.
Although Say never stepped foot on U.S. soil, his entrepreneurial outlook found a home in America anyway. Combining Adam Smith's free-market principles and Say's entrepreneurial call to arms, the U.S. went wholeheartedly into the industrial revolution and emerged with one of the strongest economies in the world.