DEFINITION: Entrepreneurship is the undertaking of business ventures, especially new kinds of ventures or traditional ventures that operate in novel ways.
ETYMOLOGY: The English word “entrepreneur” is a direct borrowing from French, which occurred sometime during the nineteenth century, most likely from the writings of Jean-Baptiste Say.
The French noun “entrepreneur,” originally meaning “supplier,” contractor,” or “businessman,” the adjective “entreprenant,” meaning “enterprising,” and the verb “entreprendre,” meaning “to undertake,” all derive from the French preposition entre, meaning “between,” and the verb “prendre,” meaning “to take.”
The French word “entre,” in turn, derives from the Latin preposition “inter,” meaning “between,” while the French “prendre” derives from the Latin verb “prehendo,” meaning “to lay hold of,” “to seize,” or “to grasp.”
However, Say mentioned that one of the things he found disappointing about the book was its neglect of the creative role of the individual in coming up with new ideas and risking his capital through the act of founding a new enterprise.
In this way, the French word “entrepreneur” was explicitly given its modern meaning.
The word itself, with its new economic connotation of a creator of business firms—or enterprises—was soon adopted by English-speaking economic thinkers, as well.
One might suppose that once the French term was adopted into English, the idea it stands for would become a subject of conscious economic reflection and analysis. However, this did not in fact occur for some time.
Knight made several important distinctions relevant to enterprises, notably, that between risk and uncertainty.
Risk, on Knight’s telling, refers to processes whose outcomes are known to be structured according to some probability distribution, while uncertainty signifies processes about whose outcomes nothing at all can be predicted.
Knight pointed out that the profit that entrepreneurs realize from creating a successful enterprise may be viewed as just compensation for his willingness to assume responsibility for risk and uncertainty.
Another very important economic thinker who investigated the role of entrepreneurship in political economy was Joseph A. Schumpeter. Schumpeter is best known for his concept of “creative destruction,” presented in his 1942 book Capitalism, Socialism, and Democracy.
Schumpeter pointed out that capitalism involves a perpetual change in the mix of businesses present in a market over time, as new, more-successful firms replace older, less-successful firms, which may have once been profitable, but are no longer under the new market conditions. He dubbed this process of constant turnover “creative destruction.”
In this book, as well as many other writings, Kirzner criticized mainstream economic theory for being preoccupied with mathematical models that assume perfect competition. He pointed out that this practice neglects the important role of the entrepreneur in economic life.
It is interesting to note that Kirzner’s efforts to integrate the phenomenon of entrepreneurship into modern, neoclassical economic theory has been more successful than most other doctrines advanced by proponents of Austrian economics.