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Notes For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of
currently existing inputs. Schumpeter’s initial example of this was the combination of a steam
engine and then current wagon making technologies to produce the horseless carriage. In this
case the innovation, the car, was transformational but did not require the development of a new
technology, merely the application of existing technologies in a novel manner. It did not immediately
replace the horse drawn carriage, but in time, incremental improvements which reduced the
cost and improved the technology led to the complete practical replacement of beast drawn vehicles
in modern transportation. Despite Schumpeter’s early 20th-century contributions, traditional
microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks
(instead assuming that resources would find each other through a price system). In this treatment
the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of
the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, bearing risk. For
Schumpeter, the entrepreneur did not bear risk: the capitalist did.
For Frank H. Knight (1921) and Peter Drucker (1970) entrepreneurship is about taking risk.
The behavior of the entrepreneur reflects a kind of person willing to put his or her career and
financial security on the line and take risks in the name of an idea, spending much time as
well as capital on an uncertain venture. Knight classified three types of uncertainty.
• Risk, which is measurable statistically (such as the probability of drawing a red color
ball from a jar containing 5 red balls and 5 white balls).
• Ambiguity, which is hard to measure statistically (such as the probability of drawing a
red ball from a jar containing 5 red balls but with an unknown number of white balls).
• True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict
statistically (such as the probability of drawing a red ball from a jar whose number of
red balls is unknown as well as the number of other colored balls).
The acts of entrepreneurship are often associated with true uncertainty, particularly when it
involves bringing something really novel to the world, whose market never exists. However,
even if a market already exists, there is no guarantee that a market exists for a particular new
player in the cola category.
The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic
theory (which describes many efficiency-based ratios assuming uniform outputs) presents
theoretic quandaries. William Baumol has added greatly to this area of economic theory and
was recently honored for it at the 2006 annual meeting of the American Economic Association.
The entrepreneur is widely regarded as an integral player in the business culture of American
life, and particularly as an engine for job creation and economic growth. Robert Sobel published
The Entrepreneurs: Explorations Within the American Business Tradition in 1974. Zoltan Acs
and David Audretsch have produced an edited volume surveying Entrepreneurship as an
academic field of research, and more than a hundred scholars around the world track entrepreneurial
activity, policy and social influences as part of the Global Entrepreneurship Monitor (GEM)
and its associated reports.
Though Entrepreneurs are thought to have many of the same character traits as leaders, involve
particular psychological dispositions, or operate in purely business spheres of life, recent
European theorizing on the subject has suggested that, come the era of neo-liberalism and ‘big
society’ politics that promote conceptualising humans as economic agents per se, normal,
everyday people usually marginalized from the term ‘entrepreneur’ are too involved in the
very same kind of processes that ‘big business’, proper entrepreneurs are involved with.
Entrepreneurs, and entrepreneurship, as such, might be enacted by anybody, encountering as
they do economic uncertainty on an everyday basis.

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