Chapter 1: Evolution of Entrepreneurship Theory Key Concepts:

Entrepreneurship Theory
History of Thought
Economic Theory

2.3 Economic Perspectives Economic perspectives can be classified in several ways:

Chronologically ( Hebert and Link, 1988; Binks and Vale 1990)
In schools of thought ( Chell, Haworth and Brearley, 1991)
by the function the economist has given to the entrepreneur within the economic system ( Barreto, 1989)

This Chapter looks at the at the function of entrepreneurship in the economic system as a school of thought:

French Classical school
British classical school
microeconomics and neoclassical school
Austrian and neo Austrian school
Schumpeterian school

2.3.1 French classical school Cantillion is recognized as the first to use the term Entrepreneurship in an economic context.
- Entrepreneurs were viewed to be financially dependent on others.
-Heir lings earned fixed incomes, but entrepreneurs were set up with a capital to set up their enterprise
- Risk and uncertainty play an essential role in this interpretation of the economic system.

2.3.4 Austrian and neo- Austrian school Theorists in this category build on the French theories and consider that risk and uncertainty an important feature of economic systems that allow entrepreneurs the opportunity to make profits.
-First work to make substantive contributions to understanding entrepreneurship is Knight (1921) Risk, uncertainty and Profit.
-Knight points out, a market must be in constant state of uncertainty and entrepreneurship becomes the skillful interpretation of market change and the bearing of responsibility for the successful or otherwise interpretation of market change.
- Doing business is defined as risks are predictable and there is a probability of the possible outcomes.
.If on the other hand risks are unknown and therefore uncertain. Knight argues that entrepreneurship rather than being a function, a role or a class of people as suggested in earlier theories is in fact a type of decision that requieres action in the face of unknown future events
Austrian and neo-Austrian school economists:

von Mangoldt (1855)
Mises 1949
Menger 1950
Kirzner (1973)
Hayek 1990

- according to Kirzner entrepreneurs entrepreneurs or more precisely entrepreneurial decisions are considered to be driving forces behind the market.
-Kirzner argues that there is a crucial element in all human action that can be considered entrepreneurial: individuals in the market do not always make logical decisions and these are often based on irrationality or subjective preferences.
-Kirzner defines the pure entrepreneur as a decision maker whose entire role arises out of alertness to hitherto unnoticed opportunities. The entrepreneur is therefore a decision maker who begins without any means other than an ability to predict, successfully changes in market conditions

2.3.5 Schumpeterian School -Theory of modern thought Joseph Schumpeter (1934, 1963)
-his theory is focused on economic development and the role of the entrepreneur in the development process.
-The function of entrepreneur is that of innovating and or making new combinations of production possible
-Concept of new Combination covers 5 potential cases:

the introduction of a new good or a new quality of a good
the introduction of a new method of production
the opening of a new market
the development of a new source of supply or raw materials or half manufactured goods
the carrying out of a new organisation of any industry

-The concept includes new businesses that are innovative or forming new combinations of resources ( Facebook) and existing businesses that are doing innovative things ( Apple).
Personality theory began to make contributions to the subject of entrepreneurship in the early 1960s. The pioneer of this theory is McClelland (1955). 2.4.1 Personality theory -Uses characteristic sets to describe entrepreneurial success or behavior.
By the late 1980s a series of researchers questioned the validity of this research and argued for a more behavioral and social psychological approach.

2.4.2 Psycho-sociological theory The premises of this approach is that entrepreneurs are displaced people who have been supplanted from their familiar way of life and have somehow been forced into the entrepreneurial way of life due to their circumstances. eg refugees, ethnic minorities.
-In Shapero's (1975) displacement was approached with both positive and negative forces but more negative forces.
-Kets de vries (1977) seeks logical reason as to why entrepreneurs feel displaced.

2.4.3 Sociological perspectives Two most important thories developed:
-sociological work on organisations that applied a population ecology perspective to the birth and death of firms ( ALDRICH 1979, aldrich and zimmer 1986 and Carrol 1988) and Greiners paper (1972) that laid the foundations for research on the growth stages of entrepreneurial businesses.

2.5.1 small business or entrepreneurship

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this is a summary of the firs chapter of the book entrepreneurship for the semster 1 RUG course