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The Creative Response in Economic History

Published online by Cambridge University Press:  03 February 2011

Joseph A. Schumpeter
Affiliation:
Harvard University

Extract

Economic historians and economic theorists can make an interesting and socially valuable journey together, if they will. It would be an investigation into the sadly neglected area of economic change.

As anyone familiar with the history of economic thought will immediately recognize, practically all the economists of the nineteenth century and many of the twentieth have believed uncritically that all that is needed to explain a given historical development is to indicate conditioning or causal factors, such as an increase in population or the supply of capital. But this is sufficient only in the rarest of cases.

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Copyright © The Economic History Association 1947

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References

1 Even within the assumptions of classical theory this is not necessarily true; but we need not go into this.

2 The function itself is not absent from other forms of society; but capitalist entrepreneurship is a sufficiently distinct phenomenon to be singled out.

3 Arthur H. Cole has opened new vistas in this area in his presidential address before the Economic History Association, “An Approach to the Study of Entrepreneurship,” The Tasks of Economic History (Supplemental Issue of The Journal of Economic History), VI (1946), 1–15.

4 An exact definition can be provided by means of the concept of production functions. On this, see Lange, Oscar, “A Note on Innovations,” Review of Economic Statistics, XXV (1943), 1925.CrossRefGoogle Scholar

5 It is sometimes held that entrepreneurship, although it did not require antecedent ownership of capital (or: very little of it) in the early days of capitalism, tends to become dependent upon it as time goes on, especially in the epoch of giant corporations. Nothing could be further from the truth. In the course of the nineteenth century, it became increasingly easier to obtain other people's money by methods other than the partnership, and in our own time promotion within the shell of existing corporations offers a much more convenient access to the entrepreneurial functions than existed in the world of owner-managed firms. Many a would-be entrepreneur of today does not found a firm, not because he could not do so, but simply because he prefers the other method.

6 The relation between the two has attracted interest before. See, e.g., Taussig, F. W., Inventors and Money-Makers (New York: The Macmillan Company, 1915).Google Scholar

7 Gustav von Schmoller introduced the subject into his general treatise (Grundriss) of 1904. But the novelty consisted only in the systematic use he made of the result of historical research. Less systematically, the subject had entered general treatises before.

8 Financial institutions and practices enter our circle of problems in three ways: they are “auxiliary and conditioning”; banking may be the object of entrepreneurial activity, that is to say, the introduction of new banking practices may constitute enterprise; and bankers (or other “financiers”) may use the means at their command in order to embark upon commercial and industrial enterprise themselves (for example, John Law). See the recent book by Redlich, Fritz, The Molding of American Banking—Men and Ideas (New York: Hafner Publishing Company, 1947).Google Scholar

9 This case emphasizes the desirability, present also in others, of divesting our idea of entrepreneurial performance of any preconceived value judgment. Whether a given entrepreneurial success benefits or injures society or a particular group within society is a question that must be decided on the merits of each case. Enterprise that results in a monopoly position, even if undertaken for the sole purpose of securing monopoly gains, is not necessarily antisocial in its total effect although it often is.

10 In a sense, the promotor who does nothing but “set up” new business concerns might be considered as the purest type of entrepreneur. Actually, he is mostly not more than a financial agent who has little, if any, title to entrepreneuriship—no more than the lawyer who does the legal work involved. But there are important exceptions to this.

11 Gordon, Robert A., Business Leadership in the Large Corporation (Washington, D.C.: The Brookings Institution, 1945).Google Scholar

12 It should be obvious that this does not mean that the whole social gain resulting from the enterprise goes to the entrepreneur. But the question of appraisal of social gains from entrepreneurship, absolute and relative to the entrepreneurial shares in them, and of the social costs involved in a system that relies on business interests to carry out its innovations, is so complex and perhaps even hopeless that I beg to excuse myself from entering into it.

13 Still more difficult is, of course, responsible appraisal, that is to say, appraisal that is not content with popular slogans. Measures to keep surplus gains alive no doubt slow up the process of “handing on the fruits of progress.” But the knowledge that such measures are available may be necessary in order to induce anyone to embark upon certain ventures. There also may be other compensating advantages to such measures, particularly where rapid introduction into general use of new methods would involve severe dislocations of labor, and where entrepreneurial gains are important sources of venture capital.

14 Whether this actually is so in any particular case is, of course, extremely difficult to establish. The successes stand out, statistically and otherwise; the failures are apt to escape notice. This is one of the reasons why economists seem so much impressed by peak successes. Another reason for faulty appraisal is neglect of the fact that spectacular gains may stimulate more effectively than would the same sum if more equally distributed. This is a question that no speculation caa decide. Only collection of facts can tell us how we are to frame our theory.

15 That is to say, successful entrepreneurship is that method of rising in the social scale that is characteristic of the capitalist blueprint. It is, of course, not the only method. First, there are other possibilities within the economic sphere, such as possession of an appreciating natural agent (for example, urban land) or mere speculation or even, occasionally, success in mere administration that need not partake of the specifically entrepreneurial element. Secondly, there are possibilities outside the business sphere, for business success is no more the only method of rising in capitalist society than knightly service was in feudal society.

16 An example is the study by Marquis, F. J. and Chapman, S. J. on the managerial stratum of the Lancashire cotton industry in the Journal of the Royal Statistical Society, LXXV, Pt III (1912), 293306.Google Scholar

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