1. Both Knight and Schumpeter laid great stress on the importance of the entrepreneur. What similarities and differences, if any, do you find in these authors’ conception of the nature and role of the entrepreneur?
To Schumpeter, the main function of an entrepreneur is an innovator who induces forward shifts in the market through the improvements which he introduces. Schumpeter classifies innovation under five different types, namely: (1) the creation of a new good or an improvement in the quality of an existing good; (2) the creation of a new method of production; (3) the opening of a new market; (4) the capture of a new source of supply; or (5) the creation of a new organization or industry. Schumpeter’s entrepreneur exists in tandem with the banker or the capitalist. It is the capitalist that finances the business venture and assumes the uncertainty brought about by the entrepreneur.
Knight, on the other hand, contended that the main role of the entrepreneur is to assume uncertainty himself and to function as some sort of an “insurance agent” to stakeholders. To Knight, an entrepreneur is an individual who carries out the following tasks: (1) initiate useful changes or innovations; (2) adapt to changes in the economic environment; and (3) assume the consequences of uncertainty related to the company.
Schumpeter and Knight had some similar points in their conceptualization of an entrepreneur. Both believed that innovation and initiation of change is a vital task of an entrepreneur. Since entrepreneurs generate capitalistic development, Schumpeter and Knight also considered them the driving force behind economic growth. The main difference between the two authors is their approach to uncertainty. Schumpeter firmly believed that an entrepreneur is not an uncertainty-bearer and that uncertainty-bearing is the function of the banker who provides capital for the entrepreneur. This is in stark contrast with Knight who believed that the principle role of the entrepreneur is to assume the consequences of the uncertainty that arises from innovation or from factors exogenous to the company. To Schumpeter, the principle role of the entrepreneur is to innovate.
With regards to the nature of the entrepreneur, Schumpeter believed that they are special in that their main motivation is not the pursuit of profit but more idyllic ideas such as “the dream and the will to found a private kingdom”, “to succeed for the sake, not of the fruits of success, but of success itself”, and “the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity”. Knight, on the other hand, believed that good entrepreneurs are those with a great degree of foresight as they are the best-equipped to make decisions under uncertainty.
2. In Ch. 23 of the General theory, Keynes justified the protectionist prescriptions of the mercantilists and their preoccupation with trade surpluses in the following manner:
At a time when the authorities had...