The Entrepreneur as a Driver of Social Change

  • Virgil Henry Storr
  • Stefanie Haeffele-Balch
  • Laura E. Grube
Part of the Perspectives from Social Economics book series (PSE)


Every good plot needs a protagonist. Of course, the setting where the protagonist’s story plays out, the constraints they must work within, and the circumstances that the characters must confront all matter. It matters, for instance, that Shakespeare’s Henry V is set in fifteenth-century England and France, that Henry V is a newly crowned King of England who also has a claim to the French Crown, and that the English army is much smaller than the French army they must combat. But without Henry V there is no British invasion of France, there is no Battle of Agincourt, and there is no British monarch on the French throne. In short, without Henry V there is no play.


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  1. 1.
    Radical uncertainty, the notion that uncertainty is present in all action and all choices, is a main tenet of the Austrian school of economics (Kirzner, “The Austrian School of Economics,” in New Palgrave Dictionary of Economics, ed. S. N. Durlauf and L. E. Blume (New York: Macmillan, 1986); Leeson and Boettke, “The Austrian School of Economics: 1950–2000,” in A Companion to the History of Economic Thought, ed. Warren Samuels, Jeff Biddle, and John Davis (Oxford: Blackwell Publishing Ltd., 2003: 445–453). See, for instance, Lachmann ( Capital, Expectations and the Market Process (Kansas City: Sheed and McMeel, 1977)); and O’Driscoll and Rizzo (The Economics of Time and Ignorance (Oxford: Basil Blackwell, 1985)).Google Scholar
  2. 2.
    As Kirzner (Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973): 69) explains, “a state of market disequilibrium is characterized by wide-spread ignorance. Market participants are unaware of the real opportunities for beneficial exchange which are available to them in the market. The result of this state of ignorance is that countless opportunities are passed up.” Stated differently, market participants lack perfect knowledge and are often unaware of what they do not know.Google Scholar
  3. 4.
    Other economists have different views on the role of the entrepreneur. For instance, Knight (Risk, Uncertainty and Profit (New York: Hart, Schaffner, and Marx, 1921); “Profit and Entrepreneurial Functions,” The Journal of Economic History 2 (1942): 126–132) stresses that entrepreneurs take on risks in order to receive profits. Lachmann (“An Austrian Stocktaking: Unsettled Questions and Tentative Answers,” in New Directions in Austrian Economics, ed. Louis M. Spadaro (Kansas City: Sheed Andrews and McMee, 1978): 1–18; The Market as an Economic Process (Oxford: Basil Blackwell, 1986); and “Austrian Economics as a Hermeneutic Approach,” in Economics and Hermeneutics, ed. Don Lavoie (London: Routledge, 1991): 134–146) recognizes that the entrepreneur is alert to opportunities within the context of the market process, but argues that there is no guarantee that the entrepreneur’s actions are equilibrating.Google Scholar
  4. 5.
    As Kirzner (1973: 67) states, though “the element of knowledge is tied to the possibility of winning pure profits, the elusive notion of entrepreneurship is, as we have seen, not encapsulated in the mere possession of greater knowledge and market opportunities. The aspect of knowledge which is crucially relevant is not so much the substantive knowledge of market data as alertness, the ‘knowledge’ of where to find market data.” Further, Kirzner (Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship (Chicago: University of Chicago Press, 1979): 8) states, “entrepreneurial knowledge is a rarefied, abstract type of knowledge—the knowledge of where to obtain information (or other resources) and how to deploy it.”Google Scholar
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    As Kirzner (Discovery and the Capitalist Process (Chicago: University of Chicago Press, 1985): 21–22) states, “If an entrepreneur’s discovery of a lucrative arbitrage opportunity galvanizes him into immediate action to capture the perceived gain, it will not do to describe the situation as one in which the entrepreneur has decided to use his alertness to capture this gain. He has not ‘deployed’ his hunch for a specific purpose; rather his hunch has propelled him to make his entrepreneurial purchase and sale. The entrepreneur never sees his hunches as potential inputs about which he must decide whether they are to be used.”Google Scholar
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    See Klein and Bylund (“The Place of Austrian Economics in Contemporary Entrepreneurship Research,” The Review of Austrian Economics 27, no. 3 (2014): 259–279) for a survey of some of the criticisms of Kirzner’s theory of entrepreneurship.CrossRefGoogle Scholar
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    Although this conception of development, conceived of as “the carrying out of new combinations,” is not entirely incompatible with mainstream conceptions in economics, several salient features of Schumpeter’s formulation distinguish his view from the ones held by the bulk of the discipline. One fundamental difference is the way in which capital and credit are employed. In standard formulations, economic development is principally a matter of capital accumulation; with capital treated as homogenous fully divisible units of some “thing” that enters into an aggregate production function and is transformed into output (See Jones, Introduction to Economic Growth (New York: W.W. Norton & Company, 1998); and the first three chapters of Romer (Advanced Macroeconomics, 4th ed. (New York: McGraw-Hill Irwin, 2012)) for an overview of the macroeconomic literature on economic growth). Although Schumpeter also emphasizes the importance of credit and capital, development in his scheme is not reduced to the outcome of some aggregate phenomenon. That society is adding to its capital stock is less important than how individuals are using its current stock and which individuals are directing its use. It matters for Schumpeter whether an entrepreneur qua entrepreneur or a businessman is controlling capital and deciding on how it is used. Another distinction, which is perhaps implicit in the difference in orientation expounded above, regards how standard formulations and Schumpeter treat growth. The macroeconomic literature talks about economic growth and economic development as if they are synonymous. By development, Schumpeter, however, has in mind something more fundamental.Google Scholar
  8. 10.
    Schumpeter (The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (New Brunswick: Transaction publishers, [1934] 2012): 65) continues: “not in the sphere of the wants of the consumers of final products.” Schumpeter (ibid.: 65) also notes that, We must always start from the satisfaction of wants, since they are the end of all production, and the given economic situation at any time must be understood from this aspect. Yet, innovations in the economic system do not as a rule take place in such a way that first new wants arise spontaneously in consumers and then the productive apparatus swings around to the pressure. We do not deny the presence of this nexus. It is, however, the producer who as a rule initiates economic change, and consumers are educated by him if necessary; they are, as it were, taught to want new things, or things which differ in some respect or other from those which they have been in the habit of using. It is on this basis that Schumpeter can claim that the entrepreneurial function is disequilibrating, a claim that Kirzner disagrees with. It is also on this basis that Schumpeter is able to deal with development from the perspective of “commercial life” and is therefore able to assert the importance of the entrepreneur in explaining the process.Google Scholar
  9. 14.
    Specifically, as Kirzner (1973: 31) writes, “there is present in all human action an element which … cannot itself be analyzed in terms of economizing, maximizing, or efficiency criteria.” This position was also held by Mises (Human Action: A Treatise on Economics (New Haven: Yale University Press, [1949] 1963): 252), who stated that, “In any real and living economy, every actor is always an entrepreneur and speculator.”Google Scholar
  10. 15.
    It should be noted that Schumpeter (Capitalism, Socialism and Democracy (London: George Allen & Unwin, [1942] 1976)) left room for political entrepreneurship within his concept of the entrepreneur. Specifically, he acknowledged that political leaders compete for power and control of government but did not further develop a notion of the political entrepreneur.Google Scholar
  11. 16.
    We do not here mean the “ideological entrepreneurship” discussed by Rose-Ackerman (“Altruism, Ideological Entrepreneurs and the Non-profit Firm,” Voluntas 8 (1997): 120–134), who has in mind entrepreneurs who have certain ideological commitments that can act as a guarantee for donors that gifts will go toward the high quality provision of services.CrossRefGoogle Scholar
  12. 19.
    The fact that it is difficult to determine and show success also means that social entrepreneurship can lead to negative as well as positive outcomes. Despite the best intentions, social endeavors can create waste and unintended outcomes rather than spur meaningful and positive social change (Boettke and Coyne, Context Matters: Institutions and Entrepreneurship (Hanover: Now Publishers Inc., 2009a); “An Entrepreneurial Theory of Social and Cultural Change,” in Markets and Civil Society: The European experience in Comparative Perspective (2009b): 77–103). However, there are clear examples of success, which suggests that the feedback mechanisms we discuss, such as reputation and direct monitoring, are effective guides for social entrepreneurship (Chamlee-Wright, “Local Knowledge and the Philanthropic Process: Comment on Boettke and Prychitko,” Conversations in Philanthropy 1, no. 1. (2004): 45–51; Boettke and Coyne (2009a)).Google Scholar
  13. 20.
    There is also literature that discusses the limits of the bank as well as criticisms of the bank’s use of subsidies and other practices. For instance, see Jain (“Managing Credit for the Rural Poor: Lessons from the Grameen Bank,” World Development 24, no. 1 (1996): 79–89) and Morduch (“The Role of Subsidies in Microfinance: Evidence from the Grameen Bank,” Journal of Development Economics 60, 1 (1999): 229–248).CrossRefGoogle Scholar
  14. 21.
    There is also a growing literature on institutional entrepreneurship, where entrepreneurs seek to alter the informal and formal rules of society. For instance, see Eisenstadt (“Cultural Orientations, Institutional Entrepreneurs, and Social Change: Comparative Analysis of Traditional Civilizations,” American Journal of Sociology 85, no. 4 (1980): 840–869); DiMaggio (“The New Institutionalisms: Avenues of Collaboration,” Journal of Institutional and Theoretical Economics 154, no. 4 (1998): 696–705); Hwang and Powell (“Institutions and Entrepreneurship,” in Handbook of Entrepreneurship Research, ed. S. A. Alvarez, R. Agarwal, and O. Sorenson (New York: Springer, 2005: 201–232); Boettke, Coyne, and Leeson (“Institutional Stickiness and the New Development Economics,” American Journal of Economics and Sociology 67, no. 2 (2008): 331–358); Leca et al. (Agency and Institutions: A Review of Institutional Entrepreneurship (Cambridge: Harvard Business School Press, 2008)); and Boettke and Coyne (2009b). There is some literature on how this process may occur in the political arena. For instance, see Hall (“Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain,” Comparative Politics 25, no. 3 (1993): 275–296) for an examination of how policies can change; and Hay (“Narrating Crisis: The Discursive Construction of the Winter of Discontent,” Sociology 30, no. 2 (1996): 253–277) for how moments of crisis can lead to policy changes. Ideological entrepreneurship may be seen as a subset of institutional entrepreneurship, focusing on the informal rules grounded in beliefs and morals.CrossRefGoogle Scholar
  15. 25.
    Martin (“Emergent Politics and the Power of Ideas,” Studies in Emergent Order 3 (2010): 219) has likewise argued, Markets offer far tighter feedback mechanisms (regarding the extended order) than do polities. Agents in market environments are equipped with prices as ex ante signals to guide their conjectures and profits as ex post selection mechanisms to separate the wheat from the chaff. Combined with residual claimancy and transferable ownership, these constitute a tight feedback mechanism whereby individuals adjust their plans to conditions of scarcity determined on a global scale. Polities lack these key institutional features as well as any close substitutes. Agents launching enterprises in the political sphere thus stand in the default state of ignorance regarding the contours of the extended order. As Martin acknowledges, however, any assessment of the feedback mechanisms available in different spheres in the real world would depend on the (institutional) distance between actual markets and polities and their theoretical equivalents. Our analysis is not primarily concerned with the feedback mechanisms available to theoretical entrepreneurs but to actual entrepreneurs (in post-disaster contexts). Arguably, the (institutional) difference between actual and theoretical markets can be quite large or, at least, large enough to affect our assessments of their epistemic positions.Google Scholar
  16. 26.
    Stated another way, because they do not have access to profit and loss, entrepreneurs operating in non-priced environments cannot engage in rational economic calculation. According to Boettke and Prychitko (“Is an Independent Nonprofit Sector Prone to Failure?” The Philanthropic Enterprise 1, no. 1 (2004): 22), “although non-profits can undertake measurements, and, if encouraged, a rational assessment of their outcomes (using both quantitative and qualitative means), they have no way of calculating the realized results against the expected results. Nonprofit organizations and associations cannot, in other words, calculate the residual or monetary value-added of their endeavor, ex ante or ex post. In this sense, nonprofit is a better term for those that don’t price their service or product. There is no calculated monetary profit.” As we argue below, however, profit and loss can also be blunt signals in some circumstances.Google Scholar
  17. 29.
    Again, this is not to deny that entrepreneurs are in a privileged epistemic position over, say, experts within markets. As Mises (Economic Calculation in the Socialist Commonwealth (Ludwig von Mises Institute, [1920] 1990)) explains, central planners cannot engage in rational economic calculation and so cannot centrally plan an economy. And, as Skarbek (“Experts and Entrepreneurs,” Experts and Epistemic Monopolies 17 (2012): 99) suggests, “Entrepreneurs have the privileged epistemic positions capable of accessing their own creativity and preference rankings as well as the requisite local knowledge of time and place.” What we are denying, however, is the notion that entrepreneurs in market settings always and necessarily enjoy an epistemic advantage over entrepreneurs in nonmarket settings. Even if it were true that, on average, commercial entrepreneurs occupy a more privileged epistemic position than social entrepreneurs, this would not say anything about the epistemic status of any particular commercial or social entrepreneur.Google Scholar

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© Virgil Henry Storr, Stefanie Haeffele-Balch and Laura E. Grube 2015

Authors and Affiliations

  • Virgil Henry Storr
  • Stefanie Haeffele-Balch
  • Laura E. Grube

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