Capitalist Enterprise and Risk

Abstract

It is proposed to discuss in this paper the role of the distribution of wealth in a system of capitalist enterprise and profit. At the outset it is necessary to give a brief summary of the principle of increasing risk.² The most important consequence of this principle is that the entrepreneur’s investment (measured by his real capital — equipment and stocks) is not independent of the amount of capital which he can provide from his own resources; a wealthy entrepreneur may therefore in the same circumstances invest much more than a ‘poor’ one. It is pertinent to ask what is meant by entrepreneur and entrepreneur’s capital in this context. A fuller treatment of this question will be given in the last part; for the moment it is sufficient to say that the relevant characteristic of the entrepreneur is the unity of control, so that, for example, a number of firms controlled by the same people constitute one ‘entrepreneur’. The entrepreneurial capital, in the case of a private entrepreneur, is his private capital, in the case of a joint stock company it may be regarded for our present purposes as the sum of ordinary share capital and capital reserves.

First published in Oxford Economic Papers, no. 7, March 1945 — with minor revisions.

This paper (as well as an earlier one, On Risk) is an outcome of research which was started under a grant from Balliol College; I take this opportunity to express my due acknowledgement.