An Outline of the Concept of Entrepreneur: Tradition
Schumpeter asserted in 1911 that the entrepreneur is the one that innovates, that brings “new combinations” in production. The achievement of new combinations from the existent things is called “enterprise” and the individuals whose task is to fulfill them are called “entrepreneurs”. Further, he considers that “The making of an investment is a completely different task from its invention; it is an additional task that demands totally different skills”. Although the entrepreneurs may certainly be investors as well, as they may also be capitalists, they are not inventors by the nature of their position, but by coincidence and conversely. In fact, the innovations that must be created by the entrepreneurs by the nature of their position do not necessarily have to be investments.
According to Schumpeter, the entrepreneur must be able to carry out the following combinations: introduction of new production methods, conquest of a new market segment, using a new source of raw materials, and fulfillment of a new organization of the enterprise.
The entrepreneur was also analyzed from psychological point of view. Thus, he is considered to be a person of a great need for personal achievement. In addition, the security, the prestige, the power and services brought to the company are important reasons to maximize profit. Computer usage
The new Austrian theory about the entrepreneurial activity reduces the entrepreneur’s activity to a sort of arbitration, clearing away most of crucial problems that were tackled in connection to it according to tradition. The popular stereotypy of the entrepreneur as a great boastful business person, narrowed too much the opinion about him/her, but on the other side, the Austrian conception about the entrepreneur as the one that buys cheap and sells expensive may be wrong if generalized.
Frank Knight started to work based on the difference made by Thunen between risk and uncertainness. The risks must be included among the elements of production costs, they must not represent a cause for profit or losses, but they must be deducted on their account. Nevertheless, there are uncertainties that can never be reduced to objective measures, because they involve unforeseeable situations. “The only risk that leads to profit”, observes Knight, “is the unique responsibility that results from the exertion of final responsibility, which by its nature cannot be ensured, nor capitalized, nor paid”. The beauty of Knight’s argument consists of showing that the presence of a real “uncertainty” over the future allows the entrepreneur to gain positive profits, despite the perfect competition, despite the long-term balance and product exhaustion.
The production replaces the consumption forecast and this is why the demand for production factors is determined by the expected growth of production consumption, as the entrepreneur is forced to speculate the price of his final product. Nevertheless, it is impossible to determine the price for his final product without knowing the payments that must be made for the production factors. The entrepreneur solves such a dilemma by guessing the price at which the production should be sold. Although the factors are engaged on a contractual basis and he must pay the anticipated value of their marginal product, the entrepreneur could determine by the non-contractual residual income a wave of gains, if present income proves to exceed the assessed gains.