The Concise Guide To Economics
by Jim Cox
Entrepreneurship can be defined as acting on perceived opportunities in the market in an attempt to gain profits. This acting involves being alert to profit possibilities, arranging financing, managing resources and seeing a project through to completion. Entrepreneurs can be regarded as heroic characters in the economy as they bear the risk from bringing new goods and services to the consumer. To quote from Ludwig von Mises in Human Action:
They are the leaders on the way to material progress. They are the first to understand that there is a discrepancy between what is done and what could be done. They guess what the consumers would like to have and are intent on providing them with these things. p. 336
Entrepreneurship is an art, every bit as much as creating a painting or sculpture. In each case--running a business and producing a work of art--the same elements abound: Conceiving the undertaking, taking resources and combining them into something new and different, risking those valuable resources in producing something which may ultimately prove to be of less value.
It is very common in economics textbooks to ignore the entrepreneur when the texts discuss markets and competition. Their treatment implies that this alertness to profit possibilities, arrangement of financing, management of resources and seeing a project through to completion are all automatic within the market economy. They are not. Real flesh and blood people must act (and not once, but continuously), and be motivated to take these risks in order for commerce to proceed.
The theory of perfect competition entirely eliminates any role for such a person. One of the reasons the role of entrepreneurs has been deemphasized is the methodology of positivism. This approach reduces economic phenomena to mathematics and graphs. Since the traits of alertness, energy, and enthusiasm so necessary for entrepreneurship do not lend themselves readily to mathematics and graphing they are neglected by many economists. Here we have a method displacing real-world events. Which is it we should do?: Throw out parts of reality (such as the above named traits) which do not fit with a method, or find a method that acknowledges and deals with such significant parts of reality?