1.3.3 Entrepreneur

We don't have entrepreneurs nor in the Ricardian theory, nor in academic economics. In other words, the main protagonist of a market economy simply doesn't exist. At most, we find entrepreneurs, technological progress, increase of know-how etc. hidden in some variables, but they are never really adressed.

That's the opposite of what happens in history. History tries to explain historical processess almost exclusively by the actions of personalities. That's obviously wrong. However, in economics, we have only "economic laws", that works the same way whatever the individuals do.

We see that easily when we have a look at an extreme position; Marxism. Socialist countries even mention the economic laws, universally and eternally valid, in their constitution, see Karl Marx.

In modern economics, the interest rates equal savings and investments with the same security the earth turns around the sun maintained in the orbit by gravitation and the centrifugal force.

If we know that any projectable to pay back the credit, at least if the interest rates don't exceed the administration costs of the banks and the risk, see interest rates and that money can be printed, the crucial question are not the interest rates, but how to find profitable investments. For a more detailed discussion see the little book downloadable from the start of this website.

For the people outside the academic economics, the explanations of Jean-Baptiste Say are trivial. The strength of market economies is the fact that everybody understand how it works, but for the academic world, the explanations of Jean-Baptiste Say are revolutionary. People with no working experience believe that economics is something like the universe, which exists as well in the absence of human beings and is steered exclusively by natural laws.

Jean-Baptiste Say is the only economist who distinguishes between the profit on capital and the income that derives from entrepreneurial activities.

[The logic is not really convincing because normally, an entrepreneur can only invest in his own company and in a market he knows well. If he invests it somewhere else, it is riskier. At least, if he invests directly as equity capital, if he becomes an owner of part of the company. If he borrows the money it depends on the insurances he has in case of bankrupt.]

Quel entrepreneur, en effet, pourrait, d'une manière suivie, consentir à payer un intérêt, s'il ne trouvait pas dans le prix auquel il vend ses produits, un profit qui l'indemnise tout au moins du loyer que son capital lui coûte ? Et lorsqu'il est propriétaire de son capital, si, en faisant valoir par lui-même ce capital, il ne tirait rien au-delà du salaire de ses peines, n'est-il pas évident qu'il préférerait le prêter pour en tirer un intérêt, et qu'il louerait séparément ses talents et sa capacité pour en recevoir un salaire?

Which entrepreneur would agree to pay eternally an interest rates if he is not compensated by the price for which he sells his products? And if he is the owner of the capital, in other words if he uses it himself and if he doesn't receive nothing besides his wage, is it not obvious that he would prefer in this case to borrow his capital to someone else and use his talents and capacities somewhere else in order to get a wage?

Besides wage, profit and rent, there is therefore in the theory of Jean-Baptiste Say a fourth source of income, the wage of the entrepreneur.

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The entrepreneur, an important figure in market economies

In academic economics, that something is inherited from neoclassical theory, there are no entrepreneur. The resources allocate themselves to the optimal use driven by universally valid economic laws. There are only two authors who stress the role of entrepreneurs and of human decisions: Jean-Baptiste Say and Joseph Schumpeter.

The entrepreneur is an accidental, spontaneous and unpredictable production factor and therefore difficult to integrate in mathematical modeling and therefore disregarded.

Neoclassical theory and marxism, although they consider themselves to be opposed to each other, are very similar concerning the methods used. Both describe the economy as kind of machine that works without any human interference.