Joseph Schumpeter and Entrepeneurialism

There’s an excellent, excellent article on the contributions of the economist Joseph Schumpeter to the theory of entrepeneurialism that I’d like to commend to your attention. Here’s a snippet:

The notion of combination stands at the center of Schumpeter’s theory of entrepreneurship. Indeed, he famously defines entrepreneurship as a new combination:

To produce means to combine materials and forces within our reach. To produce other things, or the same things by a different method, means to combine these materials and forces differently… Development [or entrepreneurship] in our sense is then defined by the carrying out of new combinations. (Theory of Economic Development, 65–66; emphasis added)

This quote also shows that Schumpeter sees the whole economic process as a combination. The existing economic situation is a combination; when this is recast into a new combination, you produce an innovation.

Schumpeter also provides the reader of Theory with his famous list of the five main types of innovations: “a new good,” “a new method of production,” “a new market,” “a new source of supply of raw materials,” and “the carrying out of a new organization of any industry” (Theory, 66; emphasis added).

There’s one thought I’d like to leave with with on the subject of entrepeneurial activity. If you combine intellectual property law at the degree of robustness it currently has in the United States, recognize no limits to the ability of the government to regulate economic activity which has the effect of making it impossible to assess the risks posed by regulation, and reduce incentives, you run the risk of reducing the Schumpeterian combination that leads to economic vitality (and jobs!) to nil.