Suffers Textbook Case of Neglect
Calvin A. Kent
Wall Street Journal 9/4/87
Since a course on economics principles is the first
- or only - taste many students get of college-level economics, the process
of entrepreneurship should be fully and accurately portrayed in its textbooks.
Yet a survey of the 15 leading college economics principles texts, conducted
by Baylor University's Center for Private Enterprise, indicates that entrepreneurship
is a neglected concept in most of them.
Here are six fundamental concepts regarding entrepreneurship
that rarely are integrated into the texts:
1. Entrepreneurship as an economic re-source.
Years ago most principles textbooks listed entrepreneurship or entrepreneurs
as a separate "factor of production" along with land, labor and capital.
But today, if mentioned at all, entrepreneurship is viewed as either a
subset of "labor" or as a part of "human capital" and dismissed in a few
sentences or, at best, a couple of paragraphs.
Often the entrepreneur is portrayed as nothing more
than a manager, coordinating the use of the other economic resources. Only
a few of the texts recognize that the entrepreneur is the innovative risk-taker
in society. As such, he is a distinct factor in the productive process,
seeing niches that others have overlooked and acting on those insights.
Without this innovative, risk-taking propensity the other factors are basically
Few of the books make it clear that entrepreneurship
is more than starting a new business. It also takes the form of "intrapreneurship,"
when the entrepreneurial event occurs within an existing organization.
While in recent years several mass-market books have stressed that intrapreneurship
is the key to the survival of corporate America, no college textbook conveys
2. Entrepreneurs create and destroy markets.
At the heart of those incredibly dull chapters labeled microeconomics in
most college textbooks is supply and demand analysis. The curves are derived
and shifted, and equilibrium prices and quantities result. This is basically
a static analysis. The student who has not been dulled into lack of curiosity
may wonder what causes supply and demand to change, new markets to appear
and old ones to disappear. That student will recognize that the market
is dynamic, not static.
If the role of the entrepreneur in the marketplace
is discussed at all in the texts, it is to mention that the entrepreneur
responds to known price signals in the market, moving it toward equilibrium.
In fact, entrepreneurship destroys market equilibriums by creating entirely
new markets or market relationships through the introduction of products,
services, processes or technologies.
3. Entrepreneurship and profit. While all the textbooks pay homage
to the need for profits in a market economy, and a good number mention
that profits are the incentive for the entrepreneur, most of the discussion
focuses upon profits as a residual: what is left over after costs have
been subtracted from revenues. This leaves the student without the understanding
that entrepreneurial perception creates profits. But just as entrepreneurship
creates profits, it destroys them. Joseph Schumpeter accurately portrayed
the phenomenon of the “thundering herd” of imitators who compete away the
profits made by the first entrepreneurs.
Very few principles textbooks communicate to the
student that while important, profit is not the only motive for the entrepreneur.
Autonomy and power are equally important, but these concepts cannot be
easily integrated into the static geometry of the chapters on market equilibrium.
The texts also fail to note that if the entrepreneur's
perception was a mirage, the entrepreneurial effort is not rewarded - as
many defunct businesses bear testimony.
4. Entrepreneurship and technological change. Innovation is the
entrepreneur's principal function in the market economy, but only a few
of the textbooks tie entrepreneurship to innovation. While discussions
of growth economics do include concepts such as technological change and
technology transfer, they do not include their agent: the entrepreneur.
5. Entrepreneurs create jobs. In the macroeconomics portions
of the textbooks there is usually a discussion of unemployment and how
to cure it. The traditional answers are found in Keynesian and monetarist
manipulations of the money supply, taxes and government spending. Many
of the texts also mention the desirability of job training to deal with
structural unemployment. But only one of the textbooks mentions that there
is abundant research to confirm that the more dynamic entrepreneurial firms
are the principal generators of jobs in the economy.
6. Entrepreneurship in economic growth. All of the texts contained
chapters on economic growth. Many present the results of statistical analyses
that try to isolate the factors that have caused some nations to grow and
others to stagnate. These texts also include chapters on the underdeveloped
countries with policy prescriptions for how their state might be upgraded.
The role of the entrepreneur as agent in the material
progress of humankind is rarely mentioned. In fact, many of the texts assume
that in underdeveloped countries there is an insufficient supply of entrepreneurial
talent to propel them forward and so the government must plan. But in any
society, no matter what its state of development, there is entrepreneurial
potential that can be unleashed by a free-market structure. The growing
literature indicates that what is restricting economic growth are government
policies, both in the developed and the underdeveloped world, that restrict
One surprising finding of the survey was that entrepreneurship
is as incompletely covered in the newer “free-market” textbooks as it is
in the more traditional “Keynesian” ones. Three of the standard Keynesian
texts do the most comprehensive job of covering the topic.
Economics educators need to rethink what is included
in the principles course. If they integrate entrepreneurship, their students
may find economics relevant to the real world after all.
Mr. Kent is professor and director of the Center for Private Enterprise
at Baylor University in Waco, Texas.