The Economics of Entrepreneurship & Innovation

In this chapter entrepreneurship is introduced in its economic and academic setting; an economic theory and practice outside the perimeter of classical input-output economics. By the beginning of the 20th century, neo-classical economics had refined the theory of the capitalist economy to one where the central concept is market equilibrium, and where market supply equals demand in a perfectly competitive market. In this scheme there is little place for innovative entrepreneurs and interestingly, communist theoreticians also belittled entrepreneurs as merely being factors adding to the “background noise” in the grand historical imperative. The benefits of economies of scale, i.e. the supremacy of the large corporation, remained the dominant theory (see e.g. Galbraith, 1967) for much of the 20th century. However several scholars, including Schumpeter, insisted that the equilibrium could be radically disturbed by the introduction of innovative products or services