The Origins and Evolution of the Term “Entrepreneur” in English

If I might summarise what I learned about the origins of the word “entrepreneur” in English. This is the query I posted at the SHOE website on 19 September 2013:

I have been asked about the origins of the word ‘entrepreneur’ which is generally associated with J.-B. Say but had already been used by Cantillon in 1723. The English equivalent based on the French entreprendre is ‘undertaker’, i.e. the person who undertakes some project and this word ‘undertaker’ shows up in The Wealth of Nations on a number of occasions in exactly that sense. But I am interested in the word ‘entrepreneur’ itself. Could someone guide me towards the first uses of the term ‘entrepreneur’ in English and who in the English speaking tradition had originally used ‘entrepreneur’ as a separate factor of production which I assume is what made Say’s use of this concept so noteworthy.

Many thanks for any assistance.

The word is, of course, French in origin and has a history going back beyond its use by Cantillion in an article posthumously published in 1734 but which some believe to have been written in 1723. Irrespective of its use by Cantillon, its use by Jean-Baptiste Say in 1803 in his Traité is the landmark moment when the word and its associated concept cross into use amongst economics in French. But the concept itself is older and is unmistakably found in Adam Smith in which he uses the term “undertaker” which is almost a direct translation of entrepreneur. The interesting sidelight here, however, is found in the various translations of Say’s Treatise and Letters to Mr. Malthus in which he writes entrepreneur in the original French but which are variously translated. Jonsson (2013: ) discusses this issue, quoting Princep, Say’s American translator:

‘The term entrepreneur is difficult to render in English; the corresponding word, undertaker, being already appropriated to a limited sense. It signifies the master-manufacturer in manufacture, the farmer in agriculture, and the merchant in commerce; and generally in all three branches, the person who takes upon himself the immediate responsibility, risk, and conduct of a concern of industry, whether upon his own or a borrowed capital. For want of a better word, it will be rendered into English by the term adventurer.’ (Jonsson 2013: 9-10)

There is also the reverse translation of Adam Smith into French where the term “undertaker” is rendered as entrepreneur. This occurs as early as the first translation which is made in 1778 about which Jonsson writes, “we should reiterate that in the earlier translation of Smith’s (1778-9) Wealth of Nations into French, Smith’s ‘undertaker’ became entrepreneur” (Jonsson 2013: 10). Of the word “entrepreneur” being used in an English text, Richard van den Berg noted this probable first use in 1811 by Daniel Boileau. in An Introduction to the Study of Political Economy:

The proper employment or application of capital requires diligence, ability, and a certain degree of courage or resolution, the want of which qualities, or any of them in themselves, frequently induces owners of capital stock to entrust its use to others. In that case the owner of stock is more particularly called a capitalist, and the individual who employs the capital is denominated an undertaker (entrepreneur). The profit of stock must in such instances be divided in certain proportions between the capitalist and the undertaker. (Boileau 1811: 79-80)

Van Den Berg also notes the “pretty nice distinction between ‘capitalist’ and ‘entrepreneur’” found in Boileau which is indeed an important distinction. The possible first use of the term entrepreneur in an English text on its own, as noted by Nicholas Theocarakis and José Manuel Menudo, appears in John Stuart Mill’s Principles of Political Economy. There the term is found, still in French, in a footnote to this passage from Volume 1 Book ii Chapter xv in the first 1848 edition. Mill laments that the French have a superior word while those writing in English are compelled to use the less accurate “undertaker”:

The gross profits from capital, the gains returned to those who supply the funds for production, must suffice for these three purposes. They must afford a sufficient equivalent for abstinence, indemnity for risk, and remuneration for the labour and skill required for superintendence. These different compensations may be either paid to the same, or to different persons. The capital, or some part of it, may be borrowed: may belong to some one who does not undertake the risks or the trouble of business. In that case, the lender, or owner, is the person who practises the abstinence; and is remunerated for it by the interest paid to him, while the difference between the interest and the gross profits remunerates the exertions and risks of the undertaker.[*] Sometimes, again, the capital, or a part of it, is supplied by what is called a sleeping partner; who shares the risks of the employment, but not the trouble, and who, in consideration of those risks, receives not a mere interest, but a stipulated share of the gross profits. Sometimes the capital is supplied and the risk incurred by one person, and the business carried on exclusively in his name, while the trouble of management is made over to another, who is engaged for that purpose at a fixed salary. Management, however, by hired servants, who have no interest in the result but that of preserving their salaries, is proverbially inefficient, unless they act under the inspecting eye, if not the controlling hand, of the person chiefly interested: and prudence almost always recommends giving to a manager not thus controlled, a remuneration partly dependent on the profits; which virtually reduces the case to that of a sleeping partner. Or finally, the same person may own the capital, and conduct the business; adding, if he will and can, to the management of his own capital, that of as much more as the owners may be willing to trust him with. But under any or all of these arrangements, the same three things require their remuneration, and must obtain it from the gross profit: abstinence, risk, exertion. And the three parts into which profit may be considered as resolving itself, may be described respectively as interest, insurance, and wages of superintendence.

[*] It is to be regretted that this word, in this sense, is not familiar to an English ear. French political economists enjoy a great advantage in being able to speak currently of les profits de l’entrepreneur.

Theocarakis also brings to our attention to what is almost certainly the first formal use of the term “entrepreneur” as part of an economics text written in English. Francis Amasa Walker in The Wages Question: A Treatise on Wages and the Wages Class, and first published in 1876 titles, Part II, Chapter XIV, “The employing class: The entrepreneur function: The profits of business” (my bolding). And if one goes to the econlib copy of the book, under the search term “entrepreneur” there are 24 separate references to the use of this term. Walker’s first use of the term “entrepreneur” is exemplary and interestingly highlights a matter that remains almost universal to this day:

We have now to note a further source of error in the almost universal neglect by the text-book writers to make account of an industrial function which, while, the world over and history through, it characterizes a class no more than labor or capital, does yet, in the most highly organized forms of industry, especially in these modern times, characterize a distinct and a most important class. This class comprises the modern employers of labor, men of business, ‘captains of industry.’ It is much to be regretted that we have not a single English word which exactly fits the person who performs this office in modern industry. The word ‘undertaker,’ the man who undertakes, at one time had very much this extent; but it has long since been so exclusively devoted to funereal uses as to become an impossible term in political economy. The word ‘adventurer,’ the man who makes ventures, also had this sense; but in modern parlance it has acquired a wholly sinister meaning. The French word ‘entrepreneur’ has very nearly the desired significance; and it may be that the exigencies of politico-economical reasoning will yet lead to its being naturalized among us. [Walker 1888: Part II, Chapter 14, 90-91 – my bolding]

And “naturalised” it has indeed become. Given Walker’s central role in the American economics community of the nineteenth century, that he states that he hopes to see the use of the term proliferate and the fact that the word did indeed spread throughout the profession thereafter, makes it almost certain that the domestication of the term “entrepreneur” belongs to Walker, although it is entirely possible that he took the idea from that footnote in Mill. I also think this comment on the antagonism between the owners of capital and the actual users of this capital, the entrepreneurs, is worth noting since this is an important distinction:

In the highly-complicated organization of modern between the capitalist and the laborer, makes his terms with each, and directs the courses and methods of industry with almost unquestioned authority. To laborer and to capitalist alike he guarantees a reward at fixed rates, taking for himself whatever his skill, enterprise, and good fortune shall secure. How completely the laborer accepts this situation of affairs we see in the fewness of the attempts to establish productive co-operation, as shown in the preceding chapter. But the laborer does not accept the situation more utterly, more passively, than does the capitalist. Quite as closely does the man of wealth who has not been trained to business, respect his own limitations; quite as little is he disposed to venture for himself.industry, the employer, the entrepreneur, stands. [Walker 1888: Part II, Chapter 16]

Theocarakis establishes Walker’s influence even if it is unrecognised in this reference in the OED in which Richard T. Ely is cited for the use of the term in 1889. Given that Walker preceded Ely by 13 years in referring to the entrepreneur, and Ely would undoubtedly have read Walker, and indeed, Ely even makes the same observation as Walker (and Mill), I think the OED will need to amend its own record to install Walker as the first to employ the term in English in exactly the sense it is used today. This is how Theocarakis refers to the role of Ely:

The OED also offers the following: ‘1889 R. T. Ely Introd. Polit. Econ. (1891) 170 We have..been obliged to resort to the French language for a word to designate the person who organizes and directs the productive factors, and we call such a one an entrepreneur.’ [Actually it is the same page (170) in the 1889 New York, Chatauqua Press, edition].

If Walker in 1876 is then followed by Ely in 1889, and both have the same regret that is described by Mill, it appears almost certain that the laurel goes to Walker although Mill would have to be seen as a likely influence. The use by Ely would have, of course, established the term as part of economic discourse. And yet even then the term entrepreneur may not have truly entered into the lexicon of economics. The actual moment that entrepreneur may have become part of the common language of economics may not have occurred until its use by Schumpeter in his The Theory of Economic Development which was originally published in German in 1911 but only translated into English in 1934. There he associates the entrepreneur not only with the management of a business but also intrinsically as an innovator and introduces the phrase “creative destruction” as the process through which entrepreneurially-led innovation occurs. It is Schumpeter’s particular use that still pervades much of the literature on entrepreneurship although not all uses of the term include this additional connotation. Israel Kirzner, for example, who has written extensively on the role of the entrepreneur, uses the term to describe the manager of an enterprise in the sense it was meant by Mill and Walker.

Finally, it has been noted initially by Mason Gaffney that being innovative does not necessarily make one a benefactor to society. This has been well brought out by Petur Jonsson in his especially interesting article where he wrote following Baumol:

Innovative entrepreneurship is not about creating new products and services per se. Innovative entrepreneurship consists of ‘finding creative ways’ to achieve one’s objectives whatever they may be (Baumol, 2010, p. 155). As explained earlier by Baumol (1990), sometimes this calls for unproductive or even destructive actions. Sometimes people find creative ways to increase their status, wealth, or power without producing anything of value for others. Innovative entrepreneurs will create tradable new goods and services if, and only if, they have an incentive to channel their creative efforts in such pursuits. In truth, even today, some of the most creative and innovative efforts we see anywhere are devoted to criminal enterprises. For example, as outlined by Jonsson (2009), much of internet crime is run by exceptionally creative people who consistently remain a step ahead of regulators, law enforcement and various internet security set ups. (Jonsson 2013: 3)

Nevertheless, I am absolutely with those who think of the entrepreneur as the no questions asked essential ingredient at the heart of the market process. There are no doubt forms of self-interested behaviour that are harmful to the social order and require planning and initiative – as is likely the case with most forms of criminality. But in thinking about how economies are made stronger and more productive, there is no other means to this end other than through entrepreneurially-driven market activity within a legal environment put in place and managed by government.

So to sum up. The word originates in French and has a long history going back before both Say and Cantillon. Nevertheless Say and Cantillon are the two most likely to have made it a standard in French economic discourse. There is a brief reference in English to the term in Daniel Boileau in 1811 and by John Stuart Mill in 1848. But the actual domestication of the term was by F.A. Walker in The Wages Question: A Treatise on Wages and the Wages Class, published in 1876. He uses the term extensively in the text, notes how English is in need of a word with the connotations we now associate with it and was himself an author who would have been able to influence the profession. The OED thus wrongly gives the attribution to Richard Ely who nevertheless was an important conduit of the term to the economics community in general after he had sourced the term in Walker.

Bibliography

Boileau. Daniel. [1811] 2011. An Introduction to the Study of Political Economy. Nabu Press.

Hoselitz, Bert. “The Early History of Entrepreneurial Theory” published in Explorations in Entrepreneurial History, Vol. 3 http://organizationsandmarkets.files.wordpress.com/2011/02/hoselitz-the-early-history-of-entrepreneurial-theory.pdf

Jonsson, Petur. 2013. “On Entrepreneur in Pre-Classical and Classical Economic Thought.” Unpublished manuscript.

Kirzner, Israel. 1973 [2013]. Competition and Entrepreneurship. Indianapolis: Liberty Fund.

Schumpeter,Joseph A. 1934. The Theory of Economic Development. Cambridge. MA: Harvard University Press. The English translation of Schumpeter, Joseph A. 1911. Theorie derwirtschaftlichen Entwicklung. Leipzig: Duncker& Humblot

Walker, Francis Amasa. 1888. The Wages Question: A Treatise on Wages and the Wages Class. 2nd ed. http://www.econlib.org/library/YPDBooks/Walker/wlkWQ.html

It’s hard to appreciate just how useless economic theory today is in explaining how an economy works and in devising policies to make it run better. This is by Ronald Coase in a brief essay written in 2012 which he titled, “Saving Economics from the Economists“:

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

That was not the case in the past. When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.

In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void. Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.

Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates. But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task. During most of human history, households and tribes largely lived on their own subsistence economy; their connections to one another and the outside world were tenuous and intermittent. This changed completely with the rise of the commercial society. Today, a modern market economy with its ever-finer division of labor depends on a constantly expanding network of trade. It requires an intricate web of social institutions to coordinate the working of markets and firms across various boundaries. At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.

It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.

My thanks to Julie Novak for finding and posting this brief note.