Traditional Economic Epochs

Classical: The sincere study of the word entrepreneurship found its way into some of the earliest work of a group of economic scholars and writers who spontaneously appeared out of the growing industrial revolution in the 18^th Century. Early economics scholars and writers were not oriented toward developing rigorous, scientific terminology; rather they were caught up in the emotion, logic, and passion of the revolution, itself. When reviewing this early literature, look for its spirituality and aloofness.

Though not rigorous, 18^th and 19^th century philosopher of economics like Ricardo, Smith, Say, and Cantillon still inspire the intellect and challenge our souls. Their inquisitiveness clearly has metaphysical underpinnings. I personally sense that these authors genuinely felt privileged to be correspondents during civilization’s greatest leap forward; and they were compelled to describe the miraculous human progress and economic growth that was rapidly plowing under the tyranny of slavery and feudal systems. There were mysterious economic forces dramatically changing the human condition. Free markets allowed awesome innovations, based on merit and understanding, that clearly created the potential for world economic and political dominance and exploitation, in everyone. Apostles had to analyze and master them; and perhaps more importantly, the events just had to be recorded; that’s the calling of apostles. These early writers enjoyed romanticizing the entrepreneur, an aspect of the field that has transcended the eras to today’s writers. The metaphysical aura surrounding the study of entrepreneurial behavior throughout history may be further explained to some extent by the fact that the earliest writers in the field had a religious fervor and employed metaphysical frameworks in their thinking, culminating in classic concepts like "protestant ethic" and "entrepreneurial spirit." The classical entrepreneur often seems to have supernatural powers. These fresh champions of industry who were defining a new kind of organization, management and economics were anointed during this period with a lasting blessedness. Entrepreneurs were thus treated like the angels of economic vitality, which were bestowed upon the growing and prospering industrialized societies by the grace of God.

Classical writings focused basically on identifying and describing the existence of the new social phenomena that was crystallizing in industrializing, urban markets, and which was driven by Adam Smith’s amazing and powerful “invisible hand.” Early writers began describing and delimiting the key behavioral roles of risk taking, innovating, forming capital and managing. They spiced things up a bit by questioning the morality of entrepreneurs and the system they embodied before ultimately espousing their glory. Cantillon through John Stuart Mill in Table I-1 generally fall into this classical category. Mill in particular wrestled with the desirability and morality of what was happening as the masses freed themselves from the bondage of the land and the elitist to sell labor in product-oriented markets that entrepreneurs were creating. Classical era writers debated some of the most fundamental questions that must be asked about entrepreneurship through the ages: is it good or bad? Is it a cause or effect of economic development? What makes the entrepreneur special? How does entrepreneurship change economic events? These questions remain relevant today.

Classical theorists were concerned with the simplest definitional issues. They started the debates regarding what distinguishes entrepreneurs from other kinds of economic actors, whether opportunity arises from the person or environmental, and what is the socio-political meta-theory surrounding the concept. For instance, a lot of debate surrounded whether the capitalist was also the entrepreneur (one who puts capital at risk) and how entrepreneurs differed from other administrators. These issues are still valid today. Nuances in behaviors were also studied, such as the types of risk, and the difference between risk and the concept of uncertainty. The passion for debating the desirability of free markets was, however, the most colorful and controversial aspect of this era. The philosophical seeds were sown for the basic ethical and moral debates relating to law versus free will, free people and free markets in general; and of course, the freest of all behaviors, entrepreneurship, was often the center of the debate. Reconciling freedom and law remains to this day a never-ending contradiction in the ebb and flow of natural and social order and organization. Conflicts between freedom and law constantly grow at the boundary of progress, and are particularly germane to entrepreneurship. We’ll see in Chapter 4 how recognition of the social contradictions between freedom and centralized regulation seems to resurface regularly as mankind evolves, and that the debate peaks during the most contentious political and economic periods, like the American and French Revolutions, civil wars, economic depressions/downturns or contentious socio-political times like the present 9/11 confrontation (e.g., the war on terrorism at the beginning of 21^st century).

Neoclassical: The neoclassical era produced the world’s first trained economic theorists. They were formally educated, specialized, philosophical, and began to quantify the subjectivity of economics. Regarding entrepreneurship, they endeavored to rigorously and more scientifically analyze the characteristics, roles and causal relationships surrounding economic success. Entrepreneurial behavior came alive through abilities, imagination, and other managerial, behavior attributes. Neoclassical economists were especially interested in topics like efficiency, leadership and organization in economic systems at both micro and macro levels. The exploration and study of equilibrium and dynamics in economic systems emerged as a focal concern while managing economic change and stability became a vocation for professional politicians and managers, as well as for robber baron. Theorists actively studied entrepreneurs more methodologically with case analysis coming into vogue. Theorists from the Austrian School, the historicists in particular, began putting actual entrepreneurs under the microscope. Historicists, from mostly Germany, found that behavior in markets was a very abstract cultural experience, which was interlocked with the rest of society; hence entrepreneurship and other economic activity was found to be time and space bound and passing though phases and epochs (such as Hildebrand’s barter, money and credit phases, or Bucher’s household, town and nation phases, or Schmoller’s village, town, territory, nation and world phases), which could be accelerated through social consciousness and unique behaviors such as entrepreneurship (96c, p. 487-489). The role of the entrepreneur in the economic and political system itself became the most important topic for leading theorists and writers, and the word entrepreneurship was gaining face validity.

In this period Karl Marx pondered the consequences of capitalism from a centralist perspective, focusing on the deeper psychological and metaphysical causes and practical relationships between the people and the means of production, which tend toward evil, exploitation and a brutal social status hierarchy (create a ruling class and an exploited class). Marx envisioned a utopian system that governed aspirations, motives and general activity so efficiently and effectively that it would compel humans to change for the better. And finally distribute the fruits of bountiful economic activity appropriately. Marx created quite a political stir and a strong counter-argument to capitalism and free markets, which lasts to this day. Also, writers like Thorsten Veblen explored the darker side of free markets by uncovering phenomena like "leisure class" and "conspicuous consumption" and proposed that free markets created quite a lot of change in economic conditions and views, which can literally evolve markets on a daily basis. Veblen emphasized an early form of systems thinking, whereby things could get so dynamic that we had to constantly assess "the needs of the day."

Schumpeter has been identified as the key entrepreneurship theorist toward the end of this era (e.g., see Herbert and Link). Schumpeter was seen as integrating many theoretical positions because he was one of the first to articulate the idea of circular economic systems (moving from equilibrium to disequilibrium and back through sequential cycles), with the entrepreneur at the center developing and provoking the systematic cycles of events. He was one of the first economists to earnestly focus on entrepreneurship theory and write like a "system thinker." Neoclassical theorists introduced the earliest writings on many of the basic systems concepts developed in later chapters (It’s all related). Some Neoclassical writers consequently began to move the field from the largely macro concerns of economic growth and income distribution as primary points of study, toward the more micro-economic environmental concerns of price formation and specific managerial behaviors of entrepreneurs. Some of the earliest ideas about holistic systems were also taking form in neoclassical theories about utopian economic systems, which were also in vogue. Especially noteworthy were the utopian inventions proposed by Karl Marx early in the period, and the first applications of Marx’s socialistic views on the supremacy of the collective planner over the entrepreneur that began to take root throughout the period.

A radical new emphasis on the role of consumer demand (pull forces) was also emerging as industrialization was freeing the masses to demand, purchase and consume products (this idea of mass freedom and mass intentions are very important imagery!). Mass human satisfaction was suddenly important to study because discretionary income to the masses was growing. That masses of humans could conceive events “at the margin” and be exploited “at the margin” was a break-through. In particular, marginal utility stirred the imagination of the theorists focusing on entrepreneurship. An ever more capricious consumer was also challenging the old rules and principles. Economic theorists began to move for the first time from a strict production orientation to product and sales orientations as productivity increased and the intangibles of personal utility arising from consumption was beginning to be recognized and studied.

Another significant characteristic of the neoclassical era was its orientation towards scientific rigor. Herbert and Link (p. 51) point out that after 1870 economic analysis became increasingly mechanistic, as some theorists became enamored with the mathematical revolution that was also occurring. The new math was supposedly going to overpower the philosophical and subjective matters associated with the selection of means and ends. Economics was becoming a science, with a bunch of new toys that could completely define the larger social forces and interrelationships. Alas, the mathematician sometimes became overly quantitative and objective, leaving little room for living entrepreneurial action in their equations and formulae, a pattern that continues to this day in some arenas, which inadvertently hinders seeing the fullness of variation and interrelationships. Much of the metaphysics, spirituality and color of entrepreneurial behavior were assumed to not exist in the name of sterile science. The university-trained economists rebelled against spiritualism, in an effort to become scientific. Sometimes this anti-spiritualism, backfired and drove study further from the real world; even as they strived to codify a mechanistic economic world in their new economic journals, departments, and curriculum. Never fear, the likes of Horatio Alger romanticized entrepreneurship and imagined the fullness of the subjectivity and spirituality of the entrepreneurial phenomena.

Modern: The modern era, as I define it, began to emerge a few years before WWII and was dying down around the early 1980's (note the length of the eras is compressing). The modern era placed emphasis on managing the economic system as a whole and the larger issues that related to fitting entrepreneurship into the political environment. The modern era was characterized by an intense concern for macro matters, arising mostly from the conflicting ideologies lying at the heart of the "cold war" that instantaneously arose from the ashes of WWII. Ironically, in America, that same bureaucratic planner we feared and hated so much a communist, began to creep insidiously into the systems, obtaining positions at the highest levels of government. The romance and passion for the entrepreneur consequently diminished in many western venues. The entrepreneur was forsaken for the macro-model builder and master-economist, who could out-debate those “reds.”

The "Great Depression" had a great effect on precipitating the modern era and its theoretical and philosophical forces. Many public officials and authors blamed the depression on entrepreneurial behavior that was too aggressive (e.g., risk-taking in the stock market), as epitomized by the Robber Baron. This led many politicians and economists to redirect their study and support away from the entrepreneur and towards the politicians and economic gurus who would promise us a “New Deal.” Keynesian economics gained pre-eminence as the entrepreneur took a back seat to the strategic, economic policymaker in society and the formal economic and business literature that guided their every move. Sexton (1995) has suggested that this was a void period as far as the theoretical advance and debate relative to entrepreneurship; the sincere study being delegated to a few hallowed entrepreneurship institutions, like Harvard, where specialized theorists and programs gradually grew in isolated, yet nurturing settings in the 40’s and 50’s.

American thought unquestionably led the later stages of this era. Americans had expended tremendous amounts of energy to out-think the "pinko-commy" during the Cold War period. Considerable American effort was deployed to develop optimal economic theory that would further polarize the confrontation with the so-called “evil” communists who threatened capitalistic democracy. American McCarthyism recruited the most polarized economists as strategic allies, and Keynesian-based ideologies provided logical and moderate fiscal and monetary alternatives to the extremes of centralization posited by Communism (Keynes does not provide a polar extreme to Communism. Keynes’ fiscal and monetary interventions actually lies somewhere between extreme communism and extreme Smithian views relative to the freedom and imagination appropriate in enterprise). A great deal of effort was expended on refining the Keynesian approaches for the macro-management (coordination) of environmental factors that had to be manipulated to support growth and progress in more mature free market systems. The entrepreneur who started and grew big businesses was still showing up as a central figure in progressive economic thought, but the entrepreneurial orientation was more or less treated as a commodity-like product of the larger, designed economic system that could be nurtured in a straight forward manner (e.g., at the federal level, the SBA was formed in 1953 to mostly make loans and provide financing). This equilibrium view portrayed the entrepreneur too often as solely a product of the environment, rather than an independent, intentioned creator of separate subsystems of interest. Through it all, the meager beginnings of a managerial specialization were beginning to form at Harvard and some of its surrounding sister institutions of higher learning in the Northeast, being readied for broader distribution.

The formal study of entrepreneurship began to branch out in the later 1960's to again address more micro issues. The work of McClelland, in particular, focused on the entrepreneur as an individual, with unique capacities worthy of analysis in their own right, and having economic effects that could be autonomous and influence the larger environment, as well as be influenced by it. McClelland’s work re-energized the study of the entrepreneur as a person and set the stage for a great leap forward in theory development about entrepreneurs as people in a holistic system that was in disequilibrium, primarily because of the efforts of entrepreneurs to keep it in disequilibrium. Academicians again developed a sincere interest in studying the interrelationships surrounding entrepreneurship at both the national and the individual level, which helped establish the relevance of many areas of micro-study that are on-going today in universities and higher education curriculum. Disciplined academicians with specializations in entrepreneurship began to appear with regularity, and they created an atmosphere that demanded more rigorous analysis and research of the concept known as entrepreneurship.

Open Systems Era: The current era, which I see as beginning in the early 1980’s, I call the open systems era. I use this term because in this era management theorists and practitioners began to intentionally think and write like scholars founded in mature systems thinking. More than ever, researchers and practitioners began to focus on the interrelationships in the whole environment (holistic views that are both micro and macro, and which reconcile the contradictions and controversies associated with learning, nature and context). Systems orientations became more evident as theoretical approaches emerged under headings like “complex adaptive systems,” “integrative systems”, “learning organizations” and “open systems,” which are now important perspectives driving research in the management field. Entrepreneurship naturally began to be studied as an integral part of a larger, dynamic and open system of management relationships in both the new start-up and the existing firm. A variety of concepts relating to entrepreneurship subsystems and larger sets of interrelationships began to appear in the literature, and it was now in vogue to use the words "systems," "integrated," and "interrelationship." The recent work of Schindehutte, Morris and Kuratko (2000) illustrate the sincere recognition of the need for a framework and integrative classification scheme for the discipline of entrepreneurship that would specify the categories, archetypes, continuums, ranks and typologies of entities and interrelationships relevant to entrepreneurship (their more holistic classifications include: classes of entrepreneurs, classes of entrepreneurial ventures, what the entrepreneur does – their business concept or approach, the classification of the life cycle and the classes of financing sources).

The systems era was also an era when theorists and practitioners began to understand systematic relationships well enough to intensively train, fertilize and incubate entrepreneurs throughout all of society. Social systems are now successfully matching public policy to theoretical efforts and vice versa. Modern communities and organizations are strategically turning-out teachers of entrepreneurs at an ever-increasing pace; then actually nurturing entrepreneurs who partner with their teachers and public officials, which allow diverse constituencies to simultaneously study and practice entrepreneurship in the field settings that are blossoming all around. Furthermore, the cycle is being designed to repeat itself. The application of entrepreneurship as an economic force is really taking shape in this epoch as the seeds are being planted for waves of E-generations that would supplement, if not replace, the big corporation. Specific institutions consisting of diverse public and private partners have begun to emerge that expand and implement our understanding about entrepreneurs and how to locally cultivate entrepreneurial systems at unprecedented levels. Theorists who specialize in entrepreneurship have proliferated and intensified the analysis of hybrid types of entrepreneurs and entrepreneurial systems combined with larger environmental forces. The reanalysis of old work in the light of systems thought and theory has come into vogue; ergo, my particular open systems perspective. We have especially entered a sub-era of the open systems era in America, which can be classified as a “developmental era” for entrepreneurship and economic growth.

Entrepreneurial theory is growing at an accelerating pace with a plethora of writers publishing their work in new books, textbooks, journals and other outlets. Open systems orientations are becoming a more important part of these efforts. Most noteworthy along these lines are impressive partnerships emerging between the academic community and public and private entities that are bent on advancing the theory of entrepreneurship and its practice in systematic ways. The remaining chapters of this book are an expansion on this theme, as I attempt to develop some interesting nuances of open systems theory relative to entrepreneurship.