The Role Of Entrepreneurs For Creating Profit As Well As Building On Weber 's Examination Of Credit Money

1082 Words Nov 17th, 2014 5 Pages
Schumpeter’s work considered the role of entrepreneurs in creating profit as well as building on Weber’s examination of credit-money. He focused on these areas as an attempted to solve two problems with Smith’s circular-flow model. First, that it did not contain profits and secondly, it did not contain the element of bank credit-money. Schumpeter explained that the role of the entrepreneur was not passive, simply responding to price signals. He argued that in reality the entrepreneur’s actual role was to, “constantly revolutionize the system by restructuring the factors of production in new ways that yield a profit for the initiator either by an increase in their productivity or by the production of new goods,” (Ingham, 38). Schumpeter explained that the entrepreneur did not only compete, he changed the competition. Entrepreneurs are able to revolutionize giving them an advantage, until others adopt their innovations and enter into the new sector and pushing prices down. Schumpeter noted that this process could be affected by the degree of monopoly that exists within certain sectors. Falling profits, due to competition, leads to a destructive phase that is countered by innovation. Schumpeter explained that this innovation was made possible due to credit-money and that the, “entrepreneur was the only economic agent in capitalism who was a debtor by the nature of his economic function,” (Ingham, 38). He believed that the development of capitalism coincided with the…

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