Entrepreneurship as a factor of production
Some economists identify entrepreneurship as a factor of production because it can increase the productivity of a firm. There are a lot of definitions about entrepreneurship, but most of them put entrepreneurship in the same category with factors of production. For example, some economists see an entrepreneur as a person who uses factors such as land, labor, and capital for profit. Some other definitions explain entrepreneurship in an abstract way, where entrepreneurs identify new opportunities in the middle of these factors, without having the need to control them.
Some disruptive innovations are the result of human insight, it is not clear yet if entrepreneurship should be considered as a unique factor of production compared with work. Economists have different thoughts regarding the classification of entrepreneurs and if they are different from employees or are, they a sub-group of employees or are they part of both groups at the same time.
One of the least developed aspects of microeconomy is the entrepreneur’s theory. Richard Cantillon, an 18th-century economist called entrepreneurs as a “unique group of people that take risks”. From that time, taking risks was a main characteristic of entrepreneurs.
Later, other economists such as Jean Baptiste Say and Frank Knight believed that the labor market risk was the main characteristic of an entrepreneur. Joseph Schumpeter and Israel Kirzner in the middle of the twentieth century created an independent way for an all including fields application in taking risks in a productive structure. Schumpeter highlighted that the other factors of production were seeking another coordinative mechanism that should have been economically weaker. He also believed that the profits and interests only exist in a dynamic environment. Schumpeter admits that entrepreneurs were the one who created the dynamism and growth.
Factors of production
Some economists define the factors of production as an input that generates values and incomes.
- Work generates value and the salary is taken in exchange;
- The investor gets his interest as a form of payment for the use of his capital;
- The landowner gets his/her rent as a type of payment for using his/her land.
Based on this theory, the entrepreneur is the one who earns.
Entrepreneurs and Asset Ownership
These two notions answer another question:
- Does an entrepreneur necessarily need access to economic assets?
Some economists say no, ideas are the ones that are important. This is known as pure entrepreneurship. Some others don’t agree with this theory, because only the asset owner can put them in risk. This perceptive is saying that entrepreneurship is the key component in the creation and the functionality of a business and the placement of other factors.
The Austrian economist, Peter Klein mentioned that if entrepreneurship is treated as a process and not as an employability category, then it cannot be treated as a factor of production. The normal factors of production can be devalued through an economic crisis, but these do not apply to attributes.