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Entrepreneurs are typically portrayed as a risk-taking, hardworking, and adventurous bunch. In fact, "undertaker" (as with someone who ventures), "company" and "adventurer" were among the terms used to refer to entrepreneurs before the English language imported the term we now use from French.
The entrepreneur: from deceiver to hero
The term "entrepreneur" has an interesting history that, like most entrepreneurial companies, has an important linchpin. Economist Mark Thornton noted that the term entrepreneur was originally used solely for government contractors. These were usually business people who built for the government and therefore had a known source of income as set out in the government contract, but variable and uncertain costs.
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These entrepreneurs were able (and have) increased their profits by using cheaper materials and construction methods than promised and thereby achieved lower quality than expected. In other words, they cut corners for personal gain. As a result, these entrepreneurs were widely known as scammers and cheaters. You were certainly not respected.
This perception changed radically in the 1730s along with the meaning of the word. Thornton's research shows that the meaning of the word has been turned upside down, from the cheater trying to get as much profit as possible from fixed income to the entrepreneurial creator dealing with largely known costs but unknown revenues. That fulcrum was the work of one man, Richard Cantillon.
The real father of business
Cantillon was a banker who had made a fortune speculating about the Mississippi Company but wisely sold it before the bubble burst. This business experience enabled Cantillon to develop a formal understanding of the market economy and he reflected on his thoughts in a book: Essai sur la Nature du Commerce en Général. Published posthumously and anonymously in 1755, it produced the first known complete economic theory – almost half a century before Adam Smith's Wealth of Nations (1776).
The book is significant because Cantillon developed a theory of entrepreneurship on which to base his economic theory. An article by Chris Brown and Thornton describes the crucial role of the entrepreneur in Cantillon's theory as a driving force for production, development and change.
Cantillon's theory of entrepreneurship established a new meaning for the word. The influence of his book, the manuscripts of which were widely circulated for a quarter of a century before it could be published, changed the meaning of the word in the public eye and made scholars aware of the role of the entrepreneur.
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We know, for example, that Jean-Baptiste Say, the 19th century French economist, was heavily influenced by Cantillon's work. Smith refers to it in Wealth of Nations. Because of his great and early influence, the economist Murray Rothbard, in his two volume work on economic history, believed that Cantillon should be viewed as the true father of modern economy.
Turn the word upside down
The enormous, but recently rediscovered, influence of Cantillon's work completely changed the meaning of the word and established our current use of the term. Instead of seeing an entrepreneur as a cheater, an entrepreneur became the hero of creation.
Cantillon defined entrepreneurs as anyone who carries out projects where the cost of production is either known or can be easily estimated, but where the demand, and therefore the price, is unknown. As a result, there is an entrepreneurial element in most or all business ventures.
Entrepreneurship should ultimately bear a company's risk. It has to be heroic and creative as the action requires the cost of setting up and running the production to be borne before the market demand is known. In a very real sense, Cantillon realized that entrepreneurs are in business to create tomorrow. Regardless of whether a particular entrepreneur's business is revolutionary or potentially disrupting the market, it is a creative act without which the economy cannot advance and without which we cannot increase our standard of living.
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Cantillon's hugely important insight also implies that the customer is confident. No matter how promising the entrepreneur believes in his value proposition, the true value is only revealed when the customer decides to buy. And the success of any company depends on it. All seasoned entrepreneurs know this, and Cantillon realized it three centuries ago.