Cantillon Theory of Entrepreneurship

What is Cantillon's theory of entrepreneurship?

The word "entrepreneur" has been traced back to Richard Cantillon, an Irish banker with French roots writing in the early 1700s, before Adam Smith.

Cantillon distinguished between entrepreneurs with nonfixed incomes and employees with fixed incomes. Cantillon considered the entrepreneurs as those who undertake to bear and overcome uncertainty by investing, paying expenses and hoping for a return. Cantillon viewed a wide slice of society as entrepreneurial because they bear uncertainty, including:

"All the other entrepreneurs, like those who take charge of mines, theaters, buildings, the traders by sea and land, restaurateurs, pastry cooks, innkeepers, etc., as well as the entrepreneurs of their own labor who need no capital to establish themselves, like journeymen artisans, coppersmiths, seamstresses, chimney sweeps, water transporters, live with uncertainty and proportion themselves to their customers. Master craftsmen like shoemakers, tailors, carpenters, wigmakers, etc., who employ journeymen according to the work they have, live with the same uncertainty since their customers may leave them any day."

He uses the example of the merchant that buys farm goods at the day's price thus incurring the risk of higher or lower prices upon arrival and sale in the city. The risk is created by uncertainty about supply and demand which always exists in a free city. Entrepreneurial uncertainty is a fact of the decentralized world where prices are not set in advance by a monopoly. The theory recognizes the business cycle and turbulence that is created by unforeseen circumstances or natural forces in an economy.

Entrepreneurs are seen to have an important role in the economy because they forecast the need for resources and invest in the future to help to balance supply and demand. Without entrepreneurs that take such risks in the face of uncertainty, the business cycle might be even more pronounced or acute.

Sources:

Rothbard, M. N. (1995). An Austrian Perspective on the History of Economic Thought: Classical Economics (Vol. 2). Ludwig von Mises Institute.

Cantillon, R. The cradle of political economy.