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Philosophies in entrepreneurship: a focus on economic theories
Luke Pittaway
Institute for Entrepreneurship and Enterprise Development, Lancaster University Management School, Lancaster, UK
Purpose – To analyse the philosophies underlying economic studies in entrepreneurship and to explain how they contribute to the understanding of entrepreneurial behaviour. Design/methodology/approach – A range of historical studies is reviewed that examine entrepreneurship from an economic perspective. A framework of social science research paradigms is used to categorise these approaches according to their philosophical assumptions. Findings – The paper finds that certain philosophies can harm the development of theory and that study using a wider range could help improve the value of research. Originality/value – This paper fills an identified gap in philosophical discussions by exploring the economic theories. In doing so, it provides a structured approach to understanding some of the differences that underlie economic policy supporting the promotion of enterprise. Keywords Economic theory, Philosophy, Entrepreneurialism Paper type General review

Economic theories


Introduction The purpose of this paper is to explore the philosophies underpinning economic approaches to the study of entrepreneurship. Economic theories have made significant contributions and are one of the historical roots of the subject (Bygrave, 1989). Despite these contributions the concept of the “entrepreneur” and the function of ´ bert and entrepreneurship in society have ranged extensively within theories (He Link, 1988). Previous categorisations have shown that the “entrepreneur” has been viewed as a class of economic actor, a capitalist, a manager, an owner, an arbitrageur, an innovator and the bearer of uncertainty (Binks and Vale, 1990). These early theories of entrepreneurship continue to have a profound affect on the meaning of “entrepreneurship” within contemporary society and consequently influence current debate in the subject (Kirchhoff, 1991). Although previous research has explored many of the differences between economic theories contributing to our understanding there is only limited prior work on the philosophical basis of these differences (Barreto, 1989). The purpose of the paper is to explore these “taken-for-granted” assumptions explaining some of the fundamental differences that exist in key conceptions of the “entrepreneur”. Understanding these differences is important because it helps us recognise the factors which influence policy interventions designed to promote “entrepreneurship” and “enterprise”. Meta-theory, which can be translated as the philosophical assumptions made by researchers before they construct theories, plays an important role in how theory is developed and the type of “knowledge” found when research is conducted (Grant and Perren, 2002). Researchers in entrepreneurship have recently begun to recognise that ideology, or the political basis of ideas, meta-theory and other “taken for granted”

International Journal of Entrepreneurial Behaviour & Research Vol. 11 No. 3, 2005 pp. 201-221 q Emerald Group Publishing Limited 1355-2554 DOI 10.1108/13552550510598790

IJEBR 11,3


assumptions (axioms) have an influence on knowledge construction and they have begun to explore the issue (Bygrave, 1989; Aldrich, 2000; Ogbor, 2000; Grant and Perren, 2002). This paper makes a contribution to these discussions by exploring the philosophical assumptions that underpin many of the key economic theories. A review of meta-theory is carried out by using Burrell and Morgan’s (1979) paradigms to assess the assumptions made in economic theories, illustrating their contribution to contemporary debate. The study conducted is reported and the implications for future study are highlighted. Philosophies in social science Discussions about meta-theory have become a key feature of academic enquiry in many social sciences. In organisational studies the publication of Burrell and Morgan’s (1979) Sociological Paradigms and Organizational Analysis led to considerable debate throughout the 1980s and 1990s in organisational studies (McCourt, 1999). There are potentially many gains for the study of entrepreneurship if researchers are prepared to learn from the experience of these debates. For example, Burrell and Morgan’s work highlighted the role of philosophies in research endeavour; it informed researchers about the complexities of organisational enquiry and raised awareness about the influence of research paradigms on knowledge construction (Burrell and Morgan, 1979). Figure 1 highlights BM’s paradigms as outlined in their original thesis. The paradigms were constructed by reviewing organisational research according to certain types of philosophical assumption. These included:

Figure 1. Four paradigms of social scientific research

Assumptions about the nature of society – are assumptions about how society works. 1993). Disagreement surrounding the thesis continues and revolves around a number of themes. The first theme focuses on the nature of paradigms (Weaver and Gioia. Economic theories 203 An assessment of these philosophies in organisational studies led Burrell and Morgan (1979) to conclude that there were two dimensions to philosophical debate in social sciences. and are about how reality is constructed and represented in human consciousness. Some have reasoned that the research community should protect and foster new paradigms (Willmott. making assumptions about what constitutes knowledge. Ontological assumptions – ontology is a branch of meta-physics. the subjective versus objective dimension and the regulation versus radical change dimension. These dimensions represented different views about the nature of social science which they constructed into four paradigms. 1990) and for others. The word “paradigm” was used to describe different forms of social science demonstrating fundamentally different philosophical orientations. if a researcher undertook work in one paradigm they were likely to be unable to appreciate the philosophical basis of study in alternative paradigms. Some researchers have argued that paradigms are ways of bringing unification to organisational study (Pfeffer. radical humanist and radical structuralist. it continues to represent a valuable means for differentiating between philosophical assumptions (McCourt. . Ontological assumptions. Epistemological assumptions – epistemology is a branch of philosophy that is concerned with the nature of knowledge. together with its sources and forms. in contrast to the sociology of conflict. The second theme has concentrated on the use and meaning of the word “paradigm”. By contiguous they meant each paradigm had shared characteristics but that there was sufficient differentiation for them to be considered as four distinct entities. The main debate focuses on the sociology of order. 1979.. For example. p. Assumptions about human nature – focus on the different assumptions about human activity and behaviour that underlie theory. The four paradigms were described as functionalist. 22). one such debate between “free-will” and “determinism” concerns the degree to which human beings have the ability to act on their environment or whether circumstances beyond their control determine behaviour. For some. focus on the nature of reality. Epistemological assumptions are about how people understand and conceptualise the world around them. 1993a) and others have argued that paradigms are different ways of understanding social scientific phenomena (Scherer and Steinmann. interpretive. . . which has included disputes about how paradigms should be viewed. which assumes that deep-seated structural conflict occurs within society. In this sense the paradigms were originally considered to be incommensurable. These typically revolve around a series of debates about human behaviour. where views . 1999). 1994). therefore. the concept of a paradigm has been eroded of its rigour (Holland. assuming that every society is relatively stable. Gioia and Pitre (1990) summarise the theory building approaches of each of the four paradigms (see Table I). how it might be constructed and appropriately communicated. In their view the paradigms are “contiguous but separate” (Burrell and Morgan. 1999). In the third theme researchers have engaged in debates about incommensurability. a part of philosophy that examines the nature of being.

(Achieve freedom through revision of structures) Theoretical concerns Domination Alienation Macro forces Emancipation Theory-building approaches Liberation through structural analysis . 591) Table I.3 Interpretive paradigm Goals To describe and critique in order to change (achieve freedom through revision of consciousness) Theoretical concerns Social construction of reality Distortion Interests served Theory-building approaches Disclosure through critical analysis Goals To describe and explain in order to diagnose and understand Theoretical concerns Social construction of reality Reification Process Interpretation Theory-building approaches Discovery through code analysis Source: constructed from Gioia and Pitre (1990. Paradigm differences affecting theory building Radical humanist paradigm Radical structuralist paradigm Functionalist paradigm Goals To search for regularities and test in order to predict and control Theoretical concerns Relationships Causation Generalisation Theory-building approaches Refinement through causal analysis Goals To identify sources of domination and prescription in order to guide revolutionary practices. p.204 IJEBR 11.

. This paper seeks to build on these benefits for the subject of entrepreneurship by reporting a historical analysis that used a technique adapted from this stream of work in organisational studies. In order to use BM’s paradigms to review another field of study it was necessary to make some decisions about how to view the paradigms boundaries. Methodology The purpose of the paper. how are the paradigms viewed in this study? (2) As the subject of entrepreneurship is wide-reaching. suggesting that these over simplify complex debates in social science and philosophy (Davies. and ensuring a representative understanding of the philosophies used? Operationalising the paradigms The issue of permeability versus incommensurability remains a controversial issue. disagreements and complexities the value of this stream of work in organisational studies has been its ability to raise awareness about the importance of meta-theory when constructing research in the social sciences. is to contribute to debate by applying BM’s paradigms as a method to explain the philosophical assumptions used in economic studies of entrepreneurship. 1989. Gioia and Pitre. 1990. There have been approaches seeking to question the concept of incommensurability between paradigms (Hassard. the paper will explore the usefulness of the paradigms in a different subject domain and build on other approaches that have used them as tools for exploring implicit philosophical assumptions in research. 1988. Other arguments have suggested that the concept of paradigm is itself problematic and have suggested more complex alternatives (Weaver and Gioia. Holland. Such arguments also question the implied duality within the two dimensions outlined. 1998). 1993a. There were two key operational questions: (1) Given the incommensurability debate outlined previously. The main contribution of the paper is that it applies some of the insights identified in organisational studies to an analysis of the economic theories in entrepreneurship. A number of developments were necessary to use BM’s thesis outside organisational studies and these will be outlined. These prior studies include Holland’s work on professional education (Holland. 1991. By immutable they mean that ideas and concepts cannot easily flow between paradigms because the Economic theories 205 . attempts to build multi-paradigm communication (Gioia et al. McCourt’s (1999) analysis of personnel selection and Grant and Perren’s (2002) analysis of contemporary study in entrepreneurship. Despite these debates. They have included relatively strict interpretations (Jackson and Carter. Critiquing BM’s paradigms as an over simplification of complex philosophical debates they argue that BM’s approach overlooked other important philosophical discussions[1]. 1994.b). 1990). 1990). 1993) seeing little room for communication across paradigms. Willmott. how was the analysis reduced. Consequently. 1999). The final theme has centred on the common divisions thought to exist in organisational enquiry that underlie Burrell and Morgan’s schema and these researchers question these divisions.have ranged comprehensively. as well as. Scherer and Steinmann. Researchers supporting incommensurability argue that the boundaries are immutable. while retaining sufficient depth. as outlined.

for example. 1998. 1999). 1991). Nightingale and Cromby. Consequently. as represented by the use of continuums. The first issue was resolved by reconceptualising the dichotomies. 1990). A metaphor of an elastic band was used at the same time as the concept of continua. in the sense that the paradigms and continua constructed by Burrell and Morgan are themselves social constructions (Parker. 1993a. as these were not reported explicitly. however. 1993b). In operational terms problems were encountered when applying BM’s paradigms to entrepreneurship. When taking a position on the way in which knowledge is constructed. They are useful because they can be used as a tool to explore the underlying meaning of theory but ”exist” only in the sense that they describe current social science research activity. Figure 2. Incommensurability also exists because philosophical assumptions when made automatically exclude alternatives (Scherer and Steinmann. accept greater communication suggesting that while the paradigms are clearly at odds there is scope for knowledge to permeate between them at the transition zones (Gioia and Pitre. Permeability occurs because the research paradigms represent social processes where communication between research groups can happen (Willmott. in this analysis the paradigms and dichotomies[3] were viewed as social constructions[4] that could be used to help describe social science research activity. They are considered useful because they can be used to explore theory (Willmott.IJEBR 11. 1999). It was also difficult to transfer the original criteria used to interpret study in organisational studies. 1999). The dichotomous nature of the Burrell and Morgan continua . which tends to be an over-simplification of the debates.3 206 philosophical basis of knowledge in each paradigm is entirely different (Jackson and Carter. Parker. Even as descriptions of underlying philosophical assumptions they are less than perfect depending on dualism[2] (Willig. it is evident that this debate is somewhat of a non-starter. The concept of duality and the use of dichotomies. Nightingale and Cromby. 1999). presented questions when explaining differences of emphasis between meta-theories that derived from the same paradigm. Those advocating permeability between paradigms. 1998. individual dualities remain but there are different degrees of emphasis within paradigms (see Figure 2).

Focusing the paradigms on the study of entrepreneurship The challenge in this study was to capture an understanding of the philosophies guiding study in entrepreneurship while creating a manageable research study. A full analysis of the subject would have been comprehensive but unmanageable and would potentially have lacked sufficient depth.and microeconomics. which outlined key criteria for six points along each of BM’s four dichotomies. “conflict theory” and “functionalist sociology”. Are there any philosophical explanations for the decline of “the entrepreneur” in economic enquiry? Economic theories 207 . Economic approaches consequently provide a useful starting point to examine the philosophies underpinning the historical roots of the subject because they provide a context where entrepreneurship was studied but disappeared and where its re-emergence may have unforeseen consequences for the prevailing paradigm ´ bert and Link. The following research questions were asked: (He RQ1. which focused on the economic approaches to entrepreneurship and the study of entrepreneurial behaviour (Pittaway. 1973). 1991) and.The research followed the approach used by Morgan and Smircich (1980) by allowing for different forms of approach within continua while retaining the dichotomous nature of the assumptions. The dichotomies represented philosophical assumptions about change. It does so because the study of the “entrepreneur” had featured strongly in economics but “disappeared” in the 1930s (Barreto. The contribution of economics to understanding has also been complicated in modern theory because of the growing intra-disciplinary conflict between macro. To resolve this issue a historical approach was taken. 1989). It is probable. Appendices 1 and 2 provide a summary of the criteria used for both dimensions. This factor initially limited the transferability of the paradigms and their usefulness as tools of explanation. New interest in economics has been simulated by a greater focus on this conflict and it has been argued that entrepreneurship could be a catalyst for a paradigm shift in economics (Kirchhoff. secondly. therefore. 1982) and Neo-Austrian Economics (Kirzner. that the philosophies on which these approaches were based might have implications for the study of entrepreneurship. How can these be categorised according to BM’s paradigms? RQ3. The entrepreneur’s disappearance from economic enquiry occurred twice. 1989). 1989). 1988. from microeconomic theory as the theory of the firm began to dominate (Barreto. Barreto. failing to understand the core philosophical assumptions embedded in the subject. structure and conflict in society. What are the meta-theoretical assumptions underpinning economic study in entrepreneurship? RQ2. The second issue meant that there were no clear criteria that could be used to apply BM’s paradigms to another research field. It was resolved for the subjective – objective dimension by building on the work of Morgan and Smircich (1980). This research paper focuses on the economic approaches. 2000). only reappearing in works deriving from transaction cost economics (Casson. It was resolved for the regulation-radical change dimension by undertaking an analysis of the sociology literature with an emphasis on “Marxism”. From the source material three core dichotomies were identified and six different forms of philosophical assumption within each were highlighted. 1991). firstly from macroeconomic enquiry during the split between macroeconomic theory and microeconomic theory (Kirchhoff.

debate about what role it plays in such a system. 1990. however. The disappearance of the “entrepreneur” from neo-classical economics (1930s onwards) was explained in his work by the rise of the theory of the firm and its use of assumptions that derived from a mechanistic[5] philosophy. When compared to Schumpeter’s (1963) concept of new combinations there is a difference in the presuppositions made. a decision-maker whose entire role arises out of his alertness to hitherto unnoticed opportunities (Kirzner. in Kirzner’s (1980) work an assumption of human behaviour can be illustrated in his definition of the pure entrepreneur: . . Table II provides a summary of the findings of this analysis using BM’s framework. 1987. it is possible that certain philosophical assumptions may have a pivotal influence on how “entrepreneurship” is perceived and understood. Chell et al. The study used an in-depth historical review of the economic literature and its contribution to entrepreneurship. 1980. p. Given Barreto’s argument. macroeconomic theory eliminates the role of individually initiated behaviour. 1991). then buyers and sellers are “non-decision makers” who follow set rules in carrying out their day-to-day purchasing/producing functions. static or turbulent economic system. 1991.IJEBR 11. If these axioms apply. 1988. As Barreto (1989) illustrates. the assumption of human behaviour has a greater element of “agency”[7]. For example.. Economic theories continue to contribute to the field but there are diverse opinions in economics about the nature of “entrepreneurship” and whether it exists in a dynamic. . 208 In both macroeconomic theory and the theory of the firm the gradual erosion of purposeful behaviour has led to an uncomfortable context for entrepreneurship and this has occurred despite the fact that significant contributions were made to understanding in early economic theory. Neither of these approaches has captured the underlying differences between theories based on their philosophies. indeed the role of the entrepreneur is to create new circumstances rather than to be alert to new opportunities in existing circumstances. In Kirzner’s research the role of the “entrepreneur” derives from an assumption that human behaviour is bounded by its context and entrepreneurial capacity arises from an ability to recognise opportunities and make decisions in an existing set of circumstances.3 RQ4. as well as. Are there any commonly used philosophies that could limit research in entrepreneurship? Discussion These research questions guided the study. which is reported in full in Pittaway (2000). Within the theories analysed there was considerable difference regarding assumptions about “human behaviour”. 38). starting with the work of Cantillon (1931). For Schumpeter. . 97). even to the extent that the concept can effectively disappear from theorising. The categorisation of economic theories in entrepreneurship has previously been ´ bert and Link. 1992) or by “school of thought” (Ricketts. Kirchhoff (1991) illustrates the point when he discusses the axioms[6] that exist within macroeconomic theory: With these axioms. Binks and Vale. Both approaches apply some idea about human action but they differ in degree and nature and some form of determinism[8] remains. undertaken by chronological order (He Lydall. philosophies may have played an important role in the decline of the “entrepreneurial concept” in economics. p. Entrepreneurship cannot exist because it requires rule-violating behaviour (Kirchhoff.

1989). 1998). based principally on Casson’s work (1982. fbased on Knight (1921) Economic theories 209 Table II. 1990. bexcluding Cantillon (1931). A summary of philosophical assumptions in economic approaches to entrepreneurship .Ontological assumptions Paradigm Functionalist Functionalist Functionalist Functionalist Functionalist Functionalist Functionalist Functionalist Functionalist with some interpretive and radical structuralist elements Reality as a concrete structure Reality as a concrete structure Reality as a concrete process Man as an adapter Society as an organic system Society as an organic system Society as an organic system Man as a responder Society as an organic system Man as a responder Society as an organic system Man as a responder Social order Epistemological assumptions Assumptions about human nature Assumptions about society Neo-classical economics a English classical theories French classical theories b Transaction cost economics c Reality as a concrete process Reality as contextual fields of information Reality as a concrete process Information-based transaction cost economics d Man as an information processor Man as a responder To construct a positivist social science To construct a positivist social science To construct a positivist social science To construct a positivist social science To study systems. eincludes Cantillon (1931). processes and change Schumpeterian approaches and the Harvard historical school Man as an adapter Society as an organic system Man as an adapter Society as a morphogenic system Man as an actor Society undergoes transformation d Notes: aincluding micro-economics and the theory of the firm (Barreto. processes and change To study systems. cincludes Coase (1937) and Williamson (1985). processes and change Calculable uncertainty school e Uncertainty school f Reality as a concrete process Reality as a concrete process Reality as contextual fields of information To map contexts Austrian and neo-Austrian economics To construct a positivist social science To study systems.

Change within economic systems also tends to be modelled according to stable state or equilibrium philosophies. For example. The philosophies linking the economic approaches. Regardless of this presupposition of universality. on the other. Discussion about the nature of economics as a social science featured within many of the classical works. would appear to have their foundation in the economic domain (He Another common philosophy running across the economic theories was the use of different forms of determinism. is now well-known for its introduction of rationality axioms[17] about human behaviour in exchange theory and for creating many of the axioms on which general equilibrium theory is based (Walsh. Barreto (1989) and Harper (1996) have criticised these approaches as having neglected the entrepreneurial function because of their disregard for philosophies of human action and their over-application of mechanistic models. e.g. Bentham. there was little agreement about what the “entrepreneurial” function actually entailed (Lydall. The assumptions used in the theory of the firm provide an illustration of the validity of . “entrepreneurs” were reduced to relatively powerless figureheads in the extreme determinism of microeconomics (Barreto. neo-classical and microeconomic theorists who had made some contribution to the study of entrepreneurship dominated the equilibrium group. 2000). Marshall’s (1961) macroeconomic welfare theory. it has been used to mean forms of behaviour (Schumpeter. 1921) and types of people (Say. Schumpeter’s (1934) approach returned to psychological determinism[15] to describe the individual entrepreneur. Say. 1963). many of the ambiguities surrounding the definition of entrepreneurship in contemporary study ´ bert and Link.IJEBR 11. In these approaches. between subjectivity[9] and objectivity[10]. Ricardo. Equilibrium theorists Classical. were some form of determinism and a universal philosophy with regard to theories in social scientific research. theorists have sought to identify fundamental “laws” to explain the economic system. Smith. 1992). therefore. 1988). There were. and abstract theorising[11] and practical description[12]. on the one hand. Kirzner (1980). despite the use of concepts related to human action in the theory of creative destruction. Marshall. as is evident in general equilibrium theory. 1880). Mill. 2000). The subsequent models developed tend to be of a mechanistic nature.3 210 Within the economic theories major theoretical and practical differences exist regarding the nature of the scientific enterprise. In this group. for example. however. 1970). Indeed. one can conclude from the research that the majority of economic approaches had used functionalist assumptions. disequilibrium and revolution-equilibrium theorists (Pittaway. For example. 1990). This was a consequence of theorists” desire to explain how ”entrepreneurship” worked in the economic system and what function it had in that system (Binks and Vale. Despite these differences. some clear differences in study and these have been categorised into three groups: equilibrium. 1989) and. Clark. Dobb and Tuttle (Barreto. however. types of decisions (Knight. By trying to explain how entrepreneurship impacts on economic systems these theorists tend to view it as a universal phenomenon[13] and consequently do not apply the individualistic axiom[14] held widely in contemporary study (Ogbor. Walras. individual human action does not play a significant role and even at the collective level human behaviour is explained by general principles. 1989). are mainly prescriptive[16] and tend to assume that there are general principles explaining society.

positivist[20]. 103). based on imperfect information. assumes a capacity to measure inputs divorced from specific human capacity. Williamson. 1990. mainstream macroeconomists have no answers. pricing. This is widely acknowledged. The calculation of inputs. market structures. the concepts of rational choice and perfect information all limit the capacity for ”entrepreneurial” behaviour (Barreto. In these approaches the “firm”. assuming that unknown events will not dislodge the factors of production. technology transfer etc. 1991. Their macro theory fails them.these criticisms. But all the microeconomic research has not led to the development of a theory even close to the elegance and rigor of general equilibrium theory” (Kirchhoff. represents its own “reality”. The second sought to directly link concepts based on theories of information. for example. surrounded by unknown future events that can have unforeseen circumstances. . in uncertain conditions. By one count. 1989). These underpinning philosophies explain why the “entrepreneurial” concept is not addressed directly by microeconomic theory. These have included two forms of transaction cost economics. they total 19 to 20 million voters. rationality and fallibility. Economic theories 211 The failure of neoclassical theory to incorporate entrepreneurship can be explained by its axiomatic assumptions on human nature. including intangibles such as quality of decision making. Kirzner. In its search for a mechanistic model it has to take out of theorising individuals and groups making and acting on decisions. . information exchange and information markets to the process of entrepreneurship (Casson. Disequilibrium theorists Set against these approaches are those that incorporate concepts of entrepreneurship into variations of mainstream economics. realist[19]. p. Pittaway. industry concentration. 1998). For example following his study of contemporary microeconomic empirical research and its contribution to entrepreneurship Kirchhoff (1991) concludes: Extensive research effort has been invested in economies of scale. . . who included Austrian and Neo-Austrian economists (Mises. 1989. Unlike these theorists the disequilibrium theorists. mechanistic and ordered views of social science and the social world and that these can create difficulties for the conceptualisation of “entrepreneurship” despite its many guises (Barreto. did not attempt to construct equilibrium models of the economic system based on general principles but sought explanations based on . 1985). But. which is abstracted from the motivations. 1937. which moved away from assumptions based on human rationality and perfect choice. Entrepreneurship is an important component of wealth creation and distribution . But adoption of general equilibrium theory leaves mainstream macroeconomists with a dilemma. especially by microeconomists. The production function. In all these areas. 1982) as well as the work of Knight (1921) and Cantillon (1931). 1949. associated with individuals. Small firms are a sizable portion of the economy and voting public. It is possible to conclude that equilibrium theorists apply extremely determinist. The first introduced a theory of regularity in exchange processes based on the cognitive limits of human actors (Coase. American politicians clamor for information and policies to help the entrepreneurs who have become public heroes. as well as. 2000). The assumptions of rational choice and perfect information create further abstractions in the theory by assuming that everything is known either “deterministically” or “probabilistically”[18]. microeconomists have shredded the axioms of general equilibrium theory to such a degree that few realize that neoclassical theory continues to dominate macroeconomic policy prescriptions .

IJEBR 11. The move away from perfect knowledge as an axiom in transaction cost economics. In other words the entrepreneurial element cannot be abstracted from the notion of individual human action. 55). This orientation is represented in Cantillon’s definition of the entrepreneur and Knight’s critique of classical theories: . it is a world of change in which we live and a world of uncertainty. and they may be regarded as living of uncertainty (Cantillon. every action is embedded in the flux of time . but partial knowledge (Knight. arise from the fact we know so little. both approaches do provide an assumption about human behaviour that is quite different from that applied in equilibrium theories. p. driving economic systems toward equilibrium. therefore. 1921. or of conduct at least. In the former it is the consequence of disequilibrium while in the latter it is the equilibrating force. At once being the guiding force behind equilibrium and being the exploiters of disequilibrium. They use more complex assumptions about human action and accept greater uncertainty in social systems. as well as. . . neither entire ignorance nor complete and perfect knowledge. Despite these differences.3 212 observations of experience. while retaining elements of equilibrium theorising allowed for a more sophisticated view of bounded rationality[21] introducing greater uncertainty into exchange relationships. bounded rationality and concepts of information exchange. however. In early transaction cost economics opportunistic behaviour is viewed quite negatively while in Neo-Austrian economics it has a more positive orientation. . The disequilibrium group applies two philosophical assumptions that differentiate it from the equilibrium theorists. The essence of the situation is action according to opinion. especially the costs and difficulties of transacting in markets under conditions of uncertainty (Jones. 1998. Disequilibrium theorising. . p. greater evidence of human action. . while the problems of life. set up with a capital to conduct their enterprise. Models based on disequilibrium suggested that there are opportunities for profit within economic systems because of inequalities between supply and demand and “entrepreneurial” actions are designed to exploit these opportunities. . The new institutional theory of the firm that was to follow turned this position on its head. This is true of business as of other spheres of activity. for example: . provides a complex disagreement between humans as positive actors and negative abusers of opportunity. p. The models created tend to be descriptive rather than prescriptive and tend to observe that equilibrium did not occur in the “real” economy. We live only by knowing something about the future. . they explicitly rejected imperfect knowledge and unforeseen circumstances as providing any rationale for the existence and organisation of the ”classical firm”. Jones (1998) illustrates this perception of human behaviour when he discusses transaction cost economics: Indeed. . of greater or less foundation and value. 199). arguing that in many instances the growth of the firm was designed precisely to overcome market failures. The nature of society within the disequilibrium group is also viewed to be more unstable and open to unpredictable changes. because the uncertainty of . . 1931. Within these theories one can see more voluntarism[22] and less determinism than is present in equilibrium theories. 13). or are undertakers of their own labour without capital. Although it shares elements with Neo-Austrian economics there is clear disagreement about the value of opportunistic (entrepreneurial) behaviour within conditions of uncertainty.

Economic theories Uncertainty. Schumpeter. 56). Human action is conceptualised at the individual rather than the collective level (Shionoya. Cole. 81). In terms of BM’s paradigms these approaches remain functionalist in orientation but apply assumptions that allowed for human influence over economic structures. 213 The difference for the individual is related to behaviour. . . but all who actually fulfil the function . even if they are . Knies. p. not predictability enters as the guiding force behind economic systems. Operating a business in conditions of uncertainty is quite different from operating one where certain knowledge exists: Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it (Schumpeter. . Revolution-equilibrium theorists The third group of theorists has been described as the revolution-equilibrium group (e. they advocate greater linkage between historical “facts” and abstract models. 1990. . they are only two different modes of establishing one thing (Kirzner. The principal philosophies originate from the work of Schumpeter. our concept is narrower than the traditional one in that it does not include all heads of firms or managers or industrialists who merely operate an established business. differ from those applied by theorists in the disequilibrium group because individuals create new opportunities rather than respond to existing ones. the individual must become accustomed to uncertainties and must interact with them. however. “dependent” employees of a company . Within this group three presuppositions exist. in the sense that in a static system the individual can become accustomed to his/her own abilities and experience and their usefulness. For example: These concepts are at once broader and narrower than the usual. . First. . Broader. On the other hand. 1971) takes the concepts of human action further by arguing that while the entrepreneurial function may be mingled with ownership and management of resources the key function of the “entrepreneur” was the person who innovates or makes “new combinations” of production. which holds that economic systems go through radical discontinuous changes. second. Assumptions about human action. recognising the limits of knowledge. 1971. Schumpeter moves away from equilibrium theories by arguing that creative destruction involves periods of stability in economic systems followed by periods of transformation. In a dynamic system. information and expecting greater unknown disequilibrating forces to impact on economic systems in unexpected ways. theorists take the concepts of human action and choice a step further. . but only those who actually perform that function (Schumpeter. . This departure illustrates far greater usage within the functionalist paradigm of concepts of social conflict derived from Marxism and BM’s radical structuralist paradigm and these are evident when one analyses in detail the . 1997). This conception may derive from the second philosophical difference focusing on the nature of social systems. 54).g. they assume economic and social systems experience radical rather than incremental changes and. Roscher.the future is already implied in the very notion of action. p. therefore. because in the first place we call entrepreneurs not only those “independent” businessmen . third. Schumpeter (Kilby. That man acts and that the future is uncertain are by no means two independent matters. Hildeband). p. 1971. within which he places the entrepreneurial function.

making economics more tractable. In direct contrast to Ogbor’s (2000) critique. it was highlighted historically by Schumpeter (1954) and ´ bert’s and Link’s (1988) confirmed by Bygrave (1989) and Kirchhoff (1991). However. The work of Barreto (1989) and He support this conclusion. 1954. 623). theories are used as mechanisms to help explain “reality” and are viewed as abstractions that can be used to interpret observations. and thereby promised to increase powers of prediction. are accumulated over time and are socialised within society. change and social science have led to mutually exclusive concepts. This view of social science is near the boundaries between BM’s interpretive and functionalist paradigms as it illustrates the important place of subjectivity and contextualism in research. and is not now. 1971). Clearly. p. best be supplied through qualitative data or by “economic historians” and not economic mathematicians . . This review using BM’s paradigms also found that any form of purposeful behaviour as implied in most theories of entrepreneurship is obliterated from enquiry if functionalist ´ bert and Link (1988) assumptions are too extreme. within this perspective the “entrepreneurial” function involves the destruction of the current social order not its maintenance. It is a problem of method. According to Schumpeter. For example. and accelerating its theoretical advance.IJEBR 11. therefore. In summary research is viewed as a more inductive process. its blunt edge bludgeoned one of the fundamental forces of economic life – the entrepreneur. a satisfactory mathematics to deal with the dynamics of economic life. . He conclusion captures the point perfectly: One lesson to be learned from all of this is that the problem of the place of entrepreneurship in economic theory is actually not a problem of theory. The history of economic theory clearly demonstrates that the entrepreneur was squeezed from economics when the discipline attempted to emulate the physical sciences by incorporating the mathematical method.3 214 concept of creative destruction (MacDonald. it is only through an intimate collaboration between facts and theory that it would be possible to make substantial advances in the study of entrepreneurship (Ogbor. pp. Such concepts are embedded in their historical context. mathematics brought greater precision to economics. 1997) has examined these in detail. in Schumpeter’s opinion. Since there was not then. Results of the analysis The analysis of the economic approaches using BM’s paradigms shows three distinct modes of theorising based on different philosophical assumptions about social science and society. 2000. including the present. Nobody can hope to understand the economic phenomenon of any. Its sharp edge cut through a tangled confusion of real world complexity. Yet the introduction of mathematics was a two-edged sword. economic analysis gradually receded into the shadows of . As a consequence “entrepreneurship” within these modes of theorising is quite different and events based on a variety of philosophies about human behaviour. 12-13). the difference between Schumpeter’s and Kirzner’s “entrepreneur” is profound. for example: The kind of data that is missing in entrepreneurial analysis could. epoch who has not adequate command of historical facts and an adequate amount of historical sense or of what might be described as historical experience (Schumpeter. The final philosophies that differentiate this group of theorists derive from their views about social science research and Shionoya (1992.

On the other hand. Such an “objective” assumption about social reality has led theorists to consider social behaviour to be somewhat unchanging and immutable. as is evident in the concepts of perfect information and the production function in the theory of the firm. For those wishing to expand these foundations and draw more widely from other BM paradigms than is currently the case the current diversity indicates a tolerance for alternative views and approaches. applying extreme functionalist assumptions.´ bert comparative statics. Extreme realist ontological assumptions tend to hypothesise that the social world represents an external structure. For those wishing to create a more “scientific” paradigm the dominance of functionalist enquiry does provide a foundation for further consolidation. the core theories derived from Schumpeter applied Marxist concepts and there are significant elements of human action in many theories. it does appear that the economic foundations of entrepreneurship have applied major axioms within their study. the study of entrepreneurship. 158. The essential point that can be drawn is that economic theories that adopted equilibrium models. however. It is clear from the experience of the theory of the firm that certain assumptions about reality and knowledge. 1988. p. Entrepreneurship. Based on the analysis conducted in this study. For example. somewhat supporting Grant’s and Perren’s (2002) conclusions. The problems for such philosophical assumptions are outlined as follows: . The main research objective as outlined was to explore if there were any philosophical reasons why the concept of the entrepreneur disappeared from macro and micro-economic enquiry. which may have led to the use of the mathematical method. both critiques of the subject are somewhat in danger of over simplifying the differences. Economic theories Although this paper would prefer to substitute the term “a problem of method” for the term “a problem of meta-theory”. and a great deal to restrict. Conclusions Ogbor (2000) described entrepreneurship as being dominated by the theories of social control and Grant and Perren (2002) described it as being dominated by functionalist enquiry. have tended to eradicate meaningful interpretations of entrepreneurship from their inquiry as a consequence of the philosophies used. In general. even useless role (He and Link. appears to be about change to social structures and social reality whether that is 215 . this study agrees with both critiques. On the one hand. the research found that there was evidence of diversity in the meta-theories used but there was less evidence of philosophies drawn from other BM paradigms. which is tangible and existing of many interrelated parts. created difficulties for understanding dynamic economic systems that depend upon human endeavour. therefore. as this analysis found a range of historical works that used assumptions based on other BM paradigms and found a great deal of diversity within the functionalist paradigm. and the entrepreneur took on a purely passive. The common thread discovered was the application of extreme functionalist assumptions in a desire to construct a “scientific” approach to the subject. It is further evident that the study of entrepreneurship has not explicitly analysed the meta-theoretical assumptions in economic studies and many of these meta-theories do indeed appear to be dominated by functionalist enquiry. added emphasis). it is argued that extreme functionalist assumptions do little to help. This deduction can perhaps be viewed both positively and negatively.

which itself became “the reality” abstracted from the actions of people (Barreto. Such realist assumptions as those applied in extreme functionalism provide little opportunity for the “entrepreneurial” function to change society in unpredictable ways. For example. by suggesting that forces outside of an individual’s control are the main influence on their behaviour. The use of mechanistic metaphors to explain how social systems work can also have negative consequences. 2000). It would appear that one of the major philosophical dilemmas for the study of entrepreneurship is that it is intricately tied to philosophies about human nature. however. These philosophical difficulties illustrate that the subject of “entrepreneurship” could gain significantly if the meta-theoretical base of study is broadened (Grant and Perren. while radical structuralist approaches could build on Schumpeter’s application of Marxist concepts explaining how “entrepreneurship”. one disregards Schumpeter’s argument that entrepreneurship. which appear to be crucial to understanding entrepreneurship. When focusing purely on venture creation. 2002). 1989). Problems of definition remain inherent to the subject and where they have been drawn around the firm they appear to lose much of the complexity and dynamism that is incorporated into wider interpretations of entrepreneurship. 1934). A simplification of the definition can lead to more positivism and can lead to the development of a “scientific” paradigm.IJEBR 11. Even within the economic theories where the focus of study is the function of “entrepreneurship”. Theories can rule out philosophies of human action and choice. . Relatively strong forms of positivism appear to be problematic for the study of entrepreneurship because they require greater degrees of mathematical precision that depend on accurate definitions. assumptions about the nature of human behaviour are endemic. Yet observations of “entrepreneurship” suggest that the “entrepreneur” takes control of their environment in order to create new things. Interpretive approaches would introduce greater voluntarism. Mechanistic assumptions sit uncomfortably with the subject because they tend to rule out behavioural complexity and ascribe law like qualities to social interactions. via the deliberate creation of new opportunities or indeed through new forms of sensemaking in society. human action and be able to accept greater diversity in social meaning. as a function of change in society. which can be conceived in this context as purposeful behaviour. most recently attempts have been directed at making “entrepreneurship” synonymous with the behavioural act of venture creation. For a positivist this is inherently attractive. Determinism applied in an extreme way also appeared to present difficulties for understanding the subject. . the exploitation of opportunities during periods of disequilibrium. Based on this analysis one can certainly argue for expanding work in both BM’s interpretive and radical structuralist paradigms. creates radical change. Philosophies based on human action would appear to be relatively important when conceptualising how “entrepreneurship” impacts on the development of new economic and social realities. occurs in variety of contexts (Schumpeter. that they aspire to have independence from the domination of forces outside of their control (Chell. 216 .3 . but it risks applying the same philosophical assumptions that led the theory of the firm to cast the “entrepreneur” as the powerless figurehead of a ”firm”.

12. functionalism versus interpretivism.g. 9. “Practical description” refers to research that assumes that theory must be embedded in its context and that it loses its usefulness once abstracted from its context. “Individualistic axiom” is a taken for granted assumption in the entrepreneurship field identified by Ogbor (2000). 7. “Subjectivity” as applied here refers to the idea that social scientific enquiry is embedded within its context and cannot escape being influenced by interaction with the subject of study (unlike natural sciences) 10. 19. 1983). 15. “Psychological determinism” refers to the idea that something about an individual’s personal makeup (e. The term “dualism” or “duality” is used to explain the view that certain philosophical assumptions must always oppose each other (e. 4.g. “Objectivity” refers to the philosophical view that social scientific research must seek to provide objective conclusions that can be generalised from a specific context (like natural sciences) 11. determinism versus voluntarism. “Abstract theorising” is used to describe theory and empirical study that seeks to abstract understanding from its context. 6. it is often used to mean the base assumptions on which a subject of study begins. “Rationality axiom” is the assumption in micro-economic theory that human beings making decisions will behave according to rationale rules (e. “Prescriptive” is used to explain approaches to theory building that are designed to predict the behaviour of something and to provide guidance for practical or policy interventions. 14. object versus subject and description versus prescription (Astley and Van de Ven. “Determinism” is the philosophical idea that human beings are largely limited by their context and that their behaviour is consequently influenced by factors that are beyond their control. having the ability to change the circumstances of their context. 16. determinism versus voluntarism. A “social construction” means here something that has been abstracted from its context via the use of language to provide order and explanation to something that is complex. 8. 17. “Agency” refers to the philosophical view that human beings are agents of their own destiny. The word dichotomy means here the combination of two opposing philosophies. they always seek to make profit) 18. personality or cognitive style) has a fundamental influence on the way that they behave. “Universal phenomenon” means something that has a widespread impact on social systems across time and space that will not be changed because of context. 2. “Realist” refers to the philosophical assumption that social “reality” exists in a tangible way and that its underpinning rules can be identified.Notes 1. “Axiom” refers to “taken for granted assumption”. These include structure versus agency. Economic theories 217 . 13.g. 3. 5. normally via the use of mathematics. rather than by groups or organisations. holism versus individualism. causation versus meaning. It refers to the idea that “entrepreneurship” is carried out by individuals. To know something “probabilistically” means that one has sufficient information to be able to predict the probability that an event will occur. To know something “deterministically” means that when one can identify the underlying causes of an event it can be predicted. nature versus nurture). “Mechanistic” applies here to theories that view organisational systems as if they were machines.

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A summary of the criteria used to analyse BM’s subjective-objective dichotomy Appendix 2.Appendix 1. Figure A2. Economic theories 221 Figure A1. A summary of the criteria used to analyse BM’s radical change-regulation dichotomy .