The Entrepreneur in the Firm

While the theory of the firm is struggling with the Coasean questions about its existence, boundaries, and internal organization, the entrepreneur is strangely missing. Obviously, an entrepreneur is needed at the creation of firms. By definition. But what is the entrepreneur’s function within the firm? And what is the firm’s function to the entrepreneur? These questions are seldom asked and even more rarely answered.

I make an attempt to connect the entrepreneur and the firm from a historical point of view, summarizing the evolution of the theory of the firm and attempting to identify the relationship between entrepreneurs and their firms. I drafted a theory in a recently published article that we mentioned here. In an article for a not-exclusively-academic audience published today, I discuss how the history of the economic theory of the firm suggests answers to many questions about the firm and the entrepreneur – and how they are interdependent. It was given the title: The Economic Theory of the Firm.

Fritz Redlich on Entrepreneurship (2): Entrepreneurial Types

Fritz Redlich wrote economic histories of European phenomena, notably the iron and steel industries, advertising, and the development of entrepreneurial classes. Most of these works are published in German. Upon his arrival in the US, he was counseled by Frank Taussig and the man who took his chair at Harvard, Joseph Schumpeter, to write in English on American phenomena. Redlich did so, writing a massive study of the 19th century American finance industry and a study of the wartime (WWII) housing market in the US. All along, he maintained an active interest in the men who were business leaders in his case studies and in the Robber Barons of American industrialization. This study caused him to write several pieces that are taxonomies of business leaders; he was careful to make distinctions among the roles of leadership (in a social or historical sense), capitalist, manager, executive, and entrepreneur. He even worried over subcategories of entrepreneurs who had control over capital or not, or whether they were CEOs or top management teams with decision authority, and whether they had decision authority that arose because of “rising through the ranks”, marriage into family businesses, access to owned or borrowed capital, and kinship. The most complete of these typologies appears in a self-edited volume of his writings titled, Steeped in Two Cultures, published by Harper and Row in 1971. The paper itself was first published in Germany in 1959 and I cannot find an electronic version of it. The chapter is titled, “Entrepreneurial Typology.”

Redlich had a couple of other major papers in which he examined entrepreneurial types. One is discussed in my previous post. Another was published as Redlich, Fritz. 1949. The Business Leader in Theory and Reality, The American Journal of Economics and Sociology,Vol. 8, No. 3 (Apr., 1949), pp. 223-37. Find it here.

This article is chock-a-block with interesting insights. In this paper, Redlich makes clear distinctions between entrepreneurial function and management function and capital function. He even takes Schumpeter a step further, identifying that economic development (Schumpeterian movement between circular, steady-state economies) may include creative entrepreneurs, creative managers, and creative capitalists “who should be distinguished from their brethren who do not” elevate themselves to the dynamic theory (p. 226). He exercises his historian’s bent and gives examples, particularly of the creative capitalists from his studies of the financial sector.

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Fritz Redlich on Entrepreneurship (1)

Fritz Redlich was a unique scholar of entrepreneurship. He is little known now, but for a few decades after World War II, he was an intellectual force that connected to important thinkers such as Joseph Schumpeter and Alfred Chandler. Moreover, his training in Germany had connected him to Max Weber, Wilhelm Dilthey, and Werner Sombart. This foundation drove the nature of his work, which I will characterize, with my characteristic imprudence, as business history with the characteristic openness to social science and philosophy that Schumpeter appreciated about the Youngest German historical School.

For more of Redlich’s personal history, one should read the eulogies prepared by Kenneth Carpenter and Alfred Chandler [“Fritz Redlich: Scholar and Friend,” Journal of Economic History 39(4) (December 1979): 1003-07] and Charles Gaston Arcand, Jr. [“Fritz Redlich, 1892–1978: The Man and the Scholar,” American Journal of Economics and Sociology 40(2) (April 1981): 217-21]. There are several interesting personal points, including Chandler’s story of how Redlich virtually unearthed all of the sources to complete his dissertation.

In 1952, Redlich was invited by Arthur H. Cole (Harvard Business School and the Baker Librarian) to join the Research Center in Entrepreneurial History, which Cole had founded along with Schumpeter in 1948. Redlich had been working for federal and state housing authorities in Boston and was an habitué of the Kress (economics) and Baker (business) libraries. He was known to the Harvard economists; he was part of the German emigrant group that Frank Taussig had recruited in the 1930s. Alas, while Redlich had completed his PhD in economics on the eve of WWI and wrote his Habilitationsschrift in 1935, current events kept him from obtaining a professorship in Europe. As a consequence, he couldn’t get the faculty appointment in the US that he sought.

The Research Center was an active place. It published a journal, Explorations in Entrepreneurial History, and fomented some of the most interesting studies of entrepreneurship in the developed world and how that history was, and was not, echoed in the postwar era in the developing economies. Fritz Redlich was an intellectual leader in this organization; Chandler calls him “the major intellectual force.” Redlich completed much of his work on characterizing entrepreneurs and entrepreneurial activity between 1952 and 1958, when the Center closed due to lack of funding. A significant preoccupation was improving upon Schumpeter’s creative destruction as a way to define entrepreneurial activity.

In this post, I will consider one of Redlich’s lines of inquiry: the nature of entrepreneurial innovation. I will consider in other posts his work on taxonomies of entrepreneurs, including the distinctions between “ideal” and “real” types in the development of entrepreneurial theory. Read more of this post

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