(The Oxford Companion to Economics in India, Edited by Kaushik Basu, Pages 141 - 145, Oxford University Press, New Delhi, 2007)
It is to Joseph Schumpeter, the Austrian economist at Harvard, that we owe our contemporary use of the word “entrepreneur”. Schumpeter took an old word from the economics dictionary and used it to describe what he believed to be the secret of the capitalist system. Capitalism is dynamic and brings growth, he explained, because the entrepreneur introduces technological or organisational innovations, which bring new or cheaper ways of making things. These innovations create a flow of income, which cannot be explained either by labour or capital. The new process enables the innovating capitalist to produce at a lower cost, which raises his profit until other capitalists learn the same trick. Schumpeter's great insight was that this new profit does not come from inherited or God-given advantages but springs from the will and intelligence of the entrepreneur.