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Who is an entrepreneur?

By TOM W. GLASER

© St. Petersburg Times, published March 29, 2001


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[Times art: Teresanne Cossetta]
Before we can talk about who is an entrepreneur, we first need to understand what entrepreneurship is. Most older textbooks talk about the three production factors: land, capital and labor. Now, these don't always mean what we think they do. Land is more than just the real estate a business builds its factory or offices on. In economic terms, land is all the natural resources used in an enterprise, so this includes the ores and minerals mined from the ground and the native plants and animals.

It does not include the manmade or organized resources such as an orchard or a herd of cattle. These are examples of the second factor of production: capital. Even though most people think of money as capital, it's really the least important form of capital. In economic terms, capital is the human creations that produce wealth, such as a car used as a taxi, an oven used to bake food for sale, a furnace used to make steel, as well as the interest that money can earn.

charThe third factor is labor. This refers to all human endeavors that produce wealth, both physical and mental. Some people believe that it is the sole source of wealth, that labor alone creates value. Others believe that land is the only factor that creates wealth. Still others believe that capital is the key to wealth. But land, labor and capital have always been around, though widely unused or misused. What, then, has made these three factors of production work together to create wealth and improve people's lives?

The answer is the fourth factor of production: entrepreneurship. This is the ability to see what others who came before missed, to make connections between things that others had not, to get all three other factors to work together to create that which had not existed before. It is this insight, this creativity, that makes the other three factors productive.

Now, who is an entrepreneur? One example was a young man who was born in Bavaria in 1829 and emigrated in 1847 with his family to New York City, where his older brother opened a dry goods store (a store selling clothes, cloth, shoes, hats, almost anything but food). In 1853, he became a U.S. citizen and sailed to San Francisco to open a branch of his brother's store and become a supplier to the increasing number of miners following the discovery of gold at Sutter's Mill.

He was a good businessman and his store thrived. He was so trustworthy and successful that one of his customers, Jacob Davis of Reno, Nevada, came to him with an idea. Davis was a tailor, and his customers complained that their pants started to come apart in the same places over and over, the pockets and seams. He had developed a way to rivet these stress points and used a strong fabric often used for work clothes, serge. He thought it was a good idea but lacked the $68 it took to file a patent. The San Francisco merchant saw the possibilities and became Davis' partner, and their patent was granted on May 20, 1873.

The merchant had been born Loeb Strauss, but when he became a citizen in 1853, he changed it to Levi. Similarly, the pants he made were originally called "waist overalls," and it was not until about 1960 that they were popularly called jeans. Even though much of the company's early history was destroyed in the 1906 San Francisco Fire, May 20 is still celebrated by the company as the birthday of blue jeans.

Often the entrepreneur is not the person or persons who actually create the new good or service. Rather, he or she is the one who has the vision of how that idea can be turned into reality for the benefit of everyone. For example, Oliver Winchester was a successful shirt maker, but he bought the patents for the Henry lever-action repeating rifle. His faith in this invention, along with his efforts in marketing it, made it the most widely known rifle of its day and earned it the nickname of "The Gun That Won the West."

Does this mean that entrepreneurs aren't creative? Not at all! Quite the opposite, but theirs is a different kind of creativity. Often an inventor, an artist, a composer, a writer will know his or her area of interest but not know how to make others aware of their creations.

The entrepreneur's creativity finds ways for the ideas to enter the marketplace and be of benefit to all of society. Incidentally, entrepreneurs also reward those who came up with the new ideas in the first place, which encourages them to make more and better creations. People are much more likely to be creative and productive when they are promised a reward than when they are threatened with punishment if they don't create. This promise of a reward is called incentive, and incentives are possible only when there is profit.

The entrepreneur makes sure this situation happens, because when the others profit, so does the entrepreneur. He or she is no different from other members of society: The entrepreneur wants a comfortable life, and he or she realizes that the best way to do this is to get the cooperation of others. That is achieved by appealing to what motivates others, because people tend to do what's in their best interest. In a free market, no one can be forced to do anything against their interest, so the entrepreneur must motivate and organize for everyone's benefit.

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CLASSROOM ACTIVITY: The Florida Council on Economic Education has loans available for students starting up their own enterprises. Brainstorm what sort of business you'd like to start as a class. Reach a consensus, because students forced to do something they don't like will not be motivated entrepreneurs. As part of the application, a business plan is required. That, along with other steps to being a successful entrepreneur, will be discussed in upcoming installments of this series.

Useful Web sites

www.levistrauss.com -- The Levi Strauss and Company home page.

www.fcee.org -- The Florida Council on Economic Education home page. Contains original lesson plans that have won the Governor's Award for Excellence in Economic Education, applications for that competition and the application for the free-enterprise student bank loan.

www.fte.org -- The Foundation for Teaching Economics home page. Contains many excellent lesson plans and the national economic standards can be found here, along with many free training opportunities.

-- Tom W. Glaser is a teacher at the School for Advanced Studies -- Wolfson in Miami.

About the Florida Council on Economic Education

Money Stuff: Get it! Spend it! Keep It!

Introduction and previous chapters

Money Stuff was developed by the Florida Council on Economic Education and project director Fonda Anderson. The council is a statewide non-profit organization founded in 1975 to educate K-12 teachers and students about the free enterprise system and to instill in them an appreciation for a market economy. For more information on the council's programs for teachers and students, please call (813) 289-8489.

About Newspaper in Education

The St. Petersburg Times devotes news space to NIE features throughout the year, including this classroom series. The Times' NIE department works with local businesses and individuals to enrich the classroom experience by providing newspapers, supplemental guides and educational services to schools in the Tampa Bay area. To find out how you can become involved in NIE, please call (727) 893-8969 or (800) 333-7505, ext. 8969. For past chapters check out http://www.sptimes.com/nie and click on Money Stuff.

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