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Mark Casson

, the growth of the firm and the distribution of income. The spread of subjects is so broad because success can be analysed at a number of different levels: the individual, the institution (for example the firm), the region, the nation-state and the empire. Orthodox economic theory attributes success and failure almost entirely to material factors. For example, it attributes international differences in living standards to differences in national endowments of labour, capital and natural resources, which in turn stem from differences over time in rates of population

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Mark Casson

because of the high rate of profit he expects to earn. Once Jack has got established, he buys his way into high society and acquires a small fortune through marriage. This provides him with sufficient capital to reverse his role and extend trade credit to others. If he is a good judge of the risk of default, then he can specialize in extending credit to entrepreneurs whom others are reluctant to finance. He can demand a high rate of interest because of the risks that other financiers perceive, and so operate in a highly profitable way as a banker to the trade. Before his

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Mark Casson

by periodic booms and slumps (Figure 11.3). The stability of prices helped to sustain relatively low rates of interest. Long-term interest rates were rarely above 3.5 per cent, and in the 1890s fell to below 2.5 per cent (Figure 11.4), although short-term rates were far more volatile, particularly at times of financial crisis, such as 1846 and 1866. The combination of low inflation and low interest rates encouraged Entrepreneurship in Victorian Britain 5,000 GDP/head (£) 4,000 3,000 2,000 1,000 0 Year 1830–1914 Source: Officer (2005). 293 Figure 11.2 Price level

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Mark Casson

to the customers. Why should anyone opt for self-employment? Perhaps the most obvious reason is that no employment is available. Self-employment is chosen because unemployment is the only alternative. If the wage rates negotiated by trade unions are too high in the light of the government’s fiscal and monetary stance, then there will be an excess supply of employee labour. Although jobs may be available in the non-union sector, the glut of employees entering from the union sector will severely depress wages. The floor to the non-union wage is set by the subsistence

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Nigel Wadeson

wages of labour, the price of land and the interest rates on loans, so the values of projects (as reflected in their share prices, for example) fall. Once its value becomes negative, a project is eliminated from the bidding. Eventually there are just sufficient projects remaining to use up the available resources. If entrepreneurs’ expectations are correct then, provided certain other conditions also hold, this process will generate an optimal portfolio of projects. But if some of the entrepreneurs have mistaken expectations, then the outcome may be less favourable

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Mark Casson

indicative one. This is as it should be. Economic theory offers a set of concepts and techniques for analysing the allocation of scarce resources. Unless entrepreneurship ultimately derives from a scarce resource it is of little economic interest, even though it may be of social importance. To analyse the allocation of the resource, and to explain the valuation it commands, it is sensible to define the resource in terms of the use to which it is put. For the economic historian, however, the starting point is a set of concepts relevant to the recording and interpreting of

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Mark Casson

the natural result in a population combining low ability with high ‘courage’. On the other hand, if men generally judge their own abilities well, the general rate of profit will probably be low, whether ability itself is low or high, but Alternative theories of the entrepreneur 223 much more variable and fluctuating for a low level of real capacity. The condition for large profits is a narrowly limited supply of high-grade ability with a low general level of initiative as well as ability. (Knight, 1921, pp. 283–4) Knight’s analysis exhibits very clearly the

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Mark Casson

of the rate of utilization of the resource until its capacity limit is reached; thereafter a further indivisible unit has to be used. It should be emphasized, however, that the use of indivisible resources generates fixed costs of market making only if use of the resource cannot be shared by different market-making activities or by the makers of different markets. Most, though not all, market-making activities involve handling considerable amounts of information. The properties of information are an important influence on the structure of market-making costs. An item

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Mark Casson

illegal market: for example, the market for alcoholic drinks under prohibition. Racketeering involves the same skills as any other form of intermediation, in particular skill in inventory management. It is riskier than conventional intermediation because of the possibility of detection and punishment. The racketeer will demand a higher rate of profit to compensate for the risk involved. The higher profit will be earned because the additional risk will deter potential competitors, and so enhance the racketeer’s monopoly power. The racketeer may even apply additional

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Marina Della Giusta

about objectives permeates social capital, where the overt pursuit of one type of benefit may be associated with the concealed pursuit of another. The impact of social networks can be explored at either the local, regional, national or global level. The unit of analysis is quite important. Where face-to-face contact is important, it is natural to focus on the local level. Where the utilization of specific resource endowments is concerned, the regional level is often the most appropriate, since it is at this level that the impact of networking on specific sectors such