Entrepreneur is the Essential Factor of Production, Critically examine this statement and also explain the role of the Entrepreneur.

In earlier times, wants were few. Each man did his own efforts and produced things he was in need of. He had his own land, his own labour and capital and thus produced the essential things. But nowadays production is highly organized and complex. The invention of machines has revolutionised the system of production. The modern process of production is very long. It is carried on with the help of hired labourers. The work for producing even an insignificant thing is now divided into a number of operations. This results in the division of labour. Each man or each group of men is engaged in performing only one particular operation. This complexity of modern production has brought the question of organization or entrepreneurship into prominence.

The organizer or entrepreneur may not be a risk-taker. He is the captain of the industry. The armies of the industry can no more be raised, equipped, held together, moved and engaged without their commanders or entrepreneurs. He has to select a suitable site for his factory. He has to secure machinery and tools required for production. He has to purchase his raw materials from and sell the finished products at the best market. In short an entrepreneur is a person who has to collect, adjust and Marshall the forces of production in such a manner as to derive the maximum profit from the industry. The role that the entrepreneur plays consists of coordinating and correlating the other factors of production.

He starts the work, organizes and supervises it. He undertakes to remunerate all the factors of production, to pay rent to the landlord, interest on the borrowed capital and wages to labour and pay them in advance of the sale of goods. The residue if any is his. Nothing may be left after he has made the necessary payments. In that case, his venture will have been miscarried. But it is also possible that he may be lucky to make a handsome profit. Whatever may be the outcome, he must be prepared to accept it. He thus takes the final responsibility for the business. If he has anticipated the consumer’s wishes origin and interpreted them correctly, he is amply rewarded. Organizing or risk-taking or uncertainty bearing as it is sometimes called are the two chief functions of the modern entrepreneurs. 

The entrepreneur is the inventor. Innovation by the entrepreneur implies a variety of things. It may mean the introduction of a new method of production or an improvement in the old methods. It may consist of the introduction of a new commodity like the transistor radio sets or a new make of old product e.g. yet another brand of toothpaste. Innovation may refer to the discovery of new materials, fresh sources of old materials, or new uses for materials or final goods. It also includes the opening of new markets. Innovation may also take the form of new techniques in the way of administration, finance, marketing or human relations inside the business and public relations outside i.e. with suppliers of materials and consumers of products. It is involved finally, when new forms of business organizations are instituted, such as chain stores, the merger of several establishments or a monopolistic combination among producers.

It will be easily understood that uncertainty is inherent in the making of the decisions like those enumerated above and also in any innovations that may be adopted. The all-embracing function that the entrepreneur performs is therefore that of uncertainty bearing.