Did Edith Penrose’s Theory of Entrepreneurship Borrow Frank Knight’s Notion of ‘Services’?

Abstract

Entrepreneurship theorists puzzle whether the creation of economic value differs from its acquisition, and over the ‘business ethics’ involved. Organization theorists generally see value creation as the fruit of disciplined design and administration. In contrast, economists find value and its growth more perplexing. While Paul Romer’s theory of endogenous growth won him the 2018 Economics Nobel, his colleagues mostly ignore Edith Penrose’s theory of firm growth, even as they accept firms are the principal engines of economic growth. When she became Fritz Machlup’s student in 1947 Penrose found little in mainstream or Austrian economics to guide her. While she conceded Kenneth Boulding’s influence, we suspect she drew more on his teacher Frank Knight’s notions. Perhaps unwittingly, she borrowed Knight’s separation of the firm’s resources from the economic services they provided. This became core. Along with John Commons, Knight helped shape US institutional economics, as well as Ronald Coase’s 1937 questions about why entrepreneurs chose to create firms when markets were available. Penrose engaged related questions. Given mainstream economists’ pursuit of rigor at the expense of practical relevance and their continuing inattention to Coase’s work, we argue further exploration of Knight’s and Penrose’s entrepreneurship might lead to useful new insights.