In The Theory of Business Enterprise (1904), T. B. Veblen pointed out that the modern entrepreneurs had not performed the classical role of coordinator in allocating resources, nor were they innovators, but had became Captains of Industry by conducting endless mergers and acquisitions in order to increase the value of their concern's capital. This new entrepreneurial activity, however, has essentially a “confidence game” character, it is not always connected with industrial serviceability. Even if he wins in “pecuniary” competition by superior marketing strategy, it doesn't necessarily follow “real” success. Conversely, he may sabotage the improvement of productivity by price-production control or collusion with the others, in case their asset value decrease. This is the reason why Veblen called them “parasites” of industrial society, and extended the theory of “chronic depression” that businessmen who lamented a desirable situation that social welfare in real-terms was rapidly growing looked as if they had suffered “a malady of the affection.” Veblen therefore expected that such entrepreneurs and their functions would fade way, and would finally be replaced by a “technocracy” in the far future.
In Risk, Uncertainty and Profit (1921), F. H. Knight insisted that an entrepreneur was the core of system of Big Business that had made possible not only the centralization of control, but also the diffusion of investment. In such a highly organized society, “moral hazard” or the principal-agent problem might not have been avoidable, so his special role was the selection of men: selecting some agents among specialists, assuring their fixed salary, and taking responsibility regardless of their results. To such decision-making and risk-taking activity Knight imputed profits, and concluded that the average profit was probably minus, or that the net result of the whole business activity might suffer loss. Nevertheless he also observed that business game would be continued by bold entrepreneurs having “confidence” in their ability or “luck, ” so that free enterprise should never fade way.
In sum, Veblen emphasized the scheme of so called Business vs. Industry and an entrepreneur's parasitic position. While Knight made allowance for the irrational character of the business game as Veblen, he also shed light on the humane aspect of entrepreneurship and its universality. In other words, their points of view were very close, and both revealed the crucial defects of the Big Business society, although their predictions for the future were divergent. Veblen and Knight stand back to back with each other.
