William J. Baumol’s was among the first to urge his fellow mainstreamers in a 1968 American Economic Review article to start paying attention to the role of entrepreneurship in economic development, or to repeat his now famous words (p. 68): ”The theoretical firm is entrepreneurless – the Prince of Denmark has been expunged from the discussion of Hamlet.” Specifically, Professor Baumol is awarded for:
• His persistent effort to give the entrepreneur a key role in mainstream economic theory;
• His insightful theoretical and empirical studies of the nature of business venturing and entrepreneurship;
• His analysis of the importance of institutions and incentives for the allocation of entrepreneurship across productive, unproductive and destructive activities;
• His early formulation of a new approach to competition policy – by facilitating and stimulating innovative firm entry, notably through reducing entry barriers, giving policy makers a potent instrument to prevent monopoly formation by protecting paths for enhanced competition.
Professor Baumol, a master of neoclassical economics, has consistently gone beyond that paradigm and since the 1960s convincingly argued in a scholarly way that entrepreneurship must not be left out of mainstream economics. His insights in his classic 1990 article in the Journal of Political Economy on productive and unproductive entrepreneurship were deepened in his 1993 book Entrepreneurship, Management and the Structure of Payoffs. In 2002, at age 80, he published another path breaking book – The Free-Market Innovation Machine. Here Baumol focuses on the importance of innovation and entrepreneurship as essential requisites to explaining why the free market economy, as opposed to all other known economic systems, has produced economic growth and well being for the average person.
This major economic thinker has throughout his career built new bridges that link theory, policy and practice. In many ways he is a revolutionary from within who masters the tools of the trade and insists that they be used, as far as possible, to address problems of great urgency in real-life.