The Entrepreneurial Multiplier Effect

Since the Keynesian revolution in economics, a standard part of the profession’s analytical framework, and an argument for government support for investment, has been the multiplier concept. This classical multiplier works through consumption in an equilibrium model. Our contention is that there is also an entrepreneurial multiplier that works directly through investment by incentivizing or forcing investments in innovation in a dynamic, disequilibrium model. These investments have been analyzed as “spill-overs,” or responses to “bottlenecks,” or Schumpeterian examples of emulation. We suggest that the surges of innovation in capitalism were even broader than Schumpeter did, and that they can best be explored using a multiplier paradigm. We start that exploration by briefly examining selected patterns of entrepreneurship in the first, second, and third industrial revolutions. Our emphasis is on the sequences of innovations; the manner in which they are multiplied; and their economic, cultural, and political consequences. We delve into the first Industrial Revolution in New England and in Lombardy, Italy; the second Industrial Revolution in the United States and France, and the third Industrial Revolution in America and Europe. In all three of these dramatic capitalist transitions, there is evidence of the entrepreneurial multiplier at work, broadening, deepening, and extending the impact of the major innovations.