Israel M. Kirzner

The meaning of market process : essays in the development of modern Austrian economics

Part I: The Market Process Approach 1. Market Process Theory: In Defence of the Austrian Middle Ground 2. The Meaning of the Market Process Part II: The Emergence of the Austrian View 3. The Austrian School of Economics 4. Carl Menger and the Subjectivist Tradition in Economics 5. Menger, Classical Liberalism and the Austrian School of Economics 6. The Economic Calculation Debate: Lessons for Austrians 7. Ludwig von Mises and Friedrich von Hayek: The Modern Extension of Austrian Subjectivism Part III: Some New Explorations in the Austrian Approach 8. Prices, the Communication of Knowledge, and the Discovery Process 9. Economic Planning and the Knowledge Problem 10. Knowledge Problems and their Solutions: Some Relevant Distinctions 11. Welfare Economics: A modern Austrian Perspective Part IV: Some Related Issues Emerging from the Austrian Approach 12. Self-Interest and the New Bashing of Economics 13. Discovery, Private Property, and the Theory of Justice

Creativity and/or Alertness: A Reconsideration of the Schumpeterian Entrepreneur

T he purpose of this paper is to reconsider the difference between Schumpeter’s portrayal of the entrepreneurial role, and my own earlier (1969, 1973) portrayal of that same role.1 In 1969 and in 1973, in the course of developing my own understanding of the entrepreneurial character of the competitive, equilibrative market process, I emphasized these differences as I then saw them. Schumpeter’s entrepreneur, I pointed out, was essentially disruptive, destroying the pre-existing state of equilibrium. My entrepreneur, on the other hand, was responsible for the tendency through which initial conditions of disequilibrium come systematically to be displaced by equilibrative market competition. The outcome of the present reconsideration will be, not a thoroughgoing “reconciliation” of these two conceptions of the entrepreneurial role—I still believe that these views are, at least in part, contrasting ones—but a clearer understanding of how each of these apparently conflicting views can be seen as plausible and realistic; and how each can usefully advance economic understanding (of respectively different aspects of the capitalist economy). The central theme of this reconsideration can be expressed in the following four propositions:

The economic point of view : an essay in the history of economic thought

Introduction to the Liberty Fund Edition Introduction to the Second Edition Foreword by Ludwig von Mises Authors Preface On Defining the Economic Point of View The Science of Wealth and Welfare The Science of Avarice Getting the Most for the Least Economics, the Market, and Society Economic Affairs, Money, and Measurement Economics and Economising Economics as a Science of Human Action Becker-Kirzner Debates Index.

Coordination as a Criterion for Economic “Goodness”

Welfare economics requires a criterion for economic “goodness” in regard to a society. Unlike conventional criteria, “coordination” (among independent decisionmakers) does not violate methodological individualism. The coordination criterion can be objectively deployed to judge events or policies, referring only to the given preference rankings of relevant individuals, given their initial positions. An important variant refers not to the attained (or unattained) state of achieved coordination, but to the ability of events or policies to affect the process through which a better-coordinated state may be approached. Several implications of the coordination criterion are explored.

Knowledge Problems and Their Solutions: Some Relevant Distinctions

A central role in Hayek’s thought has been played by his insights into the problems posed by the phenomenon of dispersed knowledge. These insights first emerged as a result of Hayek’s participation in the interwar debate on the possibility of socialist economic calculation and were crystallized in his classic 1945 paper &dquo;The Use of Knowledge in Society.&dquo;1 Although these insights were originally bom out of Hayek’s economics, they have for the past three decades nourished those profound contributions to other branches of social philosophy which have come to dominate Hayek’s recent work. The classic 1945 passage in which Hayek definitively articulated his original, economic insight, reads as follows:

Self‐interest and the new bashing of economics: A fresh opportunity in the perennial debate?

A spate of recent attacks on the rationality assumption in economic theory is noticed. Some of these attacks are fresh and, in many ways, original, but the central ideas underlying them are not new. They appear to have been provoked by the direction in which much of mainstream economics has been moving in recent years. On the other hand, it is suggested here, certain developments in contemporary economics, associated particularly with the revival of interest in the Austrian paradigm, offer afresh understanding of the way in which the rationality assumption, its role in economics properly understood, is able to meet these old‐new attacks.

Some Ethical Implications for Capitalism of the Socialist Calculation Debate

The debate that raged in the interwar period between the Austrian economists (who argued the thesis that under socialism it would not be possible to engage in rational economic calculation) and socialist economists (who rejected that thesis) was, narrowly conceived, a debate in positive economics. What was being discussed was certainly not the morality of capitalism or of socialism. Nor, strictly speaking, was the debate even about societys economic well-being under socialism; it concerned the ability of central planners to make decisions that take appropriate account of relevant resource scarcities, in the light of consumer preference rankings. To be sure, the extraordinary interest which surrounded the debate and the passions that lurked barely below its surface testified to the powerful implications of the debate for crucial issues in welfare economics. The Austrians were not merely exploring the economies of socialism; they were in effect demonstrating that, as an economic system attempting to serve the needs of its citizens, socialism must inevitably fail. But, even if the debate is interpreted in its broadest terms, as a debate in welfare economics, it represented a sharp break widi traditional polemics relating to the socialism-capitalism issue. Traditionally the arguments for or against capitalism had, until 1920, been deeply involved in ediical questions. Misess 1920 challenge to socialism, in contrast, was explicit in making no attempt to address any claims concerning the alleged moral superiority of socialism. He simply argued that, as an economic system, socialism was inherendy incapable of fulfilling the objectives of its proponents; central planners are unable to plan centrally.

Comment on "A Critique of Kirzner's Finders-Keepers Defense of Profit."

It is a pleasure to respond to Theodore Burczak’s penetrating and lucid critique of my use of the pure discovery element in the market process (to suggest a finders-keepers defense of the justice of entrepreneurial profit). I believe that Burczak’s criticisms do not necessarily undermine my defense of entrepreneurial profit; and I believe that Burczak’s criticisms, together with my present response, can usefully advance understanding of the place of economic justice in markets. I am grateful for this opportunity to comment on Burczak’s paper. Burczak’s critique consists of two separate and independent lines of argumentation. I will take up each of these in turn.

Hayek and economic ignorance: Reply to Friedman

Abstract Markets can be said to overcome ignorance in two senses. First, in an imaginary world of economic equilibrium, market prices can signal to consumers how they may alter their behavior so as to conform to supply and demand conditions of which they are ignorant. This is a point that was underscored by F.A. Hayek and, now, by Jeffrey Friedman. But the more important manner in which markets overcome ignorance was identified by Hayeks mentor, Ludwig von Mises, and is not mentioned by Friedman: when market prices are not perfectly aligned to supply and demand conditions (and they never are), they present profit opportunities to entrepreneurs who are alert to make such discoveries. Their profit‐motivated actions then reallocate resources in a pattern more efficiently reflecting the true supply and demand conditions. It is this way of overcoming ignorance that most clearly separates the market arena from the political arena, because no corresponding corrective discovery process exists in politics.

‘Any schmuck can consume’: a response

Murray Rothbard misunderstood what Mises meant by‘consumer sovereignty’. But Rothbard fully understood how producer decisions are shaped by the desire to anticipate the preferences of consumers.