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.” This section.” presents seven papersrelating to PartNature The of , 1, “, includes Part 2, Coordination, , and the Calculation Debate: Lessons Austrians,” for “Hedgehog and Hayek the Plan-coordination,”of Idea Fox? or “Calculation, Competition, and ,” “Comments the on Debate between Professors Leontieff and Stein Nationalon Economic Planning,” and “Hayek’s Theoryof the Coordinationof Markets: a Commentaryto Accompany the Facsimile Edition Hayek’s of Produktion lege innovationslege offering economic benefits. Partconsists 3 sixof articles how on exchange processes informa tion, and Part 4 consists two and compre of more longer essays. hensive Competition, and ,” “Prices, the Knowledge,of and the Discovery Process,” “Competition and the Market Process: Doctrinal Some Milestones,” “The Drivingthe of Market:Force the ‘Competition’ of Idea in Contemporary Economic Theory and in Austrian the Theoryof Marketthe Process,” and “The Irresistible Force Market of Competition.” These five articles not only critique the static-equilibrium perfect model of competition, lay but its limitations,out and discuss entrepreneurship how con tributes competition. real-world to Following Mises and KirznerHayek, prices explores how transmit information, entrepreneursand compete take to how advantage these of signalsdeliver to superior market outcomes, which allow both consumers and other entrepreneurs better to coordi theirnate plans. Knowledge includes Problem, “Economic Planning and the“Knowledge Problems and Knowledge their Problem,” Solution: Relevant Some Distinctions,” “The Economic ------Competition, Economic Planning, and the Knowledge Problem

The The book is dividedfour parts,into withjournal articles,

ject innovationsincentives -and-loss to whichprivi market process us helps understand market how exchange allows the for marshalling essential of information which would otherwise be useless and inaccessible. Markets sub parture frommainstream away neoclassical formalism and toward greater realism. Part 2 includes seven papers ex recognizingploring how the centrality entrepreneurs of in formalism of constrained optimization. Kirzner’s develop market of ment process economics, based an on entrepre neurial disequilibria, of marks de a major beyond static-equilibrium’sbeyond emphasis finala on outcome meeting formal requirements. Kirzner emphasizesthe pro cess markets actually pursue in reality the over idealized prefaces, and otheressays grouped Part topic. by 1 pres papersfive ents which argue for the centralplace entreof preneurial planning in thedefinition of competition, going trepreneurial competition and to market process from 1974 2000. Sautet have selectedSautet have Kirzner’s of most some important con tributions, and through the papers collected in this volume, the reader can Kirzner’s follow developing thought en on entrepreneurs, markets lack precisely those characteristics which account their for ability coordinate to production and further an on initial improve optimum. Boettke and ly on entrepreneurially on planning, competition, experimenta tion, and profit-seeking , in the faceof the un certainty an of unknown and unfolding future. Without ondary which topic, can be divorced somehow from the majorityeconomic theory of and analysis. Israel of As much M. demonstrates, Kirzner’s work markets depend crucial Entrepreneurship is widely thought as of specialized a sec Email: [email protected] https://www.linkedin.com/in/rfmulligan/ Web: ROBERT F. MULLIGAN F. ROBERT by Israel by Kirzner’s Economics of Entrepreneurship of Economics Kirzner’s Competition, Economic Planning, and the Knowledge Problem REVIEW VOLUME 6 | ISSUE 1 + 2 2018 6 | ISSUE VOLUME REVIEW | REVIEW

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knowledge problems and the socialist calculation debate. If Kirzner points out that market competition includes en- one accepts the static-equilibrium model of perfect compe- trepreneurial competition to uncover unrealized oppor- tition, it appears attractive to remove wasteful competition tunities and improve resource allocation in production. to improve efficiency. However, the standard model is not Competition for profits rewards anyone who is able to im- realistic. Kirzner demonstrates that market process pro- prove allocative efficiency, though this subsequently reduces vides outcomes which meet efficiency and welfare require- profit opportunities. Kirzner also notes the literature’s gen- ments, but only by giving us a means to act on and exploit eral confusion among owner-shareholders, corporate man- decentralized and inarticulable information. He also shows agers, and entrepreneurs, pointing out that entrepreneurs that efficiency and welfare maximization will always be be- need not own any capital at all—they profit from buying yond the grasp of central planning which takes the welfare- undervalued goods and resources and selling or using them maximizing and information-generating decisions out of where they are valued more highly. They can profit from the hands of individual actors, where they always reside in this arbitrage precisely because it guarantees goods will be reality. The last essay in this section is available here for the utilized more efficiently. Central planning would mistaken- first time in English. ly prohibit this arbitrage as wasteful and inefficient. Part 3, Information, Knowledge, and , in- “Prices, the Communication of Knowledge, and the cludes “The Open-endedness of Knowledge: Its Role in the Discovery Process,” highlights the need for market partici- FEE Formula,” “Knowing about Knowledge: a Subjectivist pants to anticipate the plans of others. The extent produc- View of the Role of Information,” “Information-knowledge tion and consumption plans are coordinated is the extent and Action-knowledge,” “Comments on R. N. Langlois, the market succeeds in efficiently satisfying our wants. High ‘From the Knowledge of Economics to the Economics of prices signal to producers which resources are most scarce Knowledge: on and on the or in greatest need, and low prices present entrepreneurial 81 ‘Knowledge Society,’” “Advertising,” and “Advertising in an opportunities when those resources can be substituted for Open-ended Universe.” This section presents five articles on more expensive ones. Because no market participant pos- knowledge-processing in the context of competitive market sesses complete information, real markets never reach a exchange, including two very interesting articles on adver- neoclassical constrained optimum. It is only through com- tising. peting to uncover new information, attempt innovative COSMOS + TAXIS + TAXIS COSMOS Finally, Part 4, Two Essays on Markets, presents two production and marketing methods, satisfy new wants, or longer, relatively late articles on market process theory, for consumers to try new products, etc. that market process “How Markets Work: Disequilibrium, Entrepreneurship, brings about market outcomes in reality—it should be little and Discovery,” and “Entrepreneurial Discovery and the wonder that real-world outcomes fail to conform to theo- Competitive Market Process: an Austrian Approach.” retical descriptions of what a constrained optimum should look like. I. THE NATURE OF COMPETITION “Competition and the Market Process: Some Doctrinal Milestones,” traces out how the perfectly competitive mod- “Capital, Competition, and Capitalism,” originally a lecture el was supplanted by more specialized and realistic alterna- at Hillsdale College, critiques the claim that competition tives. Edward Chamberlin (1933) and Joan Robinson (1933) can operate without private , and the related asser- introduced the monopolistically-competitive model as an tion that private ownership acts as a barrier to entry, and advance beyond , but only under static thus is incompatible with competition. The views Kirzner equilibrium conditions which assumed away the possibil- critiques here would support central planning, representing ity of disequilibria, or any role for market process. Kirzner a rather extreme socialist view that competition under pri- draws on Machovec’s (1995) account of the emergence and vate ownership is wasteful and exploitative, and that central development of perfect competition theory, though he takes planning requires socialization of ownership, which would issue with some details. As Kirzner sees it, hitherto loose then permit a resource-conserving competition for the ben- and non-descript conceptions of competition were gradu- efit of all. In fact, perfect competition assumes small firms ally purged of their vestiges of process thinking, generally and an undifferentiated product, but makes no assumption simplifying and formalizing the analysis at the expense of about who owns the means of production. realism.

REVIEW | Competition, Economic Planning, and the Knowledge Problem ------

COORDINATION, ECONOMIC PLANNING, PLANNING, ECONOMIC COORDINATION, PROBLEM AND THE KNOWLEDGE Kirzner and observe Hayek that central planning au “The Irresistibleof Market Force startsCompetition,” Neitherare formal models with such limited applica thorities lack first-hand at knowledge of level the individ ual consumers and best, producers. At central planners crude on rely aggregatessummaries, or which average hy pothesized individual measurements and sub proxies for jective appraisals that cannot be quantified.The central planner does face not the same optimization but problem, substitutesmacro-optimization simpler, a problem—which, further intervention. Market process generates the pattern of resource allocation, creates the constellation of market prices, and results in the satisfaction consumer of wants. In contrast, the focus of neoclassical micro economics is whether on competition as is present a formal stateaffairs—in of other words, whether arbitrary condi tions are met, which is largely irrelevant in reality and can informnot effective policy. II. “Economic Planning and the sum Knowledge Problem,” marizes and extends knowledge on work limita Hayek’s tions facing central planners. Kirzner notes that individual- level planning is essential and goes all on around us, and that individual plans are speculative and constantly revised in the face changing of conditions and the acquisition of new knowledge. Individuals are free make to the critical what choices plansof attempt,or adopt to whatinformation seekto be or alert and to, when revise to their plans—as in dividuals, they bear the cost and responsibility imple of menting their own plans, andif profit theirplans succeed as anticipated. from the observation that the perfectly-competitive mod assumptionel’s that individual are producers price-takers unable influence to marketthe price, for removes role any entrepreneurial experimentation. helpful However has it been examine to this static-equilibrium result en of devoid trepreneurial action, its real-world applications are limited. Realmarkets feature competition among entrepreneurs, and assuming entrepreneurs’ innovative, away speculative, and profit-seeking strictly behavior, limits the abilityourof economicsexplain to themarket process theof actual econ omy. bility likely be to fruitful in offeringgeneral guidance for policyregulation, or and theresulting policy hasbeen not conspicuous its by success—oftenleading to demands for ------

“The Drivingof Force Market:the Ideaof the The The disequilibriumprevailing at any time place and is Kirzner explainsthe paper significance(1948) of Hayek’s them as as long possible. nopoly, monopolistic competition, —emergesnopoly, or from market process, as speculative a product of effortsto uncover entrepreneurialopportunities profit preserve and lative environment faces the pressure imitative of arbitrage which eventually the removes original opportunity. profit Market organization—whether perfect competition, mo ditions, suffering but losses when theirplans fail. Market process subjects entrepreneurs an to unrelenting disci pline, because any profit-seeking innovator in this specu course extremeto assumptions market about organization. Entrepreneurs incentives—gaining face profit-and-loss profits when they correctly anticipate future market con and market process. Marketprocess explains entre how preneurial anticipate producers and consumer respond to demand and changing market conditions, without re the Austrian Theoryof Marketthe Process,” contrasts per fect competition with the Austrian subtle, more school’s less-formalized, conception entrepreneurial of competition competition as market process. in‘Competition’ Contemporary Economic Theory and in much of contemporary of much mainstream con tinues the prefer sterile to formal elegance competition of as a state affairs, of over messy the disequilibriumreality of tition, as notes, but he this was ignored the by profession. Although criticism the of static-equilibrium understanding perfectof competition continued proliferate to after1960, phisticated system social of cooperation take we grant for ed. Kirzner 1960) acknowledges John M. Clark’s (1955, efforts a dynamicpromote to understanding of compe tral planning—generally employing unutterable knowledge whichthe market accommodates remarkable well, if al not waysand which flawlessly, provides backbonethe of a so formation-processing aspect market of process is form a of indirect communication—not especially amenable cen to but static,but and works through anything an but equilibrium. themerely material raw acted market by on process. The in wants from consumers producers, to etc., while also provid ing incentives which reward participants can who improve any part the of process. Thus, marketprocess is anything omists. Markets are cooperative institutions which process information set to prices, allocate resources, coordinate plans, expectations, and activities, communicate future “TheMeaning of Competition,” work and on Hayek’s draws critiqueto inconsistent uses competition of other by econ VOLUME 6 | ISSUE 1 + 2 2018 6 | ISSUE VOLUME

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though it can be solved analytically, can never have any opportunities enjoy -term monopolies, but the great- economic meaning. er the advantage they take of their temporary market pow- From the neoclassical perspective of constrained optimi- er, the more obvious are the price incentives which attract zation, the centrally-planned outcome must be misspecified imitative competitors. In the absence of favorable govern- for at least some consumers—if not for all. It would actu- ment , there is generally no mechanism for the ally be an exceedingly rare and exceptional occurrence for first entrepreneur in these cases to maintain their monop- a centrally-planned optimization problem to be correctly oly indefinitely by creating entry barriers, but a sufficiently specified for anyone it purports to benefit. At best, central gifted and alert entrepreneur will already have moved on in planners can only force substitution of a misspecified ag- search of the next arbitrage opportunity. gregate optimization problem for the myriad optimizing In “The Economic Calculation Debate: Lessons for choices of individual agents, whose knowledge is in con- Austrians,” Kirzner shows how the socialist calculation de- stant flux, both expanding and becoming dated, who face bate contributed to the refinement of market process the- direct incentives to economize effectively, and who opti- ory and enhanced our understanding of the role of entre- mize in terms of unique, subjective, and inarticulable pref- preneurship in maintaining competition. How markets erences. process information is as crucial to understanding market “Knowledge Problems and their Solution: Some Relevant process, as it is to appreciating the futility of directing simi- Distinctions,” introduces Kirzner’s famous Knowledge lar activities on a command basis—the basis of supposedly Problems A and B. Knowledge Problem A occurs when “rational” economic planning, which purports to avoid the beneficial exchanges fail to occur, either due to sellers’ over- “wastefulness” of profit and competition. optimism in demanding a higher price than buyers are will- Hayek further argued that perfect competition was a - ing to pay, or buyers’ over-optimism in requiring a lower icature of real markets, simply glossing over the most in- 83 price than sellers are willing to accept. Knowledge Problem teresting features of market process—e.g., product differ- A is a problem of over-optimism, and is self-correcting— entiation, entrepreneurial alertness and , market over-optimistic sellers lower their asking price to dispose organization, etc. The central planning argument was that of unsold inventories, or over-optimistic buyers realize the planners could crudely approximate a perfectly-competitive need to pay more. (Here, the buyer’s reservation price must outcome, but failed to address the extent this falls short of COSMOS + TAXIS + TAXIS COSMOS exceed the price they had anticipated based on their reading recognizing or accommodating real-world conditions. of market conditions, but still affords them some consumer “Hedgehog or Fox? Hayek and the Idea of Plan- surplus, though less than they had hoped for.) coordination,” is an exceptionally ambitious attempt to ad- In contrast, the more interesting Knowledge Problem B dress the extent Hayek might have come to view all eco- is a problem of over-pessimism. Here, beneficial exchanges nomic problems as coordination problems. The hedgehog never occur, either because of sellers’ over-pessimistic belief or fox dichotomy comes from the Greek poet Archilochus that buyers are not willing to pay as much as they actually (c. 680 BC–c. 645 BC), “the fox knows many things, but the are, leading sellers to produce or acquire less of the prod- hedgehog knows one important thing” ( 1953, Shackle uct, or because of buyers’ over-pessimistic belief that the 1966, ch. 12). In other words, Shackle contrasts an approach sellers’ price is higher than sellers will actually accept. In to knowledge which unifies and systematizes many dispa- either case of over-pessimism, there is no unsold inventory rate facts or aspects of reality within a single over-arching to be marked down for disposal—it was mistakenly never theory (the hedgehog), with the approach of taking the produced. world as it comes, without trying to impose too arbitrary Knowledge Problem B is not self-correcting, because it is a straitjacket on our understanding (the fox). Kirzner con- not visible to either the producers or consumers. Knowledge cludes that Hayek has elements of both, but for Hayek the Problem B calls for, and rewards, entrepreneurial aware- overarching theory is coordination through market process ness to identify these opportunities for beneficial exchang- rather than constrained optimization. es. It is the ubiquity of unobserved instances of Knowledge Mises and Hayek presented Austrian cycle the- Problem B which entrepreneurs compete to uncover and ory in terms which O’Driscoll (1977), Garrison (1985, 1989, remedy. They produce products no one else would, to satis- 2000), and Ionnides (1992) reframed in terms of plan co- fy demand other producers failed to perceive or anticipate. ordination and information transmission. Hayek’s view of Until others imitate them, entrepreneurs who identify such general equilibrium was as a compatibility or dovetailing

REVIEW | Competition, Economic Planning, and the Knowledge Problem ------our ability to treat so ” (p. 159, emphasis in original). 159, ” (p. Discussing Kirzner O’Driscoll notes the enduring (1977), “Comments the on Debate between Professors Leontieff Kirzneremphasizes related argument Buchanan’s that be This social allocation, far beingfrom to amenable im and Stein National on Economic Planning,” allows Kirzner explainto entrepreneurs observe how price divergences identicalwhere goods are for sale offered at two different prices, and through arbitrage, correct the discrepancies— this might be considered market routine house process’s keeping.Price divergences result from failure coordinate to entrepreneurialplans, entrepreneurial but awareness is the al occurschoice and reside. Government preferences inter including vention, central planning, can only impair alloca Attivetheefficiency. same time, allocation can beimproved through entrepreneurial experimentation, this but is only possible in a . Entrepreneurs face the discipline and profit-and-loss, of they pay price the when their spec ulative experiments fail.progresses, The as un coordinated entrepreneurial failures are swamped suc by cessful experiments which the market rewards, and which time.predominate over appeal viewing of allocative economy-wide efficiency a as stateaffairs, of which seemmay to managementamenable a centralby as planner, opposed market the to of outcome “ concludes he Nevertheless, process. ciety as an entity for which coordination-efficiency consid erations relevant, are depends on the possibility econom of ic calculation in that society Because theare only preferences fulfilled agent way and co ordinated is through individual in choice a market econo the information my, needed arrive to the at resource alloca tion cannot solution be developed, arrived at, simulated or in any other way. cause interpersonal welfare comparisons are meaningless, there can be meaningful no social welfare function max to imize,and thus formalno optimumcentral a for economic planner target. to then He brings in argument Hayek’s that the single market price, arrived through at the cooperation and interaction everyone of participates—or who volun tarily refrains from participating—in market exchange, is the freely and spontaneously-attained goal central of plan ning—the “correct” price. This is equally true for the whole constellation market of prices, and the for market-wide al location of resources. further or provement optimization through and coercion purportedly “scientific”planning, crucially itsdepends for validity free on the at choice individual level, actu where ------

“Calculation, Competition, and Entrepreneurship,” pres Although Austrian theory is still well not Unfortunately, asUnfortunately, the compatibility andcoordination trumped Buchanan’s motivation argument. motivation Buchanan’s trumped erences other than their those own, namely, the of planning argued Lavoie authority. that Mises’ information argument against central planning, was fundamental, more and thus process information, of volume a prohibitive focused but theon mechanism, need offer to some hopefully hu more mane than motivate brute to force, individuals seek to pref tive efficiency, tive efficiency, eliminate wastefulcompetition, abolishprof its, increase cri aggregate welfare, etc. (1969) Buchanan’s tiquecentral of planning was based lessits inability on to ents an appreciation of ’s (1985) doctoral disser (1985) anents Lavoie’s Don appreciation of tation, and analysis builds Lavoie’s on socialist of proposals central implement to economic planning, alloca improve the calculation debate and Austrian business cycle theory with information theory. business cycle theoryand in criticizingcentral economic planning, built Hayek Mises’ but on accomplishments, as Kirzner argues, coming by closer addressing to much both microeconomics, Kirzner that shows them brought Hayek far closer together than is widely realized, even among the .Mises contributionshad made major to and goods-in-process are for sale. offered recognized as being well-integrated with market-process fiedby individuals’ savings.At this point, manyproduction plans must be liquidated, and resource prices collapse as gluts unneeded of resources, partially-processed resources, plans others, of which are already being adjusted aban or doned. Expansionary policyprovides misleading signals and investible provides more resources than can be justi able, half-completed production plans,with goods-in-pro cess limited of substitutability, can be complet longer no ed. These partially-completedplans predicated were on the among entrepreneurial plans become critically unsustain al resource use including bidding laborbut , theup cost scarce of resources. Initially, everything looks good, as output, and employment, nominal incomes all rise. coordination. Expansionary however, policy, government makes natural the market order’s plan-compatibility unsus tainable,increasing production activity, financing addition time. interference, government Without entrepreneurs thiscompete improve to intertemporal coordination among production plans, resulting in an absence systematic of dis among the otherwise independent plans different of actors. Capital markets coordinate speculative anticipations fu of ture consumer wants with physical production through VOLUME 6 | ISSUE 1 + 2 2018 6 | ISSUE VOLUME

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only cure for them, and is rewarded, at least temporarily, ly subjective, and that knowledge can be uncovered as we with arbitrage profits. gain fortuitous experience in the absence of a planned in- Thus, the oft-maligned profit motive performs the the vestigation—we observe our own experience through the indispensable function of moving the economy toward prism of our , perceptual focus, past experience, a higher state of coordination, and continues to act in the cognitive development, etc. In contrast, we can also en- face of changing market conditions which invariably intro- gage in entrepreneurial planning to map out an investiga- duce new coordination failures among pre-established pro- tory programme, aiming at uncovering facts we want to duction plans already in operation. The market may never know, or answer particular questions. We can modify such arrive at the optimal outcome of the neoclassical model, a programme in light of new knowledge. Kirzner address- and if it is achieved, it may not persist long, but the market es the social significance of seeking this “knowledge about tendency is always to move closer to this ideal condition. which nothing is known,” as well as how, through market Central planning, in contrast, cannot make this claim. process, disequilibrium adjustment improves the coordi- In “Hayek’s Theory of the Coordination of Markets: nation among different agents’ plans. The profit motive, far a Commentary to Accompany the Facsimile Edition of from being a wasteful drain on society, motivates agents in Hayek’s Preise und Produktion,” presented here for the first discovering new knowledge, coordinating plans, using re- time in English, Kirzner lays out the significance and con- sources more efficiently, fulfilling wants more urgently de- tribution of Hayek’s 1931 LSE lectures. Although Hayek sired by others, and improving others’ welfare. does not yet frame his discussion in terms of agents’ infor- “Information-knowledge and Action-knowledge,” distin- mation or plan coordination, much less in terms of a dis- guishes between information and knowledge. In order to tinction between sustainable and unsustainable plan-com- act on, and confer economic significance on, information patibility, because inflation fuels unsustainable booms in (or information-knowledge), its entrepreneurial use- 85 investment and production, the basis for these later de- must be appreciated by an entrepreneur who will potential- velopments is already present. Hayek examines the ways ly act on it, transforming this information-knowledge into monetary expansion degrades information, impairs pric- action-knowledge. In some sense action-knowledge is al- es—including rates—reducing their ability to com- ways available to be conferred on given facts, but until the municate the plans, beliefs, and expectations, and prevent- need or opportunity arises—and is recognized by a poten- COSMOS + TAXIS + TAXIS COSMOS ing the sustainable coordination of entrepreneurial plans. tial actor—the action-knowledge remains latent in the in- Kirzner points out Hayek’s skepticism about the meaning formation. and validity of macroeconomic aggregates, and the need for The distinction might also be expressed as book-knowl- what we now call micro foundations of macroeconomics. edge versus street-knowledge, and can be understood by He also explains how Preise und Produktion contributed to considering a set of the Enclopaedia Britannica on the shelf. Hayek’s later papers on knowledge, competition, and plan- Unread, the information-knowledge is contained in the vol- coordination. umes, but to convert it into action-knowledge, one would start by reading the volumes, and would also have to real- III. INFORMATION, KNOWLEDGE, ize how the reader-actor could use some of this informa- AND ADVERTISING tion. The reader would have to be alert to opportunities to use the information-knowledge and attempt some practical “The Open-endedness of Knowledge: Its Role in the FEE applications. Some trial-and-error would be evident as the Formula,” presents an appreciation of the work of the reader might experiment entrepreneurially to assess the ac- Foundation for Economic , addressing FEE’s gen- tion-value of some of the information. Just as learning more eral philosophy—openness to new economic knowledge information-knowledge becomes easier the more we have and a skepticism for dogma, respect and desire for free- already acquired, learning and applying action-knowledge dom, and a tolerant, anti-dogmatic approach to spreading apparently becomes easier the more we have successfully economic ideas. In Hayek’s words, “Civilization rests on applied related action-knowledge in the past. the fact that we all benefit from knowledge which we do not “Comments on R. N. Langlois, ‘From the Knowledge of possess” (1973, p. 16). Economics to the Economics of Knowledge: Fritz Machlup “Knowing about Knowledge: a Subjectivist View of the on Methodology and on the ‘Knowledge Society,’” address- Role of Information,” argues that knowledge is inherent- es Machlup’s focus on knowledge as an economic com-

REVIEW | Competition, Economic Planning, and the Knowledge Problem

------JEL TWO ESSAYS ON MARKETS ESSAYS TWO Kirzner also reintroduces and further discusses his dis “Entrepreneurial Discovery and the Competitive Market Changing market markets conditions move equi of out trepreneur’s role in role drivingtrepreneur’s market process through dis equilibrium adjustment. When confronted Knowledge by A,Problem self-correcting over-optimism, entrepreneurs theadjust prices surplus remove to shortage, or a form of Knowledge Problem housekeeping.autonomous However, B, unobservable and potentially-persistent over-pessimism, calls entrepreneurial for alertness market improve to out librium, as profit-seeking entrepreneurs experiment with new combinations aiming better at plan coordination and allocativeefficiency. This acreates new disequilibrium, and new opportunities temporary for arbitrage profits.The em phasis entrepreneurial on discovery became a distinctive feature and advantage the of Austrian school, enabling the Austriansexplain to market why process markets moves toward unreachable and constantly-evolving equilibria. indifference, of law Jevons’ usedjustifyto general the equi librium condition, Kirzner isfor andthe Austrians, merely a general tendency toward this unattainable and transitory equilibrium. tinction between self- of Knowledge A—problems Problem correcting over-optimism—and Knowledge B— Problem over-pessimism, of problems which are self-correcting, not and can through only be overcome speculative -taking alertby entrepreneurs. Kirzner suggests viewing advertis ing as a tool entrepreneurs use leverage to competition, and ends addressing by regulation, monopoly welfare econom ics, and economic redistribution. Process: an Austrian Approach” was Kirzner’s 1997 article. In Kirzner it further explicates his view the of en IV. The last sectionpresents essayslonger on two markets andentrepreneurial competition. Markets “How Work: Disequilibrium, Entrepreneurship, startsand Discovery,” with an historical examination the of and emergence lim itations static-equilibrium of neo-classical theory. As in earlier essays, Kirzner points various out limitations and departures from reality such an of equilibrium theory of markets. Entrepreneurs are alert the to market disequilib riathe neoclassical and model assumes profit from away, removing through arbitrage. Thus, the equilibrium a free market tends toward is a moving target which is general reached,ly never and if ever is, it is neither sustainable nor persistent. ------

The need for needadvertising for The would be limited world in a “Advertising” and “Advertising in and an “Advertising “Advertising” Open-ended Machlup deemphasized market process stat in of favor opportunities until choose we and act. A given product may satisfynot our wantsthe the way ad campaign suggests, but this can only be uncovered through action. complements, andcomplements, the new marketing of implementation strategies, advertising makes us aware these of new oppor tunities satisfy to our wants, even if they are only potential where new products,where brands, technologies, and approaches product differentiation,to are introduced all the time, not new uses mention to established for products, substitutes, without new products, as hypothesized, e.g., the by neo classical perfect model of competition. In the real world, commercial interests, influences it buy to people things they need, not do etc., all neglect advertising’s entrepreneurial and communication functions. tial uses the for advertised. crit Various icisms advertising, of e.g., exploits it consumers subvert by ing their will, debases it our culture appealing by crass to viding information market to participants. Kirzner points advertising’s out useful functions in informing us what products are being for sale, offered suggestingand poten coordinates resource allocation and planned production. bothUniverse” address the function advertising of in pro theidea that pricescommunicate informationwhich can otherwisenot be articulated, and that this communication allows the market a spontaneous generate to which order planning. of outcome the The socialist calculation debate might been have far decisive more if the Austrians had fo cusedearlier market on process and informationtheory— that this handicapped the Austrians in responding Abba to and Oscar (1935, 1938) Lange’s 1937, 1936, (1934, Lerner’s arguments the 1938) on feasibility central of 1937, 1936, resulted from the Austrian failure school’s start to mak ing market process explicit until the late 1930s—and also tradeable commodity. ic-equilibrium outcomes. Kirzner suggests view Machlup’s contrasts view broader Hayek’s the knowledge, of of role including communicating inarticulate knowledge through prices, with narrower viewknowledge Machlup’s of as a market the of process Austrian as component a major focusing view, school’s instead static on equilibrium con articlecepts.(1985) The LangoisKirzner is commentingon modity—in his unfinished“Knowledge he not Project,” did connect market the to outcomes processes knowledge of transmission. or Machlup Curiously, overlooked VOLUME 6 | ISSUE 1 + 2 2018 6 | ISSUE VOLUME

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comes, exploit incentives which are invisible and generally . 1960. Competition as a Dynamic Process. overlooked by everyone else, and earn profits by introduc- : Brookings Institution. Garrison, Roger W. 1985. Intertemporal Coordination and the ing new products, improving plan coordination and re- : an Austrian Perspective on the Keynesian Vision. source allocation, establishing new disequilibria, etc. History of Political Economy 17: 309-321. By recognizing the central role of entrepreneurship in Garrison, Roger W. 1989. The Austrian Theory of the Business Cycle allocation, both causing and responding to evolving mar- in the Light of Modern Macroeconomics. Review of Austrian Economics 3: 3-29. ket conditions, market process theory both complements . 2000. Time and : the Macroeconomics of Capital and extends Arrow-Debreu (1954) equilibrium theory. In Structure. New York & : . Kirzner’s view, general equilibrium is best understood as an Hayek, Friedrich A. 1946. The Meaning of Competition. In: abstract formal condition which need not mirror reality to and Economic Order (pp. 92-106). Chicago: add to our understanding. Market process is “a systemat- University of Chicago Press. . 1973. Law, Legislation, and I: Rules and Order. ic process in which market participants acquire more and Chicago: University of Chicago Press. more accurate and complete mutual knowledge of potential Ionnides, Stavros. 1992. The Market, Competition and Democracy: demand and supply conditions” (p. 325, emphasis in orig- a Critique of Neo-Austrian Economics. London & New York: inal), working through entrepreneurial discovery by alert Routledge. Kirzner, Israel M. 1992. The Meaning of Market Process: Essays in the participants. Kirzner goes on to show how market process Development of Modern Austrian Economics. New York & London: theory, with its focus on entrepreneurial discovery which Routledge. moves the market from one disequilibrium to the next, can . 1997. Entrepreneurial Discovery and the Competitive Market be used to critique and inform, antitrust theory, social jus- Process: an Austrian Approach. Journal of Economic Literature 35(1): 60-85. tice, welfare economics, and central economic planning. . 2000. The Driving Force of the Market: Essays in Austrian Many of the articles collected in this volume are well-read Economics. New York & London: Routledge. 87 and familiar, some already having been collected in The Lavoie, Don. 1985. Rivalry and Central Planning: the Socialist Meaning of Market Process (Kirzner 1992) and The Driving Calculation Debate Reconsidered. Cambridge: Cambridge University Press. Force of the Market (Kirzner 2000). Nonetheless, these are Lange, Oscar. 1935. and Modern Theory. all articles which reward rereading. A number of related ar- Review of Economic Studies. 2(3): 189–201. ticles are less widely read and offer additional insight, and . 1936. On the Economic Theory of I. COSMOS + TAXIS + TAXIS COSMOS it is beneficial to have them all collected in one place. The Review of Economic Studies. 4(1): 53–71. . 1937. On the Economic Theory of Socialism II. volume will be especially helpful to researchers who want to Review of Economic Studies 4(2): 123-142. apply market process insights, better explicate the role and . 1938. On the Economic Theory of Socialism. Minneapolis: function of entrepreneurs, or better understand the mech- University of Minnesota Press. anisms for the emergence and communication of market Langlois, Richard N. 1985. From the Knowledge of Economics to the information. It is also a welcome recognition of Professor Economics of Knowledge: Fritz Machlup on Methodology and on the “Knowledge Society.” Research in the History of Economic Kirzner’s high place in contemporary market process eco- Thought 3: 225-235. nomics and the theory of entrepreneurship. Lerner, Abba P. 1934. Economic Theory and Socialist Economy. Review of Economic Studies 2(1): 51–61. REFERENCES . 1936. A note on Socialist Economics. Review of Economic Studies 4(1): 72–76. . 1937. Statics and Dynamics in Socialist Economics. Arrow, Kenneth J.; Debreu, Gérard.1954. Existence of an Economic Journal 47(186): 253–270. Equilibrium for a Competitive Economy. Econometrica 22(3): . 1938. Theory and Practice in Socialist Economics.Review of 265–290. Economic Studies 6(1): 71–5. Berlin, Isaiah. 1953. The Hedgehog and the Fox: an Essay on Tolstoy’s Machovec, Frank M. 1995. Perfect Competition and the View of History. London: Weidenfeld & Nicolson, New York: Transformation of Economics. London & New York: Routledge. Simon & Schuster. O’Driscoll, Gerald P. 1977. Economics as a Coordination Problem. Buchanan, James M. 1969. Cost and Choice: an Inquiry in Economic Kansas City: Sheed Andrews & McMeel. Theory. Chicago: Markham. Robinson, Joan V. 1933. The Economics of Imperfect Competition. Chamberlin, Edward H. 1933. Theory of Monopolistic Competition. London: Macmillan. Cambridge: Harvard University Press. Shackle, G. L. S. 1966. The Nature of Economic Thought: Selected Clark, John M. 1955. Competition: Static Models and Dynamic Papers 1955-1964. Cambridge: Cambridge University Press. Aspects. American Economic Review 45(2): 450-462.

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