Entrepreneurial discovery and the competitive market process: An Austrian approach
Israel Kirzner is a leading economist in the "Austrian School" of economics most closely associated with the work of von Mises and Hayek. Published in the much more mainstream Journal of Economic Literature, this article has a strong flavor as a sort of introduction to Austrian economics for people that have read a paper or two by von Mises or Hayek, understand roughly that the Austrian School exists, but do not much more. Kirzner's work is more to explain the Austrian school rather than to defend it, but he end up doing quite a bit both in his article.
The article is framed around the concept of "entrepreneurial discovery" and it in that literature that this literature has become heavily cited. Speaking to an argument of orthodox economists, Kirzner frames the Austrians position as largely against the idea of equilibrium, and even against the idea a move toward equilibrium, in markets. Kirzer explains that while mainstream economics assumes competitive equilibrium and complete knowledge. The Austrian school argues instead for a conception of dynamic competition with holes in knowledge that go beyond "imperfect information." Indeed, Kirzner draws an important distinction between missing information that one simple doesn't have and so-called "unknown unknowns" -- the things one doesn't even know they don't know.
It is within this environment on unknown unknown that Austrian competition takes place. Indeed, is uncovering these unknowns before other that one explores a space and competes with others. Indeed, in this sense, the entire concept of competition in an Austrian sense is entrepreneurial. In Kirzner's terms, the three analytical concepts are:
- the entrepreneurial role (quoting from von Mises, this is anyone "acting in regards to changes occuring in the data of the market")
- the role of discovery (as distinct from search because it's things that you could not even known you were looking for)
- rivalrous competition
Much of the article walks through examples of applications of this perspective in a variety of topics that the Austrian perspective disagrees with (i.e., antitrust, economic justice, welfare economics, and central planning under socialism).
After explaining how even the concept of market equilibrium is questioned by Austrians, Kirzner explains that, "Austrian economics makes no claim that market outcomes at any given date are efficient and socially optimal." As a result, although Austrians do tend like market solutions, there reality is more complicated that it is often characterized as being.
Theoretical and practical relevance:
Kirzner's article is heavily cited and is already considered a classic of entrepreneurship literature. It has become the go-to article for referencing Austrian perspectives on the importance of entrepreneurship.