Der wichtigste Vertreter der Unternehmertheorie und in den USA
ISRAEL M. KIRZNER (geb. 1930 in London)
- The Economic Point of View. An Essay in the History of Economic Thought. Kansas: Sheed and Ward, 1975 (1960)
- Market Theory and the Price System. Princeton: D. Van Nostrand, 1963
- An Essay On Capital. New York: Augustus M. Kelley, 1966
- Competition and Entrepreneurship. Chicago: University of Chicago Press, 1973
- Producer, Entrepreneur, and the Right to Property. Paper presented at the Symposium on the Origins and Development of Property Rights, Institute of Humane Studies, University of San Francisco, January 1973
- Equilibrium versus Market Process. In:Dolan, Edwin G. The Foundations of Modern Austrian Economics. Kansas City: Sheed and Ward, 1976
- Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship. Chicago: University of Chicago Press, 1979
- The Driving Force of the Market. Essays in Austrian economics. London: Routledge, 2000
- Foreword: Advertising in an Open-Ended Universe. In: Ekelund R.B. & Saurman D.S. Advertising and the Market Process. San Francisco: Pacific Research Institute, 1988, xv-xxii
- Unternehmer und Marktdynamik. München/Wien: Philosophia Verlag, 1988
- How Markets Work: Disequilibrium, Entrepreneurship & Discovery. London: Institute of Economic Affairs, 1997
- Between Mises and Keynes: An Interview with Israel M. Kirzner. The Austrian Economics Newsletter, Volume 17, Number 1, 1997
The Economic Point of View. An Essay in the History of Economic Thought
Economists have, for example, been well agreed among themselves that the operations of the merchant are of specific interest for the economic perspective on social phenomena; but at this point their unanimity abruptly breaks down. For some, the merchant is engaged in economic activity because he deals in material goods; for others, because his operations involve the use of money; for still others, because these operations hinge on acts of ex- change. Some writers see the merchant as an economic agent be-cause his activities are allegedly motivated by selfishness or marked by a peculiar shrewdness in calculating the pros and cons of his dealings. Others see his relevance for economics in that his wares are to some extent related to the maintenance of human life; others, in that they pertain to human “welfare.” Still others classify mercantile pursuits as economic because they involve the judicious disposition of scarce means, while others again find their economic character in their reflection of human motives that permit of measurement. And the list could be still further extended. 5f
Under the influence of Menger and his followers, writers of this period devoted careful attention to the scarcity criterion and to the operation of the “economic principle.” On the other hand, economists of the Historical School tended to stress the social character of economic phenomena. 16
This mechanical conception of economic phenomena clearly relegated man, the source of economic activity, to the background. It is somewhat ironical that the construction of the concept of a self-centered economic man, a development that led to an increase in the attention paid to the role of the human agent, should have tended to lead to a position in which the objective phenomena of economic life can be viewed as if they occurred automatically. Certainly the most extreme result of the mechanical view of economics in this respect is to be seen in Schumpeter’s early conception of economic science. 68
It is into this bewildering mass of empirical data that the economic point of view throws a ray of light. It enables us to grasp an element that does introduce a measure of explanation into social phenomena. This element is laid bare by subjecting the empirical data to a systematic abstraction, made possible by recognition of the character of human action. By taking a cross section of social phenomena at a particular instant in time, by considering the programs that members of society have chosen at that instant and by mentally arresting program changes, one can apply praxeological theorems to these various programs and deduce the consequences. The conclusions so derived are valid in relation to the assumed programs, and provide an explanation of the concrete phenomena of the real world in so far as there is a tendency for men to adhere to programs once they have been initiated. 175
Market Theory and the Price System
The real significance of the market system lies in the fact that the mutual interplay of these constraints makes up a unique process through which the decisions of different individuals (who may be quite unknown to one another) tend to be brought progressively into greater consistency with each other.
Consistency and correspondence between the decisions made by different market participants are of the first importance in any successful execution by the market of its functions. If all potential members of the labor force decided to train themselves as skilled watchmakers, a catastrophic aberration of individual decisions would exist. After all, a decision to be- come a watchmaker depends on the confident assumption that some other people will be barbers, tailors, etc. 3
Among market roles, the entrepreneurial role is the least simple to grasp. The source of its elusiveness lies in the fact that some element of the entrepreneur’s speculative function is exercised whenever human beings act. In fact we must recognize that in theorizing about the making of decisions, we may be concerned with two analytically distinct kinds of decisions. First, there is the decision between definite alternatives. Here the adoption of any one definitely known objective is accompanied by the sacrifice of a no less precisely known set of alternative potential objectives. This kind of decision making is clearly never possible in the real world of uncertainty (in which we wish our market system to have its setting). In a world of uncertainty men must invariably make a second kind of decision, one choosing between courses of action whose outcomes are quite uncertain, being susceptible to numerous possible unforeseeable modifications by external events. Although we can never expect to find actual instances of the first kind of decision, we may sometimes theorize concerning decisions of the second kind by temporarily reasoning as if the outcomes were not clouded by uncertainty. In reasoning in such a way the economist is abstracting from the speculative or “entrepreneurial” element in the making of the particular decision.
In speaking, however, of a distinct entrepreneurial role to be filled by hypothetical agents to whom we assign the name entrepreneurs, we are drawing attention to a unique class of decisions that it is essential for market theory to distinguish. In a system where specialization and di- vision of labor have been carried to a fairly advanced stage, there is room for a class of decisions for which uncertainty is of the essence (thus to speak about such decisions as if they were made in a world without uncertainty would be self-contradictory). In such a specialized market system, it is possible to purchase all the productive services necessary for the production of a proposed good, at a definite total money cost. Similarly, when the good has been produced, it too can be sold in the market for a definite sum of money. By itself, a decision simply to buy a group of resources, or their productive services, involves no essentially speculative element; neither does a decision to sell a finished product, once it has been produced. But the decision to buy a bundle of productive resources at one price in order to resell “them” (that is, the finished product for whose production these productive services suffice completely) later at a higher price, is essentially speculative. In a market there is constant opportunity for this kind of decision to be made, and we distinguish the “pure” function of making this kind of decision by referring to it as the role of the entrepreneur. The entrepreneur must simultaneously make the decisions concerning which good he will produce and which resources he will use in its production, under the condition that he can expect only an un- certain price for the product when it will be sold. The entrepreneur makes one such speculative decision out of innumerable possible speculative decisions. 17f
An important change that occurs at any point in the market system as a whole brings about direct alterations in its immediate market vicinity. Entrepreneurial activity transmits the consequences of these changes to related markets. Through the impersonal medium of altered prices, participants in other, possibly remote, parts of the market system are forced to adjust their plans to the changed conditions. 30
The goal of “efficiency” is not really a separate goal in its own right. Efficiency is nothing else, in the present context, that the consistent pursuit of other goals. Consistency in the pursuit of goals calls for a refusal to apply resources to achieve one goal when this implies forsaking a still more highly cherished goal. Inefficiency is thus synonymous with inconsistency. An inefficient course of action is one that is inconsistent with a given pro- gram of goals. A course of action that is inefficient with respect to one set of goals may be highly efficient with respect to a different set. But the point is that, in making plans, individuals have in mind given sets of goals. With respect to this set of goals, they seek a consistent, efficient course of action. 34
Now, the very factor specialization, which can make social cooperation “efficient” for each of the cooperating individuals, itself introduces problems upon whose successful solution the worthwhileness of specialization depends. Clearly, if everyone specialized in the same kind of production, specialization would be worse than useless. A social system will emerge only if the system promises individuals a way of cooperating with others in an efficient way; that is, only if the system coordinates the specialized activities of the participants. 36
To the individual entrepreneur operating a firm in an industry, the relevance of market demand does not hinge directly on the relation between market price and the quantity that the market as a whole will seek to buy. For him market demand is relevant only as it relates to the quantities that the market will buy of his product, and to the prices that he may charge, other factors remaining unchanged. He is interested, in other words, in the different alternatives the market as a whole might present to him as a result of alterations by him in the alternatives that he presents to the market. 94
A market process may be defined as competitive when the opportunities that market participants feel constrained to offer to the market are only those opportunities that they believe to be more attractive (or at least no less attractive) to the market than comparable opportunities being offered by others. 107
First, bids and offers may be mistaken because they unwittingly pass up superior opportunities (the particular market participants are ignorant of) in favor of the inferior opportunities (buyers offer to pay higher prices than they “really” need to; sellers offer to sell for prices lower than those they can “really” secure elsewhere). Second, bids and offers may be mistaken because they deliberately pass up desirable opportunities in the erroneous belief that still more attractive opportunities can be secured […]. 114
Those with a keener sense of the tastes and attitudes of others, and those with swifter access to relevant information, are in a position to foresee more accurately the set of market prices that will emerge on a particular day and will be able to profit by exploiting their superior knowledge. 134
We recall further, from analysis of the single-commodity market, that the simplest type of entrepreneurial activity is arbitrage—simultaneously buying a commodity where its price is low, and selling it where its price is higher. And we recall that it is precisely this kind of entrepreneurial activity that tends to wipe out these price differentials—converting a market initially in disequilibrium into an equilibrium market. Now we have discovered that all entrepreneurial activity, in the most complex of the general markets, reduces analytically to precisely the same kind of arbitrage activity, buying at a lower price to resell at a higher price.
Just as more than one price for a single commodity is possible only because of imperfect knowledge, so also in the general market the existence of more than one price for a “good” is possible only through ignorance. And just as the single-commodity market is brought toward equilibrium by the spread of knowledge and its exploitation by those entrepreneurs who find out first, so also in the general market, the market process operates through the discovery by the more alert entrepreneurs of the existence of these price differentials, and their subsequent exploitation of these opportunities.
All profit opportunities in the general market thus appear as the expression—in the existence of a lower price and a higher price for the same “good”—of a fundamental inconsistency among market decisions. It is the ceaseless search by entrepreneurs for such profit opportunities that prevents the continuation of existing market activities—in other words, it is the search for profits that renders such a market state one of disequilibrium. Those entrepreneurs will be earning profits who discover these price differentials before the others. It is their activity that tends to wipe out these differentials, thus removing the inconsistencies among the decisions being made in the market. 252
A market economy, even the purest of pure, can never be a Utopia. So long as scarcity is the fundamental fact of economic life, the participants in the market must resign themselves to limited consumption. Participants are endowed with only limited, periodic initial resource endowments. They may be able to convert these endowments in the market, through exchange and/or production, into more highly desired income streams. However successful they may be in their attempts to do this, they can still imagine income streams that they would prize even more highly but that are beyond their reach. All that a market can do is to provide the framework within which participants may squeeze the utmost out of their initial endowments through a system of social competitive cooperation and division of labor. Even if such a process were carried through to its ultimate possibilities, nobody would necessarily be guaranteed against unhappiness or even hunger. All that participants would be guaranteed against would be waste.
But, as we have seen, the market process cannot be carried to its utmost possibilities. All that the market can offer to its participants, therefore, is a process that is ceaselessly at work tending to prevent waste from being perpetuated and from being carried too far. This is certainly no guarantee against dissatisfaction, but it is at the same time of tremendous value when the extent and complexity of the required processes are considered. Interference with the webs of forces that are woven through the market process limits the attempts of participants to coordinate their activities through an engine of remarkable efficiency—the market. The analysis of the market process can clarify the costs involved through such interference, making it possible for market participants to decide, through the political process, upon the extent to which they are willing to lay aside their engine of efficiency for the sake of special purposes of possibly overriding importance. 308
An Essay On Capital
An individual’s forward-looking measure of a given stock of capital goods is thus highly individualistic, depending crucially on his own subjective expectations concerning the future. The market price of a capital good expresses the quantity of capital that it represents to other individuals in the market (the marginal buyers and marginal sellers), based on their expectations. In the absence of an equilibrium situation there is not even a guarantee that the market price fully expresses the expectations of all potential market participants. And even if the market were to be in equilibrium, our individual cannot be sure that he shares the set of expectations upon which the market price is based. So that for an individual who has his own ideas as to the future, the market price does not provide the subjective measure in which he is interested. On the other hand, for an outside observer wishing to see how much capital the market ascribes to a particular capital good, the market price certainly gives him the information he wants provided he remember that those who do not trade at the going price clearly disagree with the rest of the market as to the size of the capital good’s prospective productive contribution. 116
Competition and Entrepreneurship
An important point […] is that ownership and entrepreneurship are to be viewed as completely separate functions. Once we have adopted the convention of concentrating all elements of entrepreneurship into the hands of pure entrepreneurs, we have automatically excluded the asset owner from an entrepreneurial role. Purely entrepreneurial decisions are by definition reserved to decision-makers who own nothing at all. 47
A state of market disequilibrium is characterized by widespread ignorance. Market participants are unaware of the real opportunities for beneficial exchange which are available to them in the market. 69
We notice immediately that where the conditions for exchange in fact exist but are not exploited owing to ignorance there now exists scope for profitable entrepreneurship. […] We notice further than where an unexploited mutually beneficial exchange opportunity for A and B exists, the resulting “inefficiency” can be described as an absence of coordination. […], because of ignorance of the other’s “existence,” acting as if the other did not in fact exist. A knows his own taste and assets; B knows his. But because these bits of knowledge are not co-ordinated, the actions taken by A and B are uncoordinated. 216
[T]he state of equilibrium is the state in which all actions are perfectly co-ordinated, each market participant dovetailing his decisions with those which he (with complete accuracy) anticipates other participants will make. […] It follows that the movement from disequilibrium to equilibrium is at once a movement from imperfect knowledge to perfect knowledge and from uncoordination to coordination. 218
The entrepreneurial-competitive process becomes visible now not merely as generating a tendency toward equilibrium, but as discovering and correcting discordant individual plans. 219.
Each entrepreneurial discovery represents alertness to a hitherto unperceived interpersonal opportunity – an opportunity that depends on the coordinated plans of two separate individuals. […] But this means that entrepreneurial profit opportunities exist wherever there is scope for more complete coordination of individual plans. 222
It follows therefore that to identify absences of coordination among the plans of market participants it is sufficient to identify profit opportunities. And it is here, of course, that we have the source of entrepreneurial alertness. Alertness toward new opportunities is stimulated by the heady scent of profits. Profits are to be found where available bits of information have not yet been coordinated. The exploitation of profit opportunities consists in identifying and correcting uncoordinated groups of plans. And, of course, as the process of correction proceeds the profit opportunities themselves dwindle away. 222f.
Zero transaction costs do not themselves guarantee that transaction opportunities will be discovered. 227
Producer, Entrepreneur, and the Right to Property
The alternative view refuses to see the product as emerging automatically from a given combination of factor services. In this view the product has come into being only because some human being has decided to bring together the necessary productive factors. In deciding to initiate the process of production, this human being has created the product. In his creation of the product this entrepreneur-producer has used the factors of production which his vision has brought together. He has not cooperated jointly with these factors (so that this view does not see the entrepreneur’s contribution as consisting of a portion of the value of the product, with the remaining portion being the contributions of “other” productive agents). He has produced the whole product entirely on his own, being able to do so by his initiative, daring and drive in identifying and taking advantage of the available productive factors. 10
The isolation of a purely entrepreneurial element in production is, of course, an analytical device. Human action in its totality is made up of an “entrepreneurial” element (to which is attributable the decision maker’s awareness of the ends-means framework within which he is free to operate), and an “economizing” element (to which we attribute the efficiency, with respect to the perceived ends-means framework, of the decision taken). Analytically we conceive of factor-owners as pure “economizers”, operating within an already-perceived market framework. Entrepreneurs, on the other hand, we perceive as becoming aware (with no resources of their own at all) of changed patterns of resource availability, of technological possibilities, and of possibilities for new products that will be attractive to consumers. But flesh and blood resource owners are, of course, also to some extent, their own entrepreneurs, (just as flesh and blood entrepreneurs are likely to be owners of some factor services themselves). 14
Equilibrium versus Market Process
Consumers themselves were not aware of the opportunities this production process represents; it is the superior alertness of the entrepreneur that has enabled him to fulfill his task. It is not sufficient, however, to make the product available; consumers must be aware of its availability. If the opportunity to buy is not perceived by the consumer, it is as if the opportunity to produce has not been perceived by the entrepreneur. […] All costs are in the last analysis selling costs. 122f
[…] we do not know precisely how entrepreneurs experience superior foresight, but we do know, at least in a general way, that entrepreneurial alertness is stimulated by the lure of profits. Alertness to an opportunity rests on the attractiveness of that opportunity and on its ability to be grasped once it has been perceived. This incentive is different from the incentives present in a Robbinsian world. In the nonentrepreneurial context, the incentive is constituted by the satisfactions obtainable at the expense of the relevant sacrifices. Robbinsian incentives are communicated to others by simply arranging that the satisfactions offered to them are more significant (from their point of view) than the sacrifices demanded from them. Incentive is thereby provided by the comparison of known alternatives. In the entrepreneurial context, however, the incentive to be alert to a future opportunity is quite different from the incentive to trade off already known opportunities; in fact it has nothing to do with the comparison of alternatives. No prior choice is involved in perceiving an opportunity waiting to be noticed. The incentive is to try to get something for nothing, if only one can see what it is that can be done. 123f
Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship
Robbinsian economizing consists in using known available resources in the most efficient manner to achieve given purposes. […] The difficulty with a theory of the market couched in exclusively Robbinsian terms is that in disequilibrium many of the plans of Robbinsian economizers are bound to be unrealized. Disequilibrium is a situation in which not all plans can be carried out together; it reflects mistakes in the price information on which individual plans were made. 6
In order for unsold inventories to depress price, market participants with unsold goods need to realize that the previously prevailing price was too high. Participants must modify their expectations concerning the eagerness of other participants to buy. But in order to make these assertions we must transcend the narrow confines of the Robbinsian framework. We need a concept of decision making wide enough to encompass the element of entrepreneurship to account for the way in which market participants change their plans. It is here that the Misesian notion of human action comes to our assistance. […] [This notion] recognizes that men are not only calculating agents but are also alert to opportunities. 7
Entrepreneurial knowledge is a rarefied, abstract type of knowledge — the knowledge of where to obtain information (or other resources) and how to deploy it. 8
It is not sufficient, however, to make the product available; consumers must be aware of its availability. […] It is essential that the opportunities available to the consumer attract his attention, whatever the degree of his alertness may be. […] all fabrication costs are at once selling costs as well. […] The producer’s decisions about what product to produce and of what quality are invariable a reflection of what he believes he 10 will be able to sell at a worthwhile price. […] Every improvement in the product is introduced to make it more attractive to consumers, and certainly the product itself is produced for precisely the same reasons. All costs are, in the last analysis, selling costs. 11
entrepreneurial alertness is stimulated by the lure of profits 11
The market process must, if it is to be in the direction toward equilibrium, be a process of mutual discovery. 20f
The capitalist is the resource owner who, in return for the promise of interest payments, is willing to permit his resources to be used in economic processes extending over time. The entrepreneur is one who perceives in a way the capitalist himself does not how these resources can be deployed in a way that can justify contractual interest payments to prospective investors. It is the entrepreneur who acquires these resources from the capitalist at the “low” price including interest in order to yield an even higher sales revenue at a later date. 96
we may be unlikely to discover a pure entrepreneur or a pure capitalist. As Mises has pointed out, “every action is embedded in the flux of time and therefore involves a speculation”; the decision to lend capital is itself partly an entrepreneurial one, because it involves the possibility that the borrower may be unable to carry out his side of the contract. “A capitalist is always virtually an entrepreneur and speculator.” But the fact that every capitalist must be an entrepreneur does not in any way logically entail that to become an entrepreneur one must be a capitalist. 97
If a new idea holds forth promise, even after all trading costs have been taken into account, of a yield to capitalists higher than they can obtain elsewhere, their failure to exploit it constitutes an entrepreneurial error on their part. To describe such a situation […] as the manifestation of imperfection in the capital market is to assume, quite erroneously, that absence of entry barriers assures instantaneous attainment of equilibrium […]. In fact, whenever there exist—without entry barriers—two prices for the same good, this represents, rather than some sinister market “imperfection,” nothing but a disequilibrium situation created by entrepreneurial errors, which the competitive entrepreneurial process tends to correct. Two prices for the same good, for which transaction costs are unable to account, are the result of imperfect information on the part of market participants. It is the essence of the entrepreneurial process that a two-price situation provides the incentives for entrepreneurial arbitrage, tending to eliminate the discrepancy. Such processes are the essence of markets, and they can be relied upon wherever entrepreneurial entry is not blocked. Errors by capitalists constitute no exception to these general market laws. 103
where the corporate form of business organization permits a measure of independence and discretion to corporate managers, this is an ingenious, unplanned device that eases the access of entrepreneurial talent to sources of large-scale financing. Instead of the entrepreneur having to borrow capital […] the corporate form of organization permits would-be entrepreneurs to hire themselves out to owners of capital as corporate executives. The capitalists retain formal ownership, permitting them, if they choose, to divest themselves easily of their shares in badly managed firms or, in the last resort, to oust incompetent management. Yet the executives, to the limited extent that they do possess discretionary freedom of action, are able to act as entrepreneur and implement their ideas without themselves becoming owners at all. 104
In the market system the existence of opportunities is signaled by profit opportunities in the form of price differentials. 116
This unawareness cannot be flatly excluded as impossible because of inconsistency with purposeful action because there is nothing in purposeful action that by itself guarantees that every available opportunity must be instantaneously perceived. […] Of course, one might insist that an agent not blessed with the alertness needed to notice resources available at hand, simply lacks, through no “fault” of his own, another “resource” (i.e., “alertness”) necessary to take advantage of the resources with which he has been blessed. We cannot set down such a use of terms as wrong. […] we cannot conceive of one who lacks alertness making a decision to acquire it. […] one cannot make decisions on how to use alertness, since, to make such a decision about a resource, one must already have been alert to its availability. […] I therefore claim justification for a terminology that maintains that, where ignorance consists not in lack of available information but in inexplicably failing to see facts staring one in the face, it represents genuine error and genuine inefficiency. 130f
The essence of individual entrepreneurship is that it consists of an alertness in which the decision is embedded rather than being one of the ingredients deployed in the course of decision making. This sets it altogether apart from being a class of productive factor. […] the market does not “demand” the services of entrepreneurs. Market entrepreneurship reveals to the market what the market did not realize was available or, indeed, needed at all. It is essential, in this context, that what is won by market entrepreneurship cannot be construed as a marginal productivity return either from the perspective of the market or from that of the individual human agent who acts to capture market profits. 181
a sharp distinction must be drawn between means of production ordinarily conceived and entrepreneurship. The latter is not similar to factors of production insofar as concerns the theory of marginal productivity. 187
[E]ntrepreneurship […] cannot be purchased or hired by the entrepreneur 188
production as automatic growth from the factors of production (→ owner of product = owner of factors) […] vs. production as a human creation: product has come into being only because some human being has decided to bring together the necessary productive factors. […] entrepreneur’s contribution [not] as consisting of a portion of the value of the product […]. He has produced the whole product entirely on his own, being able to do so by his initiative, daring, and drive in identifying and taking advantage of the available productive factors. → marginal productivity irrelevant. 193ff
decisions are often made in ignorance of the very need or possibility of acquiring information that might be freely available. It is one thing to know that one is ignorant and to deliberately maintain one’s ignorance because of the high cost of gaining knowledge. It is quite another to be ignorant simply because one has no inkling that one is ignorant, because one has no idea that information exists, or indeed that any such thing is imaginable, in the relevant context, as information. Surely the latter kind of ignorance is abundantly present; genuine error is alive and well. We cannot rule out the possibility that market decisions have been made not out of deliberately accepted ignorance, but out of genuine error. 207
Finders-keepers ethic: Perhaps it may seem that to take advantage of prior knowledge of information that will be commonly known in five years’ time is justified, but that exploiting the knowledge that everyone will surely know in five minutes is going too far. 217
For us, individual freedom emerges as significant for society because it inspires each individual to discover what opportunities confront him. It is not only the case, that is, that society—or its central planners—do not know all the scattered information held by individuals in a society. In addition, at any given moment each individual does not know the information costlessly available to him. An environment of freedom encourages individuals to discover what opportunities each of them faces. If a market economy is believed to possess powerful equilibrating tendencies, these tendencies depend on freedom not only to permit, as Hayek showed, the social deployment of existing information, but also to permit (through the very same Hayekian market processes) the discovery by individuals of those opportunities made available by the attitudes and the knowledge of fellow market participant as well as by the technological possibilities existing in nature, the 238 grasping of which constitutes the steps in the equilibrating process. Restrictions on economic freedom hurt society, therefore, in ways far more serious than recognized by most economists. I have drawn attention to the circumstance that, from the entrepreneurial view of freedom, an individual may suffer loss of freedom without realizing any loss in his welfare. We now see that an analogous situation pertains to society as a whole. Restriction of economic freedom restrains society from reaching what would have been Pareto-optimal equilibrium situations. 238f
The Driving Force of the Market. Essays in Austrian Economics
This Austrian emphasis on the entrepreneur is fundamental. Whereas each neoclassical decision maker operates in a world of given price and output data, the Austrian entrepreneur operates to change price/output data. In this way, as we shall see, the entrepreneurial role drives the ever-changing process of the market. Where shortages have existed, we understand the resulting price increases as driven by entrepreneurs recognizing, in the face of the uncertainty of the real world, the profit opportunities available through the expansion of supply through production, or through arbitrage. Except in the never-attained state of complete equilibrium, each market is characterized by opportunities for pure entrepreneurial profit. These opportunities are created by earlier entrepreneurial errors which have resulted in shortages, surplus, misallocated resources. The daring, alert entrepreneur discovers these earlier errors, buys where prices are “too low” and sells where prices are “too high.” 16
When one becomes aware of what one had previously overlooked, one has not produced knowledge in any deliberate sense. What has occurred is that one has discovered one’s previous (utterly unknown) ignorance. What distinguishes discovery (relevant to hitherto unknown profit opportunities) from successful search (relevant to the deliberate production of information which one knew one had lacked) is that the former (unlike the latter) involves that surprise which accompanies the realization that one had overlooked something in fact readily available. (“It was under my very nose!”) This feature of discovery characterizes the entrepreneurial process of the equilibrating market. What accounts for a systematic tendency toward that succession of wholesome surprises which must constitute the equilibrative process, is not any implausible series of happy accidents, but rather the natural alertness to possible opportunities (or the danger of possible disaster) which is characteristic of human beings. In the world of uncertainty such natural alertness expresses itself in the boldness and imagination which Austrian theory ascribes to entrepreneurs in the context of the market. Entrepreneurial alertness refers to an attitude of receptiveness to available (but hitherto overlooked) opportunities. 18
The discoverer of an object, available to but unnoticed by everyone else, has, in the relevant sense, created that object out of nothing, simply by virtue of the alertness of his personality. That alertness links the discovered object indissolubly with his personality. 122
Initial errors by market participants generate a disequilibrium of market bids and offers. Some bids and offers are rejected as hopelessly unattractive. Prospective buyers may have been prepared to offer better terms, but had erroneously overestimated the eagerness of the potential sellers. And so on. Market experience may teach more realistic estimates in this regard. Again, bids and offers may be accepted, but may generate regret as market experience demonstrates that even more advantageous market opportunities might have been grasped. The changes in bids and offers stimulated by these market experiences represent entrepreneurial discovery of the true dimensions of market opportunities. 226
Foreword: Advertising in an Open-Ended Universe.
The phenomenon of advertising simply cannot fit a world in which consumers already know what they want. Nor can this phenomenon even fit in a world in which consumers know what information they need to obtain, in order to know what the want. Advertising exists in a world in which people do not know what information they need to know. xxi
Unternehmer und Marktdynamik
Es könnte so aussehen, als sei die Funktion des Unternehmers erfüllt, wenn er die Gelegenheit, ein potentielles Produkt herzustellen, in eine Gelegenheit für den Konsumenten, ein solches Produkt zu erwerben, umgeformt hat. Die Konsumenten selbst waren sich dieser Gelegenheiten nicht bewußt, die dieser Produktionsprozeß darstellt; es ist die besser ausgebildete Findigkeit des Unternehmers, die es ihm ermöglicht hat, seine Aufgabe zu erfüllen. Es reicht jedoch nicht aus, das Produkt verfügbar zu machen – dem Konsumenten muß seine Verfügbarkeit auch bewußt sein! Wird die Gelegenheit zum Kauf vom Konsumenten nicht gesehen, so ist es exakt so, als wäre die Gelegenheit zur Produktion vom Unternehmer nicht bemerkt worden. 20f
Jede Verbesserung des Produktes wird eingeführt, um es attraktiver für den Konsumenten zu machen, und mit Sicherheit wird das Produkt selbst aus genau den gleichen Gründen produziert. Alle Kosten sind in letzter Konsequenz Kosten des Verkaufs. 21f
Aus der vorangegangenen Diskussion ergibt sich klar der bedeutende Unterschied, der die Rolle des Unternehmers von der des Kapitalisten trennt. Der Part des Kapitalisten im Produktionsprozeß wird bestimmt durch seine Funktion als Eigentümer von Ressourcen. Der Kapitalist ist der Ressourceneigner, der gegen das Versprechen von Zinszahlungen bereits ist, die Verwendung seiner Ressourcen in ökonomischen Prozessen, die sich über einen gewissen Zeitraum erstrecken, zu gestatten. Der Unternehmer ist derjenige, der auf eine Weise, wie es der Kapitalist selbst nicht tut, erkennt, wie diese Ressourcen derartig eingesetzt werden können, daß vertraglich festgelegte Zinszahlungen an zukünftige Investoren gerechtfertigt sind. Es ist der Unternehmer, der diese Ressourcen vom Kapitalisten zum „niedrigen“ Preis einschließlich Zins erwirbt, um damit einen höheren Verkaufserlös zu einem späteren Zeitpunkt zu erzielen. 113
Die Tatsache, daß jeder Kapitalist Unternehmer ist, zieht jedoch logisch keineswegs nach sich, daß man Kapitalist sein muß, um Unternehmer zu werden. 114
Die Lehrbücher konzentrieren sich auf die Spar- und Investitionsaspekte eines solchen Vorgangs von Umwegproduktion. Wir jedoch wollen uns fragen, warum Crusoe erst heute und nicht schon gestern damit beginnt, sein Boot zu bauen, vorausgesetzt, es hat sich seit gestern keinerlei Veränderung bei seinem bisher angesammelten Kapital ergeben. Die Antwort muß sicherlich lauten, daß Crusoe erst heute zu der Überzeugung gekommen ist, daß der Bau eines Bootes eine bessere Verwendung seiner Zeit darstellt als der Fischfang (mit bloßen Händen). Nichts hat sich seit gestern verändert, außer, daß Crusoe entdeckt hat, daß die Zeit, die er beim Bootsbau verbringt, wertvoller ist als die beim Fischfang verbrachte. Er hat entdeckt, daß er den Wert seiner Zeit fälschlich zu niedrig angesetzt hatte. Die Verlagerung seiner Arbeitszeit vom Fischen auf den Bootsbau ist eine unternehmerische Entscheidung seinerseits und erbringt ihm – vorausgesetzt, sie ist korrekt – einen reinen Gewinn in Form des Wertzuwachses, von dessen Realisierung er erst durch den richtigen Einsatz seiner Arbeitszeit erfahren hat. Dieser reine Gewinn ist kein Zufallsgewinn, sondern wurde mit Überlegung erzielt. 184f
Allgemeiner gesagt, das Mengersche Prinzip – so wollen wir es nennen – besagt, daß der Mensch dazu neigt, den Wert der Ziele auf die Mittel zu übertragen, die für ihre Erfüllung benötigt werden. 185
8. In dem Maße, wie die Erfahrung Crusoes unternehmerische Ahnungen bestätigt, werden diese Ahnungen zunehmend als einsetzbare Ressourcen betrachtet. Das Mengersche Prinzip kommt mehr und mehr zur Anwendung und schmälert damit fortwährend den Crusoeschen Gewinn, der allerdings fortwährend in dem Maße neu geschaffen wird, wie Crusoe sich mit den Möglichkeiten auseinandersetzt, die durch das Auftauchen immer neuer Gelegenheiten geschaffen werden.
9. Crusoescher Gewinn entsteht, wenn Crusoe ökonomisch gleichen oder gleichwertigen Dingen zwei verschiedene Bewertungen angedeihen läßt, insbesondere wenn er einem Paket von Ressourcen einen niedrigeren Wert zuordnet als den Ergebnissen, die mit ihnen erzielt werden.
10. Zu keinem Zeitpunkt ist Crusoe sich der Gelegenheit, die er übersieht, bewußt. Ebenso wie Crusoe nicht weiß, daß er unternehmerische Vision besitzt (siehe Punkt 6), ist sich Crusoe auch nicht der Tatsache bewußt, daß er nichts von den Gelegenheiten weiß, die er nicht nützt. 195
Auf der individuellen, der Crusoeschen Ebene, haben wir gesehen, daß der handelnde Mensch seine unternehmerischen Ahnungen nicht „überlegt einsetzt“, er hat sie einfach und sie treiben ihn zur Aktion. Das Mengersche Prinzip bekommt daher niemals eine Chance zur Anwendung; Crusoe sieht seine Ahnungen niemals als Mittel an, die zum Erreichen vorgegebener Ziele eingesetzt werden könnten. Auf der Marktebene haben wir gesehen, daß der Markt niemals unternehmerische Fähigkeit im Sinne einer verfügbaren nützlichen Ressource versteht. Andernfalls gäbe es Märkte für diese Faktorleistung, deren Preis solange steigen würde, bis er ihre volle Produktivität widerspiegelte, und somit kein Raum mehr für reinen Marktgewinn überbliebe. Das Wesentliche am individuellen Unternehmertum besteht darin, daß ihm eine Art Aufmerksamkeit und Findigkeit zugrunde liegt, in die die Entscheidung eingebettet ist, und nicht darin, selbst einen der Bestandteile darzustellen, die im Verlauf von Entscheidungsprozessen eingesetzt werden. Somit ist völlig ausgeschlossen, daß es sich beim Unternehmertum um eine Kategorie von Produktionsfaktoren handelt. 206
How Markets Work: Disequilibrium, Entrepreneurship & Discovery
Adam Smith’s ‘invisible hand’ turns out to be an apt metaphor for what remains an analytical black box in economic theory. Economic theory, at least in its mainstream version, explains with great sophistication the operation of a smoothly working market economy in which each agent has somehow already found his place. But it turns out to be virtually silent in explaining the course of events which enables agents, starting from initial absence of coordination, to find their places in the social jig-saw puzzle. So the relatively smooth working of real-world markets remains, after all, a mystery. 9f
Austrian theory, as presented here, places great weight on ‘entrepreneurial discovery’ which enables decentralised decision-makers to recognise then present decisions can be improved upon, and to anticipate future changes in the decisions being made by others. Movements in prices, production methods, choices of outputs, and resource owner incomes generated by entrepreneurial discovery tend to reveal there current allocation patterns are faulty, and to stimulate changes in the corrective direction. 11
The assumptions adopted for this model – which ensure the inevitability of this outcome – are well-known, at least ever since Frank Knights’s classic articulation of the perfectly competitive market economy. For our purposes, these assumptions include especially perfect knowledge, and the infinity of buyers and sellers in the perfectly competitive market. Both these key assumptions – which imply that, at the going market price for the relevant good, each buyer expects (correctly) to be able to buy as much as he wishes, and each seller expects (correctly) to be able to sell as much as he wishes – are wildly unrealistic in regard to the commercial world with which we are familiar. 27
The theory of entrepreneurial discovery sees the explanation of market phenomena in the way entrepreneurial decisions, taken under disequilibrium conditions, bring about changes in prices and quantities. The market process so initiated consists of continual entrepreneurial discoveries; it is a process of discovery driven by dynamic competition, made possible by an institutional framework which permits unimpeded entrepreneurial entry into both new and old markets. 31
Where the neo-classical concept of the decision makes it unthinkable that an available gainful opportunity has not been grasped, a more realistic perspective permits us to recognise that such opportunities may simply not have been noticed. An opportunity may not be grasped not because the information needed to grasp it was too costly to make it worthwhile, but because the costlessly obtainable opportunity (or the costlessly available information that would have brought the opportunity within immediate reach) was simply, ‘inexcusably’, overlooked. An act of discovery occurs when someone notices what has up to now been overlooked. 32
Every individual act constitutes, necessarily, an act of discovery. In acting, the individual is not simply (as in neo-classical theory) spelling out the implications of the preference rankings given at the outset; he is, at the moment of action, alertly establishing those preference rankings (with all their implications), in the face of the radical uncertainty he confronts. Then he acts to seize an opportunity, he is not seizing a ‘given’ opportunity; he is, at that moment, declaring that opportunity to exist. He is, as it were, discovering that opportunity’s existence. 33
Such an act of discovery involves more, however, than finding something that happens to attract attention. The discovery of an opportunity means the discovery of anomaly. Discovering an attractive opportunity always represents something of a pleasant surprise. If the gain embodied in the opportunity had been fully anticipated, grasping it would hardly represent a creative act of discovery. The gain would be nothing but the realisation of something fully expected. 34
An act of discovery in which resources are deployed to achieve an objective represents the realisation that, before the discovery, the relevant resources had been undervalued. The full potential of these resources had not been up to now understood. Thus the act of discovery, and thus indeed every human action, represents the discovery of hitherto unsuspected value in hitherto undervalued resources. 34
Boldness, impulse, hunch are the raw materials of entrepreneurial success (and failure); they seem to render the possibility of systematic, determinate chains of events unlikely. In order to perceive regularities amidst the apparently chaotic vagaries of real-world market volatility, it may seem methodologically sound to imagine a world with no scope for entrepreneurship. Yet, paradoxically, exactly the opposite is the case. It is only when entrepreneurship is introduced that we begin to appreciate how and why markets work. Without the possibility of entrepreneurship, no genuine explanation for market co-ordination is possible (aside from arbitrarily postulating that co-ordination always fully and instantaneously prevails). The ‘chaos’ introduce by entrepreneurship is required to account for the systematic character of real-world market processes. 39f
These earlier errors may come systematically to be discovered because of the tendency for entrepreneurial alertness to ‘smell’ or sense where pure entrepreneurial profits can be won. The systematic character of the market process stems from the human propensity so sense (without deliberate search) where to find pure gain. 40
There is no reason thy consumers should be willing to pay more for a finished product than the sum needed to obtain command of all the resources (including all the time and trouble needed to buy and assemble the resources used in fabrication itself) required to deliver the finished product to the consumer. The only explanation for this price discrepancy lies in awareness of pure error on the part of market participants.
Such error means that some market participants have undervalued these resources relative to the future eagerness of consumers to acquire the product in question when it can be produced. This undervaluation can be ‘explained’ only as an ‘unexplainable’ error, a failure to see a future that is in fact staring one in the face. Such error manifest itself, exactly as in the simple case of the commodity selling for more than one price, in a pure profit opportunity. 41
Errors of over-pessimism are those in which superior opportunities have been overlooked. They manifest themselves in the emergence of more than one price for a product which these resources can create. They generate pure profit opportunities which attract entrepreneurs who, by grasping them, correct these over-pessimistic errors. 43
Over-optimistic error occurs when a market participant expects to be able to complete a plan which cannot, in fact, be completed. A buyer mistakenly plans to buy a commodity or a resource at a price so low that the item is not obtainable at the price. A seller plans to sell an item at a price so high that in fact no buyer is willing to buy at that price. This kind of error does not generate pure profit opportunities which are corrected through entrepreneurial alertness. Over-optimistic errors tend to be corrected by more direct market forces, calling for less creative entrepreneurial alertness. 43f
If one could, for purely analytical purposes, imagine consumer preferences, resource availabilities, and technical possibilities as frozen in time, then the entrepreneurial discovery processes will tend to ensure that the price of any given good or service will tend towards equality throughout the market; that resource-bundle prices will tend to equality with the prices of the respective commodities they can deliver through production; that, at the uniform prices so achieved, the market for each consumer good or service, and for each resource service will tend to clear; and that all prospective buyers will find what they wish to buy at the price they expect and all prospective sellers will find buyers prepared to pay the prices which the sellers are expecting and are prepared to accept. 45f
Every act of competitive entry is an entrepreneurial act; every entrepreneurial action is necessarily competitive (in the dynamic sense of the word). To compete is to act (or to be in a position to act) to offer buyers a more attractive deal, or to offer sellers a more attractive deal, than others are offering. To do so it is necessary to discover situations there incumbent market participants are offering less than the best possible deals, and to move to grasp the profits made possible by filling the gap so created by the incumbents. Such activity is strictly entrepreneurial. To act entrepreneurially is to enter a market with a new idea, with a better product, with a more attractive price, or with a new technique of production. Any such act necessarily competes with others. 49
In order to serve the preferences of consumers, producers have to do far more than merely fabricate and make available the goods they believe consumers desire most urgently. They must do more, even, than to make available the information they believe consumers need to acquire and appreciate the goods on offer. After all, the entrepreneurial discovery perspective shows that mere availability does not guarantee that those needing information will have it. Even if information is staring them in the face they may simply not notice it, and remain unaware that there is anything further to be known.
It is therefore necessary for producers, intent on winning the profits from innovatively serving consumer preferences, also to alert consumers to the availability and the qualities of goods. 55
The notion of ‘serving the consumer’ must be broadened to mean fulfilling consumer preferences, not as they were before the entrepreneur began his activities, but as they will be once the entrepreneur has made consumers aware of his product. The idea of’ manipulation of consumer demand by producers’ then becomes unclear. It is part of the producer’s function to acquaint consumers with what has been made available to them. So it becomes virtually impossible to distinguish in practice between selling activity designed to persuade consumers to buy something which they would not wish to buy and ‘selling activity’ designed to make consumers fully aware of the qualities of the product which satisfies a demand of which they were previously unaware. 56
First, in a world of complexity, change and uncertainty, it is inevitable that consumers are imperfectly aware of the qualities and promise of the multitudes of goods. The need to alert consumers to what they do not know that they do not know, is very real. Second, to interpret advertising effort as primarily designed to persuade consumers to buy what they really do not want, raises an obvious difficulty. It assumes that producers find it more profitable to produce what consumers do not want, and then to persuade them to buy it, with expensive selling campaigns, rather than to produce what consumers do already in fact want (without need for selling effort). While producers may make errors of judgement, and may then see advertising as a way of minimising losses from having produced the wrong products, it seems highly implausible that the volume of advertising we observe can be explained in this way. 57
An important dimension of proper economic functioning is the sensitivity with which a society’s institutions reveal when avoidable, wholly unnecessary errors have been made. 67
Between Mises and Keynes: An Interview with Israel M. Kirzner
Entrepreneurship is not always equilibrating. The equilibrating features of the real world ought to be ascribed to entrepreneurship; it doesn’t follow that all entrepreneurship is always equilibrating. Entrepreneurs make losses, and losses are not equilibrating.
The idea I reject is this: there is successful entrepreneurship, there is unsuccessful entrepreneurship, and it’s a toss-up which is going to outweigh which in the end. That was Frank Knight’s position, by the way, and I think that is a mistake.
The fundamental Misesian insight into human action is that it involves a tendency to be right rather than to be wrong. People have an interest in being right. They do not have an interest in being wrong. This definitely, distinctively weights the tendency of human action in the direction of being right.
This does not guarantee “equilibration always.” And certainly a permanent equilibrium is out of the question. It would be incorrect even to imply that in any given time period, the changes we observe are necessarily equilibrating. But there are tendencies which tend to overwhelm disequilibrating forces in the market, most of the time. […]
Much depends on the nature of the exogenous changes we are experiencing. In a world in which change is of such a volatility that entrepreneurial activity and action are continually frustrated, we will find continual non-equilibration. There are historical circumstances in which chaos, violence, and uprisings do indeed overwhelm orderliness and evolution. Perhaps we can even point to such occasions. For equilibrium to be the regular tendency, we do need, empirically, a certain environment of stability. […]
Imagine Victorian England, where everything is calm and still, with horse carriages and trains carrying people here and there. Along comes the entrepreneur who invents the automobile. The stillness is utterly shattered. People lose jobs and physical resources are shifted to new lines of production. All of this is to be ascribed to the entrepreneur in Schumpeter’s view.
In one sense this is correct. But my 1973 book emphasizes a different point. We have to recognize that when the entrepreneur discovers the automobile, he is not simply disrupting the calm. He is identifying what was in fact waiting to be introduced. Technological knowledge was being misapplied. Resources were being wasted on trains, carriages, and bicycles, when, in fact, what was waiting to be put together was this new gadget called the automobile. A person who recognizes this is responding to a preexisting, gaping hole in the market.
Of course, the role of the entrepreneur can be understood as disrupting in a very down-to-earth sense. People had jobs and their jobs are destroyed. People had careers, and they are now gone. Granted. But what appear to be disruptions aren’t disruptions at all. They are simply the revealing of misallocations that were there before. […]
Usually, people look at capital as objects, usually highly valued objects. That tempts us to think that physical capital is itself the source of the flow of income. The view of capital I present relates directly to the purposes of individuals. I insist that Austrians see capital as the intermediate form in which plans are brought about.
I like to use the metaphor of the half-baked cake in an oven. This is a desk, and the person who made it was planning that I would use it to write on, put papers on, and so on. By itself, the desk is a half-baked cake, just as are cars, buildings, and machines.
It goes back to Eugen von Böhm-Bawerk’s view of inchoate output. We must look at capital, not in objective terms, but as representing the plans of individuals and their forecasts of the future. There are overlapping, multi-period plans, of course, so that new cakes are going into the oven before old ones come out. […]
I’ve never had too much interest in the Austrian business cycle theory. I’ve never felt that the Hayekian business cycle theory was essentially Austrian. In fact, Mises, who was the originator of this whole idea in 1912, didn’t see it as particularly Austrian either. There are passages where he notes that people call it the Austrian theory, but he says it’s not really Austrian. It goes back to the Currency School and Knut Wicksell. It’s certainly not historically Austrian. Further, I would claim that, as developed by Hayek, there are many aspects of it that are non-Austrian. I don’t believe that to be an Austrian you have to buy into the Hayekian view of business cycles. […]
Otherwise, the Austrian theory of the business cycle is a macro theory. It’s an equilibrium theory. And it treats capital in an objective sense rather than a subjective sense. It treats time as somehow embedded in the capital goods themselves. So I’ve always had a certain reserve about that particular theory, however brilliant it may be. I think the way Hayek developed it was not quite consistent with the way Mises laid it out in 1912. […]
But it’s one thing to develop a theory which could explain a downturn. It’s quite another to claim that historically every downturn is to be attributed to that particular theory. That does not necessarily follow. If one were asked, does this theory necessarily explain each and every cycle, I would say no.