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The Meaning of Market Process: Essays in the Development of Modern Austrian Economics.

Entrepreneurship and the market process come alive in this collection of twelve previously published articles preceded by a new essay. All arguably are in the traditions of L. E. von Mises and F. A. von Hayek. While the ideas in good part repeat ones presented in Professor Kirzner's earlier books, throughout them sparkle erudition, insights, and dialectical virtuosity. The ideas do stir up several basic and derivative issues.

From among the basic issues four stand out. First, is the subjective, rather Hayekian conception of entrepreneurship scientifically tractable? An "elusive element", it is founded upon self-interest, "which must be understood with a certain subtlety". Self-interest involves purposiveness, which includes alertness, which means that individuals "are motivated to notice that which it is to their benefit to notice". As for the possible sources or determinants of alertness, "very helpful or extensive theoretical or empirical materials" do not now exist. Inherent in alertness is a "discovery potential". Pure profit opportunities can switch it on in an unknown way, yielding perceptions that pierce utter or sheer ignorance, or ignorance of which one is ignorant. The outcomes, unplanned, spontaneous, and achieved without cost or calculation or any attitude toward uncertainty-bearing, are discoveries of pure profit opportunities. Discoveries create ex nihilo economic values. In the making of discoveries, and not decisions, rationality plays a role; this admittedly is "a highly unorthodox understanding" of its role. In the end, entrepreneurial discoveries are "unmodellable".

Second, while this defined meaning of discovery can reach the case of pure profits from arbitrage opportunities known on the basis of information readily available at a given time, or in a single period context, can this defined meaning of discovery reach the case of pure profits from capital investment opportunities known on the basis of forecasts made in the face of uncertainty in a multiperiod context? The multiperiod case is "analytically parallel, at least" to the single period one, the book proposes, and it continues: alertness also means "prescience," and it can make "anticipatory" discoveries. Whether this defined meaning of discovery can reach the case of pure profits from capital investment opportunities seems to be open to question.

Third, granting the definitions of entrepreneurship and discovery, and granting too the view that a capitalist economy is to be seen as a market process "consisting essentially of acts of discovery", does the book set forth (a) a theory, and (b) a "dynamic" one, showing that the market process (c) tends toward a state of equilibrium, or "co-ordination," wherein knowledge is such that opportunities for the discovery of pure profits no longer exist, and that plans are co-ordinated? The process is "non-deterministic and non-mechanical," and so "methodological predilections in favour of formal modelling techniques" must not be allowed to obscure its vital features. The book assumes that "true Knightian uncertainty" exists, and abstracts from secrecy and deception, and apparently from any rivalrous interfirm behavior that would violate Mises's conception of "catallactic" competition |4, 273-276, 673~. The book refers to imaginative anticipations, the formation of plans, spontaneous mutual learning procedures, tendencies to reveal ever more information and to attain greater mutual awareness, and to a systematic sequence of plan revisions. These evidently occur at a faster rate than do changes in the data of the market. And the book expresses the conviction that "genuine" rather than "spurious" discoveries tend to be made, these being "in general terms" equilibrating. Whether the book sets forth a dynamic theory of an equilibrating process is debatable, however. If by such a theory is meant a set of insights elaborated into a system of thought that refers to multiperiod events and at many points is psychologically satisfying or intuitively appealing, then one answer eventuates. But another one does if by such a theory is meant a set of ideas involving specific propositions that connect events step-by-step in sequence and demonstrate an equilibrating tendency, and that do so with explanations specific enough to engender refutable test implications.

Fourth, does consumer sovereignty govern the market process and its on-going outcomes? While Mises in his Human Action produced an intricate account of how "praxeological" law in an unhampered market economy will assure consumer sovereignty by forcing the interests of entrepreneurs, savers, investors, and owners of means of production into harmony with those of consumers (1), this book produces an account that by contrast is highly simplified. Consumer preferences are among the "underlying realities." Although entrepreneurs try in a setting of uncertainty to imaginatively anticipate these preferences, and although the entrepreneurs' acts continually affect the forthcoming course of events, these underlying realities do inspire their acts and govern the market process.

The ideas in the book stir up several derivative issues. With respect to the treatment of the market process, does continuity run from C. Menger to both Mises and Hayek and then to Kirzner? Can the ideas about discovery be joined with a "finders, keepers ethic" claiming that since discovery or finding creates economic values ex nihilo it therefore justifies private ownership over them, and be joined further with the belief that in the free market process all exchange is free or voluntary, so as to contend that whatever income distribution ensues from the market process is justifiable? (See Chapter 13, an abridgment of 3.) Does the free market process generate on-going results vindicating Kirzner's conception of freedom? Can the ideas about discovery be extended to reach the case of spontaneously emerging institutions? And how would either central planning or industrial policy perform vis-a-vis the free market process?

Judged as a contribution to the Austrian school of economic thought, this volume is impressive. While it takes up issues posing formidable theoretical challenges and arrives at results that are in some respects understandably controversial, it does adhere to subjectivism, make suggestive additions toward a theory of entrepreneurship and the market process, provide valuable supporting notes, and end with a splendid, 179-item bibliography.

Richard A. Gonce Grand Valley State University

References

1. Gonce, R. A. "L. E. von Mises on Consumer Sovereignty," in Perspectives on the History of Economic Thought, Vol. III, edited by D. E. Moggridge. Brookfield, Vermont: Elgar, 1990, pp. 136-46.

2. Kirzner, I. M. Competition and Entrepreneurship. Chicago and London: The University of Chicago Press, 1973.

3. -----. Discovery, Capitalism, and Distributive Justice. Oxford: Blackwell, 1989.

4. von Mises, L. E. Human Action. 3rd rev. ed. Chicago: Regnery, 1966.
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Author:Gonce, Richard A.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Apr 1, 1993
Words:1055
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