Handbook on Contemporary Austrian Economics

The competitive market is a process of entrepreneurial discovery 97
mechanism ultimately determines whether the entrepreneurial discovery
was socially beneficial, that is, if buying the resources and turning them
into an output made sense from the perspective of the alternatives available
for those resources.
Monetary profit exists because market prices do not reflect entirely
the information available in the market about consumers' preferences,
technology, and resource availabilities. When an opportunity for making
a pure profit is discovered by an entrepreneur, it reflects the fact that a
gap (in knowledge) exists in the market between what is known and what
could be known. Entrepreneurial discovery consists in the discovery of
a knowledge gap. At the societal level, the entrepreneurial process tends
to address the "knowledge problem" (as identified by Hayek) existing in
society (Hayek, 1945; Kirzner, 1973, 1984; O'Driscoll, 1977). Profit opportunities
and knowledge gaps in the market are one and the same thing. 21
One must insist on the idea that monetary profit is not a return on
alertness or on entrepreneurship. Entrepreneurship and alertness are not
productive factors for the reason that they are necessary to the deployment
of productive factors. The element of entrepreneurship is itself not a
resource (in the sense in which land, lumber, steel, labor, and machinery
are resources). 22 As a result, monetary profit is not a return, but a residual,
which exists due to the conditions of radical uncertainty in the market.
The issue of pure profit and monetary calculation also relates to another
debate among Austrian economists. Murray Rothbard (1985) and Joseph
Salerno (1990, 1993) hold the view that the Misesian position on entrepreneurship
is not about alertness and discovery, but about economic
calculation and price coordination. They are right to emphasize this aspect
of entrepreneurship, but it constitutes only part of the theory. Meaningful
economic calculation can be effected only once the object over which the
calculation will take place is known (i.e. , discovered). One cannot calculate
(i.e., appraise and compare alternatives) if one has not first become aware
of the existence of those alternatives. In other words, one needs to have an
idea before making any monetary calculation (e.g., one needs to have the
idea that a restaurant could be built at a certain location before making any
calculation as to what resource to use to build the restaurant). Unless the
entrepreneur knows which opportunity and which potential inputs could
be part of his opportunity, he cannot make any monetary calculation.
At the same time, any discovery of a profit opportunity is driven by
current resource prices, which in themselves determine whether a pure
profit opportunity could be seized. This means that a discovery is only
made possible (in the market context) because of monetary calculation
based on current market prices. Therefore, being alert to a pure profit
opportunity necessarily also involves monetary calculation (to calculate