Handbook on Contemporary Austrian Economics

100 <strong>Handbook</strong> on contemporary Austrian economics
let us now turn to the complete picture, explaining how the competitive
market is an entrepreneurially driven process.
7.5 The competitive market as an entrepreneuriaUy driven process
In the sections above, I argued that the market is a process, competition
is a rivalrous activity among producers for the consumer's dollar, and
entrepreneurial discovery is the driving force of the social order. "What
distinguishes the Austrian School and will lend it immortal fame," wrote
Mises (1978, p. 36), "is precisely the fact that it created a theory of economic
action and not of economic equilibrium or non-action." In the
Mises-Kirzner system, human action is ever present and is the key explanation
behind market phenomena. What is strange from the perspective
of Austrian economics is that neoclassical economists never denied the
unrealistic aspect of their view of markets and competition, but they nonetheless
found it acceptable enough to indict reality whenever the latter
deviated from the model.
Mises saw the market as a relentless, entrepreneurially driven process.
This is the subject of Part IV of Human Action, which details the functioning
of the great society based on market exchanges - Mises uses the term
"catallactics." Mises (1966, p. 255) writes that "the driving force of the
market, the element tending toward unceasing innovation and improvement,
is provided by the restlessness of the promoter and his eagerness to
make profits as large as possible." In another passage (ibid., p. 331), he
states: "The operation of the market is actuated and kept in motion by
the exertion of the promoting entrepreneurs, eager to profit from the differences
in the market prices of the factors of production and the expected
prices of the products." It is clear that in Mises' mind the market is an
entrepreneurially driven process.
I argued above that the idea of the market as a process of entrepreneurial
discovery entails more than the notion of the market as a space
for exchanges. The difference between the two views is the idea of interconnectedness
among human activities (i.e., "connexity" as Mises puts it).
The connexity of the market can only be explained if one views the market
as a process. This is an important point because this interconnectedness
is assumed in equilibrium theory (i.e., in the second view of the market
that we saw above), while it is established in the Austrian approach. The
mechanism that creates the connexity of human a~tivities is entrepreneurial
monetary calculations. This mechanism rests on the existence of
a medium of exchange and also on the non-specificity of labor as a factor
of production.
As money is present in all exchanges and thus links together the decisions
of everyone by virtue of being a medium of exchange, entrepreneurs