Handbook on Contemporary Austrian Economics

The competitive market is a process of entrepreneurial discovery 103
govern human interactions and their enforcement), which determines
whether (and to what extent) the three conditions above are present.
Depending on their quality, institutions will direct the entrepreneurial
process in different ways. As a result, some entrepreneurial discoveries
may be socially beneficial while others may be socially unproductive (such
as rent-seeking).38
7.6 Conclusion
Without the entrepreneurial process of discovery, our understanding of
the market and competition is severely limited. It is because of the relentless
actions of entrepreneurs that the market is seen as an ongoing process
of simultaneous corrective activities. The development of this idea goes
back, at least, to the work of Carl Menger. But it was really with Mises
(and with Schumpeter) that the role of the entrepreneur in the market
became more fully known. The genius of Mises was to explain the dynamic
nature of markets by pointing out how individuals are capable of recognizing
what had never been realized before and by showing how this activity
explains the systematic, self-adjusting properties of the market system.
It was left to Kirzner to explain the detail of that mechanism by putting
together the work of Hayek on knowledge and that of Mises on the role of
the entrepreneur. Kirzner developed a theory of entrepreneurial discovery
that accounts for the emergence of novelty through the concept of alertness.
He embedded entrepreneurship within the reality of economic calculation
while integrating his approach with an emphasis upon knowledge,
ignorance, creativity, and uncertainty. Kirzner made explicit the idea that
the entrepreneurial market process goes beyond sheer entrepreneurial
discovery (which is present in all sorts of non-market situations): it is the
relentless process of error correction through which the introduction of
new information in the market is effected.
Despite contemporary (marginal) disagreements concerning the nature
of entrepreneurship among Austrian economists, it is the appreciation for
the entrepreneurial character of the market process that has given those
economists the ammunition to resist the temptations of the mechanistic
understanding of social phenomena as seen in most twentieth-century
economic theory. As Lavoie emphasized, it was the uniqueness of the
Austrian position on the nature of the market system that enabled economists
in this tradition to avoid, for instance, the fallacy of quasi-market
solutions to socialism and to understand early on the negative effects of
anti-trust policies. While on other aspects (e.g., the minimum wage), the
conclusions of neoclassical economists are similar to that of the Austrian
position, it is only through the entrepreneurial understanding of the
market process that one can grasp the full nature of the market system