Handbook on Contemporary Austrian Economics

The competitive market is a process of entrepreneurial discovery 105
is incompatible with the Misesian understanding of entrepreneurship. See also Klein
(2007) for a defense of "judgment" as the core entrepreneurial function. See below for a
brief discussion of Salerno's and Rothbard's position.
17. See Klein (2007), for instance, on this point.
18. This relates to the Schumpeterian (1947) distinction between invention and innovation.
Innovation can be defined as socially beneficial invention. While an inventor is bound
by the state of current reality, he is free to invent objects that are not socially desired.
An innovator on the other hand brings his invention to market and aims to serve
customers.
19. Crusoe could very well imagine using satellite-guided lasers to go fishing. However,
this would not be entrepreneurial in the sense that Kirzner (and Mises and Schumpeter
for that matter) is concerned with. Kirznerian entrepreneurship is not about creativity
unrelated to reality. This crucial point has been completely overlooked by Kirzner's
critics.
20. See Harper (2003) and Lavoie (1991).
21. The role of monetary profit in connection to knowledge and entrepreneurial discovery
can be found in Mises as well. As Mises explains in Profit and Loss (1962, p. 109):
"What makes profit emerge is the fact that the entrepreneur who judges the future
prices of the products more correctly than other people do buys some or all of the
factors of production at prices which, seen from the point of view of the future state
of the market, are too low. Thus the total costs of production - including the interest
on the capital invested - lag behind the prices which the entrepreneur receives for the '
product. This difference is entrepreneurial profit."
22. As Kirzner and Sautet (2006) explain: "Land, lumber, steel and the rest, are resources
in the sense that they are deliberately deployed in the course of processes of production.
Someone wishing to build a house must assemble land, labor, steel, lumber, and so on,
in order to build the house. He must acquire land and use these resources. However, the
idea that building the house would be a profitable venture is not deployed. One does
not initiate a productive venture by first going into the market to acquire a good idea.
One has the good idea that it would be profitable to acquire resources in the market for
specific production processes. One does not deliberately produce entrepreneurial ideas;
one serendipitously discovers them."
23. See Kirzner (1973). Mises did not refer to Robbinsian maximizing in his own work
when he discussed the issue of monetary calculation in the context of the entrepreneur.
I would argue that this is because the issue of discovery was implicit in his work.
24. See Salerno (2008) for a recent discussion of the issue.
25. For instance, see Jack High (1982, p. 166) who noted: "If entrepreneurship is completely
separate from ownership, is it meaningful to speak of entrepreneurial loss Can
losses fall on the entrepreneur or must they fall on the resource owner"
26. See Rothbard (1987) for an interesting critique of Schumpeter's approach.
27. Compared with his position in 1973, Kirzner (1999) now sees a smaller gap between his
understanding of the entrepreneur and that of Schumpeter.
28. See also Rizzo (1990) for a discussion of equilibrium tendencies in the work of Hayek.
29. Market prices are "false" prices because they only reflect the revealed part of the
underlying variables of the market (i.e., the current knowledge of market participants).
Entrepreneurial discovery is fundamentally about unearthing the hitherto unrevealed
parts of the underlying variables such that market prices more closely and truthfully
reflect the underlying preferences of consumers. This is a gradual process. It is important
to note that while market prices are false, they also are market-clearing, as they do
reflect the revealed current knowledge available to market participants. However, they
are not equilibrium prices in the neoclassical sense, as there remains information that is
not reflected in market prices and that could be discovered.
30. Rothbard (1985, p. 284) also saw a role for equilibration tendencies in the market. As
he put it: "It is one thing to say, with Mises and his followers, and in contrast to the
neoclassical economists, that equilibrium does not and can never exist on the market.