Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics by George A. Selgin

Author:George A. Selgin [George A. Selgin]
Language: eng
Format: epub
ISBN: 978-0-94546-609-3
Publisher: The Ludwig von Mises Institute
Published: 1990-11-06T16:00:00+00:00

Kirzner, Lachmann, and the

“Tendency toward Equilibrium”

Entrepreneurs succeed or fail in generating monetary surpluses to the extent that they succeed or fail in anticipating consumer actions. These actions are not predetermined by an unchanging set of preferences. According to praxeology, preferences do not exist at all apart from acts of choice. It follows that all entrepreneurial action is, as this article has insisted, not merely speculative, but imaginative. This is true even for “mere” arbitrage (meaning arbitrage as understood by the business community).58 There is no listable set of profit opportunities (the basis for additions to monetary surpluses) existing independent of entrepreneurial actions because there are no consumer preferences apart from consumer actions taken in response to entrepreneurial offers. Thus it is misleading to treat profit opportunities as having an objective basis (i.e., as existing “out there”) because it is improper to treat consumer preferences as if they existed apart from realized acts of choice.

Israel M. Kirzner, in his analysis of entrepreneurship,59 suggests the possibility, in the unhampered market, that action may fail to eliminate entrepreneurial profit and loss systematically, i.e., may fail to equilibrate. This impression results from Kirzner’s use of the metaphorical, “common sense” notion of profit opportunities existing “out there” in some objective sense independent of their perception or discovery by enterprising individuals. Kirzner’s approach has encouraged the treatment of equilibration as an empirical matter subject to doubt. It is necessary to challenge such interpretations insofar as they confuse necessary features of action with contingent ones and imply that action in the unhampered market may be “disequilibrating” or “insufficiently equilibrating” and that praxeological theorems that presume a “tendency toward equilibrium” are necessarily open to empirical falsification.

The category of objective profit opportunities is praxeologically meaningful only as an ex post concept, in which case there is no question of undiscovered opportunities.60 Yet, the contrary is implied within the framework of Professor Kirzner, who is led to adopt the metaphorical notion of “objective” profit opportunities existing ex ante (and hence capable of going undiscovered) in order to counter the opinion that entrepreneurial innovation is disequilibrating. By treating profit opportunities as existing “out there” and by positing their eventual “discovery,” Kirzner is able simply to dismiss the innovative (and allegedly disequilibrative) aspects of entrepreneurship.61 In doing so, he is drawn uncomfortably close to the Robbinsian outlook according to which entrepreneurship merely involves the “efficient” administration of given means and ends, that is, the exploitation of given profit opportunities.

In fact it is unhelpful to view, as general equilibrium theorists do, the direction in which market processes are aimed as one that can be represented by a stable system of simultaneous equations. This view entirely neglects human imagination and innovation. It refers to a world where the means and goals of acting people are fixed, so that a hypothetical “optimal solution” can be defined. This kind of equilibrium solution presupposes definite limits to entrepreneurial achievement. Nonetheless, Kirzner apparently accepts the static concepts of Pareto optimality and general equilibrium as standards against which entrepreneurial actions must be judged.

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