Given the debate going on in this thread, I thought I would post the section of my contribution to the Spring 2010 Journal of Private Enterprise symposium on Dan Klein and Jason Briggeman's critique of Kirzner here as it speaks directly to the issues that have been raised about Mises and Hayek. UPDATE: the issue can be found here.
II. Kirzner’s Entrepreneur as the Misesian Solution to a Hayekian Problem
One element of Klein and Briggeman's argument is to try to “dehomogenize” Mises and Hayek, though around issues different from those raised by Salerno (1993) and others. K-B are troubled by what they see as Mises’s categorical claims about markets and his aprioristic methodology and its “apodictic certainty.” They argue that Kirzner’s work is in this Misesian tradition and one way of reading their paper is that it is a plea to Kirzner to become more “Hayekian” so that all the good things in Kirzner’s work would be more persuasive to more people. Kirzner responds, rightly in my view, that this is a fundamental misunderstanding of his work in that Kirzner has never been committed to Mises’s epistemology and that Kirzner has had a much more Hayekian vision of economics and the economy than K-B give him credit for. Saying that an author has a better understanding of his own work than do his critics seems a rather obvious point, but it is worth making anyway: I think Kirzner is correct here.
Perhaps one way to see the point is to offer yet another way of summarizing Kirzner’s work on competition and entrepreneurship. What the entrepreneur does, for Kirzner, is to provide a Misesian solution to a Hayekian problem. The Hayekian problem is the one Hayek raises in “Economics and Knowledge” (1937, pp. 50-51). There Hayek says:
The problem we pretend to solve is how the spontaneous interaction of a number of people, each possessing only bits of knowledge, brings about a state of affairs in which prices correspond to costs, etc., and which could be brought about by deliberate direction only by somebody who possessed the combined knowledge of all of those individuals. And experience shows us that something of this sort does happen, since the empirical observation that prices do tend to correspond to costs was the beginning of our science.
Hayek goes on to say that traditional equilibrium theory assumes away the problem by assuming that everyone knows everything. He also rejects the idea that there could be that “somebody” who sits god-like over the economy directing the process. It is that metaphor that K-B want to invoke for the Hayekian understanding of concatenate coordination.
However, I think they overlook the central point of this passage, and of that whole essay frankly. It is true that Hayek talks about the overall picture of the economic system, but here he is focused on the process by which prices correspond to costs, which is a very “micro” level consideration. The puzzle he poses is how that ever comes to be, the answer to which will require focusing on the individual actions of millions of people in millions of markets. Yes, the overall pattern, what K-B term “concatenate coordination” is the context for Hayek, but the economic problem is the coordination among producers and consumers that drives prices to costs. What Hayek argues needs further explanation is how the learning necessary to bring about that equilibrium, defined as the circumstance in which all plans are capable of being fulfilled because everyone knows enough about everyone else and the state of the world to enable them to do so, ever comes about. How, in the real world of the market, does the knowledge necessary for prices to be driven to costs get communicated and spread to those who need it? That, for Hayek, is the problem of economic coordination.
Kirzner’s work offers a solution to that problem in the form of the Misesian entrepreneur. If knowledge is imperfect and individuals are stuck simply optimizing based on that knowledge, then no learning can take place and coordination can never be achieved. What can unstick us from this situation? The Misesian entrepreneur can by seeing what has been previously overlooked and shifting the “given” means-ends framework, creating the knowledge necessary for people to make decisions that better align with the facts of the world and the expectations of other actors. Entrepreneurship, for Kirzner, is what “brings about the state of affairs” that expectations and actions are coordinated and that prices tend toward costs. Kirzner makes no grander claim for entrepreneurship than that. The entrepreneur does not induce the “smile” of aesthetic joy on the face of our god-like coordinator, nor does the entrepreneur assure with certainty a world that classical liberals would think is desirable. The entrepreneur simply spreads knowledge that leads people to make choices that they themselves would view as better, hence the “dovetail coordination” that Kirzner discusses.
K-B are criticizing Kirzner for overlooking questions that were never within the realm he was operating. The debate over The Communist Manifesto is a good example. Kirzner, qua economist, is only interested in the question of whether the production of that book allocated resources in a way such that the price obtained for the book better reflected the value of those resources to the buyers. Speaking as an economist, the overwhelming market success of the book strongly indicates that it did, thus producing it enhanced economic coordination. K-B are free to argue that from some broader social or political-economic perspective, perhaps that of our god-like smiler, the world would have been a better place had the book never been produced. That may well be true, but it is simply irrelevant to what Kirzner means by coordination and the coordinating role of the entrepreneur. As Kirzner points out in his reply, K-B seem to be castigating him for even drawing such lines in the first place. Kirzner, rightly, does not deny that economics plays an important role in service of the classical liberal vision, but he (2010, p. 79) does maintain the “simple truth taught to beginning students of economics” that not everything that markets do efficiently is something that produces widespread social benefits.