… is from page 1 of Israel Kirzner’s and Frederic Sautet’s excellent June 2006 monograph, “The Nature and Role of Entrepreneurship in Markets: Implications for Policy” (original emphasis):
The economic history of the past two-and-a-half centuries has demonstrated the remarkable ability of market economies to spontaneously increase standards of living in a dramatic fashion, from hand-to-mouth subsistence to the affluence of modern living. On the other hand, economies which have limited the scope of market freedom have systematically lagged in economic growth. Adam Smith famously spoke of the “invisible hand.” Friedrich A. Hayek once described the market as something of a marvel. However, in order for this acknowledgement to be useful for policy, we need to understand how the counterintuitive results of the market system are, in fact, able to come about.
DBx: Yes. And as Kirzner and Sautet make clear in their monograph, very little such understanding is achieved and conveyed through the general-equilibrium models (regardless of how ‘dynamic’) that are the stuff of modern mainstream economics. Instead, markets (and market prices) must be realized as being in disequilibrium, and filled with ‘imperfections’ and errors – and always in flux – in order to gain an understanding of the real-world processes that tend to equilibrate and to correct the imperfections and errors, and to deal with the flux. Entrepreneurship is essential to these processes.
The most unique features of microeconomic (or “price”) theory as taught by the ‘old’ Chicagoans such as Frank Knight, Yale Brozen, Ronald Coase, and Donald Dewey (who actually taught at Duke and then Columbia) – the UCLA scholars circa 1950-1990, led by Armen Alchian and Harold Demsetz – and always by the Austrians is an emphasis on competition as a process rather than as an equilibrium outcome.
If this distinction sounds trivial, it is not. This distinction’s importance is deep and vast. Although those who work on one side of it are called “economists” just as are those who work on the other side of it, the work done by economists on one side is often of such a fundamentally different nature and character from the work done by economists on the other side of this distinction that, really, it would not be a stretch to describe these two different kinds of work as being that of scholars in two different disciplines.