Israel Kirzner

Quotes From

Essays on Capital and Interest (1996)

• The ability to define usefully the terms used in theoretical economic discussion turns out invariably to call for the very same insight into economic processes that is required for the enunciation of theoretical propositions themselves.#
• Capital reversal erodes the notion of a demand curve for capital and thus the view of interest as a “true scarcity price”.#
• In exactly the same way as Austrian value theory had no place for “cost of production” as an independent explanatory element in the causation of economic value, a Mengerian capital and interest theory could have no place for the productivity of capital as an independent explanatory element in accounting for the structure of prices.#

How Markets Work (1997)

• the long-run equilibrium of perfect competition is not an appropriate policy target because it does not represent competition at all but an end-state in which competition has been exhausted. #
• A science of ‘human action’ must be a science of the equilibrative properties of entrepreneur-driven market processes.#
• It is true that Mises did not draw special attention to the mutual learning that must occur during the entrepreneurially-driven process of equilibration. Nor did Hayek emphasise the speculative, entrepreneurial character of the market process. But . . . these two ways of articulating a theory of market process turn out to be two sides of the same coin.#
• Once one appreciates the Hayekian insight that an attained state of equilibrium means universal perfect knowledge, it becomes obvious that no model in which perfect knowledge is assumed can be of direct assistance in explaining how an equilibrating tendency might occur.#
• The mere failure of a theoretical picture to replicate with precision all features of the reality it seeks to explain, is not necessarily fatal for the usefulness of that theoretical picture. But mainstream theory filters out of the picture those aspects of reality which are the core of an adequate explanation for market phenomena.#
• The success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of productive action to be replaced by newly discovered superior ways of serving consumers.#
• The social advantage provided by dynamic competition is the incentive it offers for the discovery and correction of earlier entrepreneurial errors. This social advantage does not consist in an assurance of ‘optimal’ allocation of resources. It consists of a systematic process of discovering and correcting entrepreneurial errors, especially errors which have left open opportunities for as yet unexploited mutual gain through trade among market participants. Consequently, departures from the optimality conditions of perfectly competitive equilibrium are not a threat to any relevant notion of economic efficiency.#
• The shape of the demand curve facing a producer at a given point in time has virtually nothing to do with the competitive character of the market for his product.#

Competition and Entrepreneurship (1973)

• At any given time, an enormous amount of ignorance stands in the way of the complete coordination of the actions and decisions of the many market participants. Innumerable opportunities for mutually beneficial exchange . . . are likely to exist unperceived. . . . The normative question raised by Hayek is how well the market succeeds in bringing together those uncoordinated bits of information scattered throughout the economy.#Quoted in Ludwig Lachmann, Capital, Expectations, and the Market Process (1940)

“Entrepreneurial Discovery and the Competitive Market Process” (1997)

• The economic problem facing any society . . . is primarily that of how, in a world of incessant changes in tastes, resource availabilities, and technological possibilities, to generate mutually sustaining expectations on the part of agents in the economy, such that (a) the series of actions taken are in fact able to be completed as planned, and (b) that that series of actions tends to reveal and exhaust all the available opportunities for social economic gain.#

“Method, Process, and Austrian Economics” (1982)

• No matter how calculative a man’s behavior may be, it seems impossible to avoid having accepted, without calculation, some framework within which to self-consciously engage in cost-benefit comparisons.#Quoted in Ralph Rector, “The Economics of Rationality and the Rationality of Economics” (1990)