Op-ed published exclusively on our website.
Israel Kirzner is the most prestigious living Austrian school economist. Born in 1930, he is the direct descendent of a line of economists belonging to the school founded by Carl Menger in 1871.
His life has been marked by a clear passion for trying to understand how markets work. He was born in London, the son of a rabbi, and was himself ordained a rabbi. He studied in South Africa before immigrating to the United States, where he has spent most of his career. He studied economics under the direction of one of the main Austrian thinkers, Ludwig von Mises, who supervised his doctoral thesis. Kirzner had the originality and the courage to enrich his analysis with contributions from the other social sciences in the face of the growing mathematization of economics.
He transmitted his passion through teaching: He taught and supervised doctoral theses for more than thirty years at New York University, where he remains Professor Emeritus. He is a mentor to most of the members of the young guard of economists contributing to the dissemination of Austrian ideas today like Peter Boettke and Mario Rizzo.
His work extended that of, among others, Friedrich Hayek, who saw the market not as a machine that would automatically adjust itself, but rather as a discovery process. Whereas followers of orthodox economics (the so-called neoclassical school) believe that supply and demand adjust themselves mechanically, Austrians reject this analysis, for it does not take into account the passage of time and the fact that market actors possess imperfect information. The market tends toward equilibrium between supply and demand, but is never in perfect equilibrium. It is these imperfections that constitute profit opportunities waiting to be discovered.
Israel Kirzner thus introduced a central actor at the heart of economic analysis, astonishingly neglected by the rest of the field: the entrepreneur. Where Joseph Schumpeter drew attention to the entrepreneur’s role as innovator, Kirzner saw the entrepreneur as the key player in market adjustments. Entrepreneurs are vigilant, always on the lookout for profit opportunities and finding new ways to provide goods and services using untapped resources. They are not rational robots and they do not always have all the information they need. Often, they take risks and have to anticipate future needs. Indeed, Kirzner’s book Competition and Entrepreneurship, published in 1973, is an indispensable academic reference for understanding the role of the entrepreneur in a market economy.
The market is an ongoing process of trial and error within which producers try to discover, on the one hand, the various preferences of consumers, and on the other hand, the best ways of combining resources to supply consumer demand at the lowest cost. It facilitates the circulation of information about individual preferences and the scarcity of resources.
The market economy thus allows us to distinguish those actions that benefit the greatest number from those that do not. There is a selection mechanism involved. If, as a producer, I propose a product that no one wants, I go out of business. Conversely, if I introduce a new good that benefits everyone on a daily basis, there’s a good chance that I will make money. The market is the best system for increasing the well-being of all thanks to its incentive structures that orient market actors toward productive behaviours.
Israel Kirzner’s analyses of the market and of the role of the entrepreneur have provided a moral justification for the market economy and its two essential components: profit and entrepreneurs. Profit plays a social role by encouraging entrepreneurs to produce things people want. They have a moral right to collect the fruits of their labour because of the benefits they provide for society as a whole. Indeed, our institute recently published a research paper on the role of the entrepreneur from the Austrian perspective.
The intellectual contribution of Israel Kirzner is not limited to his own research. He also taught generations of students about the Austrian school tradition. He did so through various channels: his lectures (some of which can be viewed online), his biography of Ludwig von Mises, and his articles explaining the originality of this school. His ideas are more relevant than ever today, among other things in explaining the development of the many new information technologies that are not the work of bureaucrats, but of entrepreneurs having taken risks in order to find new ways of meeting our communication needs.
Jasmin Guénette is Vice President of Operations at the Montreal Economic Institute. The views reflected in this op-ed are his own.
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