Competition and Entrepreneurship

Israel Kirzner suggests that the entrepreneur drives the entire market process by acting upon previously unnoticed profit opportunities. Herein lies the problem of "sheer ignorance" that seems to be formulated totally independently of neoclassical search theory, as if it did not exist. What is this "sheer ignorance" and how could anyone possibly come to the conclusion that only entrepreneurs have this special "gift" that the rest of us are left without? While neoclassical models are not perfect, to say they are precisely irrelevant (as some Austrians do) can be dangerous. Kirzner seems to suggest that entrepreneurs are some sort of superhuman animal that mystically bring buyers to their products.

Randy Holcombe and David Harper have both expanded on this in Austrian Economics journals and have included the importance of institutions and endogenous sources of growth. A discussion of institutional environments would have been helpful to Kirzner's analysis. Without institutions and rules that provide incentives for entrepreneurs, the discussion of their importance is futile. Better incentives for entrepeneurship will cause more people to invest more time in searching for new entrepreneurial ideas.

Mainstream economics has a lot to learn from contemporory Austrian work, but for that work to completely discount neoclassical economics is a mistake. This book, while rightly drawing attention to the importance of the entrepreneur, ultimately falls short and represents many of the problems in Austrian economics.