Israel M. Kirzner
The phenomenon of economic ignorance is so widespread, and its consequences so frightening, that the objective of reducing that ignorance becomes a goal invested with independent moral worth. But the economic education needed to reduce such ignorance must be based on austere, objective, scientific content—with no ideological or moral content of its own.
TAKE AWAY
Israel M. Kirzner was born in London (UK), grew up in South Africa and came to New York, where he studied under Ludwig v. Mises. With his books, i.a. Competition and Entrepreneurship (1973), Perception, Opportunity and Profit (1979), Discovery and the Capitalist Process (1985) or The Meaning of the Market Process (1992), Kirzner is the leading scholar of the Austrian School’s 6th generation. His works on entrepreneurship, his alertness theory or the explanation of markets as dynamic processes are fundamental. While mainstream economics assumes perfect information and trusts that the mechanical self-regulation of supply/demand reaches a market equilibrium, for Kirzner the uncertain world with its imperfect information makes the market a dynamic discovery processes. As these imperfections harbor untapped profit opportunities, he placed the entrepreneur at the center. A profit thus neither involves the distribution of a pre-existing pie, nor does it create injustices. Rather, the gain is a part that was created by seizing an opportunity.
Kurt R. Leube
I
The son of a renown rabbi in London, Israel M. Kirzner was born there on February 13, 1930, 95 years ago. At the age of 10, the family moved to South Africa, where he completed school and started his higher education at the University of Cape Town. In 1949 he relocated to New York and in 1954 graduated summa cum laude in accounting at Brooklyn College (NY). From 1947 to 1969 Martha Steffy Browne (1898–1990), a student of L. v. Mises and active participants in his Viennese Privat-Seminar happened to be among the faculty there. Kirzner continued his study and enrolled the same year in an MBA program at New York University (NYU) where he discovered a seminar taught by Ludwig von Mises (1881-1973). Although meeting von Mises and participating in his NYU seminar at once radically changed the direction and focus of his studies, Kirzner successfully completed his MBA and began to work with von Mises. Mention should be made here that even though a regular professorship for Ludwig von Mises would have been a great asset to any American university and a privilege, only New York University granted Mises an unpaid visiting professorship. Several donors and foundations, most notably the William Volker Fund and Lawrence Fertig (1998-1986) provided grants that supported Mises and annually extended this position until 1969. With the invaluable help of Lawrence Fertig and Henry Hazlitt (1894-1993) and others, in the fall of 1948 Mises was even able to “replicate” his Viennese Privat-Seminar at NYU in the form of his “Thursday Evening Seminar”. Centered mostly on Murray N. Rothbard (1926-1995) and his wife Joey, these legendary meetings developed into the cradle for almost the entire 5th generation of American Austrians and ended officially in 1969.
As in Vienna, Mises was the primus inter pares and introduced there an authentic liberal way of economic thinking that stood in contrast to the prevailing neoclassical paradigm and thus seemed foreign to most of the students at the time. In addition to the beforementioned donors also Liggio, Hessen, Bettina and Percy Greaves, Kirzner, Sennholz, Nozick, Yeager among a number of other young scholars participated in these weekly sessions. After earning his doctorate under Mises’ supervision in 1957, Kirzner remained at NYU and went through the standard American academic career path from Assistant Professor to Associate Professor to Full Professor and, after 44 years of teaching he was promoted to the rank of Professor Emeritus in 2001. Kirzner published his doctoral dissertation as his first book in 1960. The Economic Point of View: An Essay in the History of Economic Thought at once not only established him as an exceptional scholar. This work significantly contributed to the beginning of the renaissance of the dormant Austrian School in the US and thus exerted a major influence on its emerging 6th generation. Kirzner demonstrates how the economic standpoint developed within economics since the 18th century, giving rise to the concepts of expediency, subjectivity, and rationality. In 1976, three years after the death of his mentor, Kirzner continued Mises’ tradition and initiated an Austrian Economics Seminar for graduate students at NYU. Under his leadership, this weekly colloquium became the most important meeting place for Austrians in the entire USA and significantly contributed to the education of the 6th generation of American Austrian economists. In 1976 Ludwig M. Lachmann (1906–1990), another leading figure of the 5th generation of the Austrians joined him and co-chaired the Seminar until 1987.
Over the years, many internationally renowned scholars, such as Gottfried von Haberler (1900-1995) and Friedrich A. von Hayek (1899-1992) as well as younger economists like George Selgin, Mario Rizzo or George Reisman, participated in the colloquium sessions. However, after 25 successful years, the seminar regretfully concluded with Kirzner’s retirement in 2001. In 1989, Kirzner was awarded an Honorary Doctoral Degree at the private Universidad Francisco Marroquín (UFM), which also named its Entrepreneurship Center in his honor. In 2006, he received the Global Award for Entrepreneurial Research. Long overdue, he received the Lifetime Achievement Award from the Fund for the Study of Spontaneous Order in 2013, and the German Friedrich A. von Hayek Society presented Kirzner the prestigious Hayek-Medal in 2015. And since 2007, Liberty Fund has been publishing Israel Kirzner's Collected Works in ten volumes under the supervision of his students Peter Boettke and Frederic Sautet.
II
With eleven books, well over 100 scholarly essays and countless other works, Kirzner is the leading theorist of the Austrian School of Economics. His contributions to the Austrian School lie in the economics of knowledge and entrepreneurship and the ethics of markets, and are essentially based on the work of Ludwig von Mises and Friedrich A. von Hayek (1899-1992) in particular. Only a few of Kirzner’s most important works can briefly be mentioned here. Just under three years after his Economic Point of View, Kirzner published his book Market Theory and the Price System (1963), in which he explained the market as a process of entrepreneurial vigilance. While satisfying consumer demand may be the purpose of production, the system of the division of labor always requires the entrepreneur, who has the specific task of anticipating future consumer desires and deploying the means of production at his disposal accordingly.
Three years later, his An Essay on Capital (1966) was published in Chicago, in which Kirzner succeeded in presenting the complexity of Austrian capital theory in an accessible way. In 1973, Kirzner published his classic Competition and Entrepreneurship (1973). Here, he not only developed his theory of the market process, which focuses on the role of the purely entrepreneurial element in human action. Here Kirzner finds similarities and differences between his view of entrepreneurship and that of Joseph A. Schumpeter (1883-1950). What they have in common is that the entrepreneur as entrepreneur contributes no factor services to production. However, while according to Schumpeter’s entrepreneur upsets an existing equilibrium by introducing a new product or a new production technique, in Kirzner’s view the entrepreneur has an equilibrating influence. In other words, the important feature of entrepreneurship is not so much the ability to break away from routine as the ability to perceive new opportunities which others may not yet notice.
Although published only as a pamphlet, Kirzner’s The Perils of Regulation: A Market Process Approach (1978) is among his most cited works. He argues that government intervention inhibits the dynamic market process by disrupting the flow of information and entrepreneurial discovery. Here he explains that the vast majority of governmental and private regulations create artificial profit and loss signals, which usually lead to three main negative consequences: first, they stifle discovery, which can prevent innovation; second, they initiate superfluous discovery, leading entrepreneurs to pursue unproductive regulatory circumvention; and third, they produce unintended consequences in the form of unforeseen negative market reactions. His book Perception, Opportunity and Profit: Studies in the Theory of Entrepreneurship, published in Chicago in 1983, should also be mentioned here.
Instead of viewing the entrepreneur as a disruptor of the status quo, this status quo should be interpreted as nothing more than a collection of untapped opportunities and developments, with chance playing a significant role for market participants in general, but especially for entrepreneurship. Kirzner’s insight into entrepreneurial discovery, combined with the possibility of a “find it, keep it” ethic, provides a justification for the functioning of a free market, in which ownership arises through creativity. Finally, another classic should be pointed out: Discovery, Capitalism and Distributive Justice (1989). In just seven chapters, Kirzner presents a new understanding of distributive justice (habitually refered to as social justice) in the free market economy and emphasizes the importance of entrepreneurship in market processes. Since products and resources are not given but created or discovered by individuals, radically revised criteria of justice emerge. Kirzner therefore advocates for the widely accepted notion of a “finder/keeper” role in distributive ethics. The prevailing economic and ethical discussion about the free market has thus far focused essentially on the distribution of a given pie among members of society, with income being earned either through productive labor or by pure chance.
Kirzner’s approach however, is to introduce a new category of economic gain, in which income is the result of entrepreneurial vigilance and discovery—the finder of a resource or a product has created what they have found, not through hard work or chance, but by bringing it from invisibility into visibility. This new perspective on the problems of justice in capitalism differs from the ideas of John Locke (1632-1704) or critics of capitalist justice like John Rawls (1921-2002) and defenders like Robert Nozick (1938–2002). According to Kirzner, the finder-keeper rule states that an ownerless object becomes the rightful private property of the person who discovers both its availability and potential value and takes possession of it. In other words, any distributive justice theory, whether based on the Labor Theory of Value or on an entitlement theory of income, must explain how such resources are discovered in the first place. The finder-keeper principle demonstrates why all socialist arguments against the injustice of capitalism are misguided, because the profits of capitalists, which Marx falsely considered to be unfairly siphoned off labor, were of course not pure profits at all. Rather, they were an accumulation of unlike income categories whose value must first be discovered through entrepreneurial competition for land, labor, and capital.
The revival of the Austrian School of Economics over the past 75+ years is hardly conceivable without Israel Kirzner’s fundamental and groundbreaking contributions. With his analyses of the competitive process and the role of the entrepreneur in the coordination of markets and innovation, he provided significant insights to the understanding and moral justification of free market economies. His works on capital theory, on the economic as well social problems of state interventions and regulations, and especially on the significance of individual freedom are among the most important contributions of recent times.
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