The Driving Force of the Market Essays in Austrian Economics
by Israel M. Kirzner
Routledge 2000 320 pages $100.00
A new book by Israel Kirzner is like a new movie by a great director whose work and style are familiar, but who always surprises his viewers with new ways of exploring his lifelong themes.
In fact, "exploring" is a word that describes Kirzner's work well. As he explains in The Driving Force of the Market, the proper approach to economics should be based on an "essentialist understanding of actual social phenomena." This essentialist approach, which is a distinguishing mark of the Austrian school, is what Kirzner pursues in his work by exploring the essence of human action in the context of uncertainty.
The book gathers 14 essays and three obituaries (for Ludwig von Mises, F A. Hayek, and Ludwig Lachmann), which cover many of the most fundamental ideas of Austrian economics: subjectivism, the ethics of competition, the institutional structure of the market economy, the market process, and entrepreneurship.
Kirzner's account of the subjectivist approach in economics deepens our understanding of the sense in which Austrian subjectivism holds a "middle of the road" position between neoclassical economics and radical subjectivism. His defense is fundamental, as it allows Austrian economists to explain human action in an open-ended context through the notion of entrepreneurial alertness.
Questions of ethics (relating to economic concepts), explains Kirzner, should be answered with the best possible knowledge of the underlying economic issues. Thus ethical valuations of competition and profit, for instance, should be built on the knowledge that economics provides regarding the roles of entrepreneurial competition and pure profit. This relates to Kirzner's position regarding institutions. The institutions of the market economy (for example, property rights) cannot be determined by economic theory per se. The issue of their existence belongs to the realm of ethics. In other words, there is no endogenous explanation of market institutions in Kirzner's analysis. While economics can explain the existence of profit, it cannot explain the existence of the institutions that make profit possible. However, economics is necessary to pass a judgment on the usefulness of the market institutions that make profit possible. Whether one agrees or disagrees with Kirzner on the exogeneity of institutions, it is valuable to be reminded that "ethics and economics are intertwined."
In the essay that gave its title to the book, Kirzner reaffirms what makes market-process theory so different from the neoclassical understanding of competition. …