Entrepreneurship, knowledge and employment

Competition and knowledge in the Austrian theory of entrepreneurship

Tieben Bert, SEO Amsterdam Economics

The Austrian theory of entrepreneurship is probably the most widely disseminated branch of the Austrian school. Review articles demonstrate that contemporary entrepreneurship research greatly benefits from the insights of especially Kirzner’s work in the field of entrepreneurship. The acclaim for Kirzner is that he put entrepreneurship on the agenda of economic research. His classic Competition and Entrepreneurship (1973) demonstrated that neoclassical microeconomic theory lacks a crucial stepping stone, namely an explanation of the entrepreneurial role. For Kirzner, alertness is the defining characteristic of entrepreneurship. The importance of Kirzner’s work has not prevented debate about his theory of entrepreneurship. First, Lachmann (1976) and his followers argued that Kirzner overlooked the importance of endogenous changes in the entrepreneurial process invalidating the assumption of competition as an equilibrative tendency. The debate about Kirzner’s theory of entrepreneurship entered a second stage when the success of his work in applied entrepreneurial studies became apparent. These empirical studies confronted Kirzner’s abstract notion of entrepreneurship as alertness with the real life characteristics of entrepreneurship like management, decision-making, leadership and learning. The problem is that Kirzner’s entrepreneur operates in an uncertain world, which is so fundamental that it defies learning. This article provides a critical analysis of past and recent developments of the Austrian theory of entrepreneurship. What does the Lachman-Kirzner controversy tell us about the nature of the Austrian theory of entrepreneurship? Is Kirzner’s work theoretically progressive, as the recent extensions of his work seems to suggest? I shall argue that these modern management studies make assumptions which are in direct opposition to Kirzner's interpretation of alertness. In that sense they cannot be considered extensions of his theory of entrepreneurship.

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Keywords: entrepreneurship, Austrian school, Kirzner, knowledge, competition, market process

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