Market Theory and the Price System. Israel M. Kirzner
what Hayek meant regarding the role of knowledge.
For the reader of Market Theory and the Price System familiar with Kirzner’s later writings, the critical chapters to study carefully are 7 and 11 (especially 7). In both of these chapters we see the seeds of his more mature argument about the disequilibrium foundations of equilibrium economics and the anticipation of his theory of the competitive entrepreneurial market process. Chapter 7 attempts to describe the market as a learning process and to provide an explanation for equilibration. Price theory did not explain the causation of price changes, it just assumed it. Kirzner endeavored, along Hayekian lines, to make Mises’s insights on entrepreneurship and the market process available to the modern reader of microeconomic theory. One must realize the magnitude of this endeavor—something that even Rothbard failed to see.
ACKNOWLEDGMENTS
We would first like to thank wholeheartedly Israel Kirzner for his unparalleled contribution to economic science. Kirzner’s research program has deeply enriched the discipline and has shed light on some of economics’ most difficult puzzles. Economists owe him an immense intellectual debt.
The publication of the Collected Works of Israel M. Kirzner would not be a reality without the participation of Liberty Fund, Inc. We are extremely grateful to Liberty Fund, and especially Emilio Pacheco, for making this project possible. To republish Kirzner’s unique oeuvre has been on our minds since our time spent at New York University in the 1990s—where one of us was a professor (Peter) and the other a postdoc student (Frederic). We are thrilled at the idea that current and future generations of economists and other scholars will have easy access to Kirzner’s works.
Finally, we wish to thank Rosemarie Fike for her invaluable help in the publication of this volume.
Peter J. Boettke and Frédéric Sautet
BIBLIOGRAPHY OF WORKS CITED IN THE INTRODUCTION
Ayers, C. E. (1963) “Review of Israel Kirzner, Market Theory and the Price System, ” American Economic Review, 53 (September): 755–756.
Heck, V. (1963) “Review of Murray Rothbard, Man, Economy, and State, ” American Economic Review, 53 (June): 460–461.
Mises, L. (1949) Human Action. New Haven, Connecticut: Yale University Press.
Piereson, J. (2005) “Funding a Movement,” The Insider, Summer, http://heartland.org/policy-documents/funding-movement.
Rothbard, M. (1961) “Comments on Israel M. Kirzner’s MS: Market Theory and the Price System, ” December, memorandum to the Volker Fund, Rothbard Archives, Ludwig von Mises Institute, Auburn, Alabama.
Rothbard, M. (1962) Man, Economy, and State, 2 vols. Princeton, New Jersey: Van Nostrand.
Stigler, G. (1946) The Theory of Price. New York: Macmillan.
Winch, D. (1964) “Review of Murray Rothbard, Man, Economy, and State, ” Economic Journal, 74 (June): 480–482.
During the past few years a number of competently written textbooks on price theory have appeared. The author’s excuse for adding yet another book to the elementary literature in this field is that his approach, while in no sense original, presents the subject in an entirely different light.
The approach adopted in this book views the market as a process of adjustment. In this process individual market participants are being forced continually to adjust their activities according to the patterns imposed by the activities of others. Market theory then consists essentially in the analysis of these step-by-step adjustments and of the way the information required for these adjustments is communicated. Equilibrium positions are not, as in other books, treated as important in themselves. They are rather seen as merely limiting cases where the market process has nothing further to do, all activities being already mutually adjusted to the fullest extent.
Despite the importance attached to the implications of the approach adopted here, users of this book will find relatively few major substantive departures from price theory as it is usually presented. The principal areas where major differences will be found arise out of the drastically reduced attention paid to perfect competition. Presuming the basic course in general economics, this book is designed for an undergraduate course in intermediate price theory.
For the rest, an author can hardly hope to have escaped revealing his own proclivities, biases, and predilections. Determined efforts have been made to subordinate geometry to economic reasoning. Whatever the author may have learned from Marshall, Edgeworth, and J. B. Clark, this book probably will reveal that he has learned more from Menger, Böhm-Bawerk, and Wicksteed.
Besides his indebtedness to the literature, the author must acknowledge much kind help received from several persons during the preparation of this book. To his teacher Ludwig von Mises, above all, he owes his appreciation of the market process. In addition to reading the finished manuscript, Professor Mises offered many helpful suggestions during its completion. It is with deep pleasure that the author dedicated this volume to him upon the attainment of his eightieth year.
The author is grateful to his colleagues at New York University, as well as to his students, for stimulating discussions on a number of points. To Professor L. M. Lachmann of the University of Witwatersrand, South Africa, he is indebted for several valuable insights that were made use of in exposition. The author’s wife has patiently and cheerfully endured, aided, and encouraged throughout the book’s preparation. To all these he is grateful; none of them is to be held responsible for all that remains unsatisfactory.
Israel M. Kirzner
THE NATURE AND TASKS OF MARKET THEORY
This book is devoted to the study of the theory of the market system. In this first chapter we attempt to obtain a clear notion of what is meant by a market; what is meant by a market system; and how economic theory can throw light on the nature of market processes. Our discussion will clarify the relationship between market theory and other branches of economics. Moreover, it will indicate the importance of the economic theory of the market for an adequate understanding of the world we live in.
Society consists of individual human beings. Each human being is eager to act to improve his position, whenever this appears possible. In order to satisfy his desires, a man may act on his own (as, for example, when he paints his house by himself), or he may fulfill his ends indirectly through exchange (as when he pays another man to do the painting). Where an exchange transaction takes place freely, the two individuals involved have both acted to fulfill separately their respective goals.
In a predominantly free society, individuals are in most respects at liberty to act as they choose. That is, in such a society an individual is generally at liberty to take advantage of any opportunity (as he perceives the existence of such an opportunity) in order to improve his position (as he understands the