Transcending the Schumpeter-Kirzner Dichotomy: The Role of the Entrepreneur in Carl Menger’s Theory of Price

Abstract

What is the role of the entrepreneur in Carl Menger’s account of the market process? Modern entrepreneurship theory is broadly divided into two types. The Schumpeterian account of entrepreneurship takes an equilibrium state of affairs as an analytic starting point from which the entrepreneur disrupts the existing equilibrium through technological innovation. The Kirznerian account of entrepreneurship begins from disequilibrium to illustrate the equilibrating role of the entrepreneur through arbitrage. While some working within the Austrian tradition have found Menger’s account to be lacking in precisely the entrepreneurial role that would become a distinctive contribution of the school, we demonstrate that Menger implicitly accounts for entrepreneurship in his theory of price formation. In doing so, we argue that Carl Menger’s account of entrepreneurship transcends the distinction between the Kirznerian and Schumpeterian entrepreneur by incorporating not only price adjusting behavior (i.e. arbitrage) but also non-price adjusting behavior (i.e. product differentiation; variations in quantity and quality; institutional innovation). To the extent that Schumpeterian and Kirznerian entrepreneurship are distinct categories in the history of economic thought, we show how both have roots in the pioneering efforts of Carl Menger, the founder of the Austrian School.