Why do disequilibria exist? An ontological study of Kirznerian economics

Abstract

AbstractIn his influential critique of mainstream economics, Israel Kirzner rejected the notion of equilibrated economies in an attempt to develop a realistic account of the workings of entrepreneurial markets. Key to Kirznerian analysis are the arguments that (i) economies do not equilibrate because there always exist unexploited opportunities, and (ii) opportunities remain unexploited until ‘entrepreneurially alert’ individuals discover them. This paper draws from Tony Lawson’s philosophy of economics to explain that Kirznerian economics is no more realistic than mainstream. According to Lawson, it is the ontological commitment to closed systems thinking—not superficial theoretical features such as equilibrium—that makes mainstream economics unrealistic. I argue that Kirzner’s theoretical system similarly presupposes a closed system ontology. Whereas the mainstream worldview presumes the instant exploitation of opportunities, the Kirznerian worldview presumes their delayed yet unavoidable exploitation. The ontological critique of Kirznerian economics simultaneously facilitates the reorientation of entrepreneurship theory towards genuinely realistic modes of thought. This is feasible once we acknowledge the non-empirical ontology of ‘entrepreneurial opportunity’ and concomitant fallibility of the ‘entrepreneurial imagination’: opportunities remain unexploited because (inter alia) their existence is known only after their actualisation. The existence of economic disequilibria does not require non-actors who are blind to opportunities, and there is no mysterious force of ‘entrepreneurial alertness’ guaranteeing their eventual exploitation and inevitable movement towards economic equilibria.