Knowledge, judgment, and the use of property

Review of Austrian Economics

Volumn 10, Issue 1, 1997, Pages 23-48

  Hülsmann, Jörg Guido ^a  

^a Verwaltungs und Wirtschaftsakademie   (Germany)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 53249122112     PISSN: 08893047     EISSN: None     Source Type: Journal    
DOI: 10.1007/BF02538142     Document Type: Article

References (115)

1. Cf., for example, Peter J. Boettke, The Political Economy of Soviet Socialism (Boston: Kluwer, 1990), pp. 23ff;
2. Gerald P.O'Driscoll, Economics as a Coordination Problem (Lawrence: University of Kansas Press, 1977), pp.16ff;
3. Richard M. Ebeling, "Economic Calculation Under Socialism: Ludwig von Mises and His Predecessors," in The Meaning of Ludwig von Mises, Jeffrey M. Herbener, ed. (Auburn, Ala.: Ludwig von Mises Institute, 1993), pp. 56ff;
4. Jesús Huerta de Soto, "Entrepreneurship and the Economic Analysis of Socialism," in New Perspectives on Austrian Economics, Gerrit Meijer, ed. (London: Routledge, 1995), pp. 228ff;
5. Israel M. Kirzner, The Meaning of Market Process (London: Routledge, 1992), pp. 51f, 100f;
6. Don Lavoie, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (New York: Cambridge University Press, 1985);
7. Karen Vaughn, "Economic Calculation Under Socialism: The Austrian Contribution, "Economic Inquiry 18(1980);
8. Leland B. Yeager, "Mises and Hayek on Calculation and Knowledge," Review of Austrian Economics 7, no. 2 (1994): 93-109.
9. Cf., for example, Jeffrey M. Herbener, "Ludwig von Mises and the Austrian School of Economics," Review of Austrian Economics 5, no. 2 (1991): 33-50;
10. Jeffrey M. Herbener, idem, "Economic Calculation and the Question of Arithmetic," Review of Austrian Economics 9, no. 1 (1996);
11. Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer, 1989);
12. Hans-Hermann Hoppe, idem, "Socialism: A Property or Knowledge Problem?" Review of Austrian Economics 9, no. 1 (1996): 143-49;
13. Murray N. Rothbard, "Ludwig von Mises and Economic Calculation Under Socialism," in The Economics of Ludwig von Mises, Lawrence Moss, ed. (Kansas City: Sheed and Ward, 1976);
14. Murray N. Rothbard, idem, Man, Economy, and State, 3rd. ed. (Auburn, Ala.: Ludwig von Mises Institute, 1993), esp. pp. 542ff, 825ff; 830ff;;
15. Joseph T. Salerno, "Ludwig von Mises as Social Rationalist," Review of Austrian Economics 4 (1990): 25-54;
16. Joseph T. Salerno, idem, "Mises and Hayek Dehomogenized," Review of Austrian Economics 6, no. 2 (1993): 113-46;
17. Joseph T. Salerno, idem, "Reply to Leland B. Yeager," Review of Austrian Economics 7, no. 2 (1994): 111-25.
18. Commenting on Hayek's article "The Present State of the Debate" (in Collectivist Economic Planning, F. A. Hayek, ed. [London: Routledge, 1935], p. 211), Mises says: "Hayek has shown that the use of equilibrium for economic calculation presupposes knowledge of the future valuations of the consumers. However, he has seen in this merely a problem of the practical application of the equations, not a fundamental and unsurmountable obstacle for their practical use." I am indebted to Dan Cristian Comanescu for bringing this passage to my attention. Consider also the following statement from Mises: "We do not deal with the problem of whether or not the director will be able to anticipate future conditions. What we have in mind is that the director cannot calculate from the point of view of his own present value judgments and his own present anticipation of future conditions, whatever they may be."
19. Ludwig von Mises, Human Action, 3rd ed. (Chicago: Regnery, 1966), p. 700, my emphasis. Here Mises stresses the role of calculation, that is, of a method of thought He explicitly denies the importance of knowledge for the issue under consideration.
20. Hayek says: "The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess." F.A. Hayek, "The Use of Knowledge in Society," in idem, Individualism and Economic Order (Chicago: University of Chicago Press, 1948), p. 77.
21. Moreover, Hayek explicitly contended that economic calculation would be possible without private property: "It is the great contribution of the Pure Logic of Choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or "values" or "marginal rates of substitution"), that is, by attaching to each kind of resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure." F.A. Hayek, Individualism and Economic Order Ibid., p. 85).
22. F.A. Hayek, Individualism and Economic Order Ibid., p. 33.
23. For a statement of some of my criticisms, see Jörg Guido Hülsmann, Logik der Währungskonkurrenz (Essen: Management Academic Verlag, 1996), pp. 13ff, 122ff.
24. Kirzner, The Meaning of Market Process, p. 117.
25. For a forerunner of Kirzner see Otto Conrad, Der Mechanismus der Verkehrswirtschaft (Jena, 1931), pp. 36ff.
26. Conrad advocated what he called a "road sign" theory of prices. The first instance of an equilibration process is probably Spencer's law of adaptation. According to this law, "the ultimate development of the ideal man is logically certain." Social Statics, 1st ed. (reprint; New York: Robert Schalkenbach Foundation, 1970), p. 55-57. The driving force in the adaptation process is man's moral sense (see ibid., pp. 83ff).
27. See Kirzner, The Meaning of Market Process, p. 151;
28. Kirzner, idem, Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973), p. 10.
29. See also Kirzner, The Meaning of Market Process, pp. 139ff;
30. Kirzner, idem, Competition and Entrepreneurship, p. 228.
31. Hayek, Individualism and Economic Order, pp. 90f: "Only to a mind to which all these facts were simultaneously known would the answer necessarily follow from the facts given to it. The practical problem, however, arises precisely because these facts are never so given to a single mind, and because, in consequence, it is necessary that in the solution of the problem knowledge should be used that Is dispersed among many people."
32. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders." Hayek, Individualism and Economic Order, Ibid., p. 84.
33. On this point and its implications see in particular Hoppe, "Socialism: A Property or Knowledge Problem?"
34. For a critique of coordination as a relevant criterion for economic theory, see also Stephen Shmanske, "On the Relevance of Policy to Kirznerian Entrepreneurship," Advances in Austrian Economics 1 (1994): 204ff.
35. Stephen Shmanske, " Advances in Austrian Economics Ibid., pp. 85f.
36. Kirzner, The Meaning of Market Process, p. 36. He also uses other expressions for this claim.
37. Thus he says, for example, that "opportunities for pure profit [are] able to attract the attention of the most alert entrepreneurs," Kirzner, idem, Perception, Opportunity, and Profit (Chicago: University of Chicago Press, 1979), p. 151.
38. See also Israel M. Kirzner, Discovery and the Capitalist Process (Chicago: University of Chicago Press, 1985), pp. 27ff, 96, 132.
39. Kirzner also advances Hayek's claim that a mode of organization can generate learning, see, Perception, Opportunity, and Profit, p. 147;
40. Hayek, Individualism and Economic Order, p. 95).
41. Esteban Thomson, a student of Kirzner's, puts forth the same argument: "Market prices . . . are not merely an efficient way of aggregating and transmitting information already known by someone but, more important, they are the stimulators of a discovery process." Esteban Thomson, Prices and Knowledge (London: Routledge, 1992), p. 37.
42. Kirzner, The Meaning of Market Process, p. 26.
43. This point is lucidly stated by Hans-Hermann Hoppe in "On Certainty and Uncertainty, Or: How Rational Can our Expectations Be?" Review of Austrian Economics 10, no. 1 (1997): 49-78.
44. Kirzner, The Meaning of Market Process, p. 27.
45. Kirzner, The Meaning of Market Process, Ibid., p. 160.
46. Kirzner, The Meaning of Market Process, Ibid., p. 146, emphasis added.
47. Israel M. Kirzner, Discovery, Capitalism, and Distributive Justice (Oxford: Basil Blackwell, 1989), p. 24;
48. see also Israel M. Kirzner, idem, Discovery and the Capitalist Process, p. 109.
49. Israel M. Kirzner, Discovery and the Capitalist Process, Ibid., p. 160.
50. Kirzner did not always advocate an attraction theory, see Competition and Entrepreneurship, p. 227,
51. idem, Perception, Opportunity, and Profit, p. 130. Yet, he always believed that a theory of the market process has to rely on a way to determine choices by the physical environment of action. In his Competition and Entrepreneurship, he did not conceive of this determination as running through price spreads. Rather he stressed, in a more general way, that the "newly acquired information concerning the plans of others can be expected to generate, for the succeeding period of time, a revised set of decisions.
52. The overambitious plans of one period will be replaced by more realistic ones; market opportunities overlooked in one period will be exploited in the next." Perception, Opportunity, and Profit, Ibid., pp. 10 and 70ff;
53. also see The Meaning of Market Process, pp. 48, 16, 129. To be sure, this is mere assertion as well. Nowhere does Kirzner give an argument as to why the plans will be revised and why they will be more realistic.
54. Kirzner, Discovery and the Capitalist Process, p. 83.
55. Kirzner, Competition and Entrepreneurship, p. 14.
56. Kirzner, Perception, Opportunity, and Profit, pp. 24 and 33.
57. Cf. also Eran Binenbaum, "Kirzner's Core Concepts," in New Perspectives on Austrian Economics, Meijer, ed., p. 146ff.
58. Kirzner, The Meaning of Market Process, p. 35.
59. Kirzner, The Meaning of Market Process, Ibid., p. 43.
60. "What the introduction of the pure entrepreneur means, however, is that for our analysis we create a decisionmaker who starts without any means whatsoever." Kirzner, Competition and Entrepreneurship, pp. 40, and 16, 22, 44, 47ff, 53f, 83.
61. Even though Mises advocated a functional distinction between capitalists and entrepreneurs he emphasized that "it is impossible . . . to imagine an entrepreneur without any resources" and that entrepreneurial risks "are inseparable from the ownership of the material means of production" (my translation). "Les hypothèses de travail dans la science économique," in Cournot, nella economia e nella filosofia, Padora, ed. (Venice: Facoltà de economia e commercio, 1939), p. 118.
62. See also Shmanski, "The Relevance of Policy in Kirznerian Entrepreneurship," pp. 214-19.
63. Cf. Murray N. Rothbard, "Professor Hébert on Entrepreneurship," Journal of Libertarian Studies 7, no. 2 (1985): 283ff. It is remarkable that nowhere does Kirzner address this critique.
64. Cf., Kirzner's Competition and Entrepreneurship, pp. 33f and 71ff;
65. Kirzner's idem, Perception, Opportunity, and Profit, pp. 5ff and 167;
66. Kirzner's idem, Discovery and the Capitalist Process, pp. 81f, 153ff;
67. Kirzner's idem, The Meaning of Market Process, pp. 124ff.
68. Cf., Kirzner Competition and Entrepreneurship, pp. 29, 108, 118;
69. Kirzner idem, Perception, Opportunity, and Profit, pp. 14f;
70. Kirzner idem, Discovery and the Capitalist Process, p. 154;
71. Kirzner idem, The Meaning of Market Process, p. 154f.
72. Israel M. Kirzner, The Economic Point of View (New York: D. Van Nostrand, 1960), pp. 108ff.
73. Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd ed. (London: Macmillan, 1935), pp. 24ff.
74. Kirzner, Discovery and the Capitalist Process, p. 83.
75. This is regularly pointed out by Kirzner's critics. See Jack High, "Alertness and Judgment: Comment on Kirzner," in Method, Process, and Austrian Economics, Israel M. Kirzner, ed. (Lexington, Mass.: Lexington Books, 1982), p. 165;
76. Emile Wubben, "Austrian Economics and Uncertainty," in New Perspectives on Austrian Economics, Meijer, ed., p. 130f.
77. This crucial fact has already been stated by Henry Hazlitt: "It is not enough that the entrepreneur be 'alert' and that he 'perceive' an opportunity; he must act on his alertness and perception. . . . By omitting this link [Kirzner] tends to overstress the entrepreneur's alertness and perception while under-emphasizing his courage in taking risks. . . . It is not always true that the entrepreneur perceives an opportunity. He thinks he perceives it. He perceives an apparent opportunity. In fact, he is betting on an assumed future condition. What he acts on may not be a perception but a guess. . . . Every entrepreneur is pitting his own guess or 'perception' against the composite guess or perception of all the rest." Hazlitt, "Review of Competition and Entrepreneurship," The Freeman (December 1974): 759.
78. Kirzner, The Meaning of Market Process, p. 146.
79. Roger Garrison remarks perceptively that it is a "fundamental point of logic" that at "some points in the analysis . . . an entrepreneurial function lying outside the supply-and-demand framework is necessary." "Equilibrium and Entrepreneurship," Advances in Austrian Economics 2 (1995): 68 and 76. However, it is not alertness that fulfills this function but action based on a judgment about the future.
80. Kirzner, Competition and Entrepreneurship, p. 42, emphasis added.
81. See also Kirzner, idem, The Meaning of Market Process, p. 129.
82. This point is stressed by all subjectivists. Cf., for example, Ludwig Lachmann, Expectations and the Meaning of Institutions, Don Lavoie, ed. (London: Routledge, 1994), esp. chaps. 16 and 17;
83. Brian J. Loasby, "Economics of Dispersed and Incomplete Information," in Method, Process, and Austrian Economics, Kirzner, ed., pp. 122f;
84. G.L.S. Shackle, Epistemics and Economics (Cambridge, England: Cambridge University Press, 1972), p. 91.
85. Cf. on this point Salerno, "Mises and Hayek Dehomogenized": 126f.
86. Cf. Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung (Opladen: Westdeutscher Verlag, 1983),
87. Hans-Hermann Hoppe, idem, A Theory of Socialism and Capitalism (Boston: Kluwer, 1989), chap. 6.
88. Cf. Ludwig von Mises, Theory and History (Auburn, Ala.: Ludwig von Mises Institute, 1985).
89. Cf. Roger W. Garrison, "Austrian Economics as the Middle Ground," in Method, Process, and Austrian Economics, Kirzner, ed., pp. 131ff.
90. Kirzner, The Meaning of Market Process, pp. 23f.
91. Kirzner, Competition and Entrepreneurship, pp. 86f.
92. See in particular Eugen von Böhm-Bawerk, "The Law of Cost," in idem, Capital and Interest, vol. 2 (South Holland, Ill.: Libertarian Press, 1959), pp. 248-56.
93. Cf. Mises, Human Action, pp. 333ff.
94. He also uses the expression "pricing process" and "process which makes the prices of the factors of production spring from the prices of products." Mises, Human Action, Ibid., p. 338.
95. See Hayek's brillant article on "The Meaning of Competition," in idem, Individualism and Economic Order, pp. 92ff.
96. For an excellent exposition of the meaning of the market process see Salerno, "Mises and Hayek Dehomogenized": 124ff.
97. Israel M. Kirzner, "Reflections on the Misesian Legacy in Economics," Review of Austrian Economics 9, no. 2 (1996): 144-45.
98. Israel M. Kirzner, ," Review of Austrian Economics Ibid.: 146-47.
99. Kirzner, Perception, Opportunity, and Profit, p. 30.
100. Mises, Human Action, p. 336. There are, of course, countless other statements on how Mises saw the market process.
101. However, this quote has been given by Kirzner ("Reflections on the Misesian Legacy in Economics": 145) to show that Mises also had in mind a corrective learning process. However, no such interpretation can be inferred from it.
102. Cf. Hayek, Individualism and Economic Order, p. 33.
103. Kirzner, "Reflections on the Misesian Legacy in Economics": 144ff.
104. "Appropriation is a natural phenomenon given by providence, essential to life; property is nothing but an appropriation that has become a right through labor." Frederic Bastiat, "Propriéte et loi," in Les libéraux, Pierre Manent, ed. (Paris: Hachette, 1986), p. 230.
105. Murray N. Rothbard, Man, Economy, and State, p. 776: "In the market, the fittest are those most able to serve the consumers.
106. In government, the fittest are either (1) those most able at wielding coercion or (2) if bureaucratic officials, those best fitted to curry favor with the leading politicians or (3) if politicians, those most adroit at appeals to the voting public." See also Murray N. Rothbard, idem, Power and Market, 2nd ed. (Kansas City: Sheed Andrews and McMeel, 1970), pp. 18ff.
107. Leonard E. Read has analyzed this effect under the heading of "unnatural specialization." See Leonard E. Read, "How Socialism Harms the Economy," in idem, Anything That's Peaceful, 2nd ed. (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1992), pp. 78ff. With great clarity he states: "Take, for example, the moon project . . . putting aside personal prejudices against this multibillion dollar project, it is obvious that it would not, at this time, emerge from the free market. Now, consider the countless specializations that this single government project call into existence.
108. Take only one of them: finding out how to cushion the landing of a TV set on the moon. . . . This project qualifies as an unnatural specialization." Leonard E. Read, Anything That's Peaceful, 2nd ed. Ibid., p. 78. He adds: "the fact is that tens of millions of American citizens are now engaged and wholly dependent on unmarketable specializations [and] more and more millions are becoming dependent on such forced exchange of their unwanted specializations for those goods and services without which they cannot live."
109. Leonard E. Read, Anything That's Peaceful, 2nd ed. Ibid., p. 80. Cf. also the analogous remarks of Hans-Hermann Hoppe on the effects of socialism on the character structure of society and the evolution of nonproductive personality types in his A Theory of Socialism and Capitalism, esp. chap. 3.
110. For analogous reasoning see Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare Economics," in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, Mary Sennholz, ed. (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1995).
111. For the regression theorem see Mises, Human Action, pp. 408ff. Of course in the case of barter, Mises realized that past exchange ratios are not necessary to the forecasting of future ones.
112. Mises, Human Action, Ibid., p. 336.
113. On economic calculation and the regression theorem, see also Hülsmann, Logik der Währungskonkurrenz, pp. 133ff, 166ff.
114. It is therefore futile to claim that "the circumstance that in fact current market prices do reflect that corrective market process . . . should convince us that an appreciation of the role of market prices stated in terms of the 'Hayekian' knowledge problem is simply a somewhat differently articulated appreciation for the calculative properties Mises taught us to understand to exist in those market prices." Kirzner, "Reflections on the Misesian Legacy in Economics": 153-54.
115. Leland B. Yeager, "Mises and Hayek on Calculation and Knowledge": 94.