Thursday, April 11, 2013

Kirzner Challenges Equilibrium Economics

Professor Peter Boettke of the Coordination Blog HERE write:
First published in 1973, Competition and Entrepreneurship defined Israel M. Kirzner’s unique contribution to the economics profession. … 

“Kirzner establishes a theory of the market and the price system which differs from orthodox price theory. He sees orthodox price theory as explaining the configuration of prices and quantities that satisfied the conditions for equilibrium. He argues "it is more useful to look to price theory to help understand how the decisions of individual participants in the market interact to generate the market forces which compel changes in prices, outputs, and methods of production and in the allocation of resources."
I shall order a copy of Kirzner’s book.  His work first came to my attention when reviewing Professor Daniel Klein’s “Knowledge and Coordination: a liberal interpretation” (Cambridge University Press) for the Society of History of Economics, which I also published on Lost Legacy.  I did not do anything about it at the time but Boettke’s notice prompted me to change my mind.
I like the approach, as it seems to reject those equilibrium models of mainstream economics, which were prominent when I was an undergraduate and when taugh standard micro. I was not convinced then but followed the syllabus as required.  I have remained skeptical since.
Adam Smith is supposed, on modern miss-readings, to have anticipated General Equilibrium theory, a wholly improbable claim in my view. 
Why an economy needs to reach an equilibrium I cannot fathom other than it is required for the maths. How many equilibrium states are there when billions (possibly trillions) of transactions take place daily across the world?  Would that not be akin to permanent equilibrium?   If not, how long is there between any two equilibriums?  Would we notice? 


Blogger The Arthurian said...

That's a great quote from Kirzner.

11:04 am  

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