On Kirzner’s “Perception, Opportunity, and Profit”

Kirzner’s Perception, Opportunity, and Profit is a collection of essays, previously published and unpublished, on a number of issues relating to the well-known Kirznerian concept of entrepreneurship. As such, it supposedly offers a clarifying discussion on what is meant by “pure” entrepreneurship, alertness (as opposed to innovation, judgment, etc.), and, perhaps the most provocative part of the Kirznerian conception of entrepreneurship, how the entrepreneur is not necessitated any ownership.

Unfortunately, after reading this book I am still not sure how to answer these questions. It is not clear to me how entrepreneurship is usefully separated from the ownership and control of resources used to realize the profit opportunity discovered.

What does stand out, however, in Kirzner’s discussion on entrepreneurship, is the firm basis in his theorizing on the work of Hayek – especially the work on knowledge and information. Whereas Kirzner himself is said to claim that he is but elaborating (in a clarifying manner) on the Misesian entrepreneur, this is not at all how the reader would intuitively understand these texts.

The focus on knowledge is prevalent and the references to Hayek numerous – perhaps more so than to Mises. A troublesome fact is that references to Mises are oftentimes done in a very general or perhaps generic fashion, whereas the references to Hayek are concise, concrete, and directly connected to a piece of the puzzle solved by Kirzner.

The problem with the essays published in this book is that they are only in a very limited extent clarifying and to a much less limited extent the exact opposite. In fact, Kirzner tends to “almost” contradict his earlier writings throughout the book without ever coming to the point where he actually does contradict himself. As in the case of explicitly relying on the Misesian view of entrepreneurship, the treatment of the entrepreneur in Perception, Opportunity, and Profit seems to fall somewhere between Mises and Hayek in the view of the market, knowledge, and the role of the entrepreneur. It is not clear if Kirzner ends up on either side; rather, he does a good job of not at any point completely ending up on either side.

Nevertheless, the book offers an interesting discussion on a multitude of issues related to entrepreneurship and the market as a process. Kirzner tends to at times use a lot of words to say little, which at times makes the text into a beautiful prose and at times makes it overly tedious to read (I remember silently crying out to myself more than once that Kirzner ought to “get to the bloody point”), but his logic is mostly impeccable. And the essays are very Kirznerian in both content and style, which should make them quite provocative for most economists of the non-radical Austrian variety. As such, the book is an interesting and good read.

Obviously, Kirzner uses a not insignificant part of the text to discuss the issue of entrepreneurship as being alert to opportunity, i.e. entrepreneurship as opportunity discovery. It does not appear obvious how Kirzner views opportunities, however, and I find it unclear whether opportunities are supposed to be objectively existing in the real world (as is the common interpretation in the scholarly literature on entrepreneurship) or if Kirzner uses the sense of objective opportunity to prove an essential point on entrepreneurship. The problem here is that whereas Competition & Entrepreneurship perhaps tended toward the latter, Perception, Opportunity, and Profit seems to tend toward the former. So what is it?

In the sense that the Kirznerian pure entrepreneur cannot make losses, the opportunities must be objective. And this is how they tend to be treated throughout the essays. Yet Kirzner does not refrain from discussing profit and loss as well as the fact that entrepreneurs do make errors. Do they then make errors regarding whether they have truly identified an objective opportunity or is the error in the foreseeing or imagining of how the chosen actions will become profitable in the future? The answer cannot be in the affirmative to both of these, which yet again raises the question of the nature of opportunities. The fact that Kirzner several times refers to Lachmann’s and Mises’s subjectivism makes this even more confusing.

What seems to almost completely lack confusing, however, is Kirzner’s well-put and multi-faceted criticism of mainstream, standard economics. The last essay in the book, “Entrepreneurship, Choice, and Freedom,” makes very clear that there is a fundamental difference between how most economists and how Austrian economists see the world. It is due to this difference – basically that “standard” economists see the world in terms of only given means and given ends – that economists tend to end up with incorrect answers to many questions.

In this particular essay, the question is whether restrictions that are not necessarily “felt” by individuals may still have negative consequences. Neoclassical economists would answer “no” because unfelt restrictions do not have any [negative] effect on individuals’ optimizing choices among the given ends. Austrian economists, including Kirzner, emphatically must answer “yes” simply because the ends as well as the means are not given and therefore that restrictions may have enormously negative consequences in terms of the choices and actions made by individuals.

In essence, individuals tend to not even consider choices that are out of reach – out of reach being an obvious effect of restrictions and regulations – which means regulations do not have an effect on their optimizing choice of available alternatives, but they could very well have a (substantial) effect on entrepreneurial action.

Yet again, however, Kirzner uses entrepreneurial acting under uncertainty toward subjectively identified ends in his critique of mainstream economics. The obvious question is how this fits with the view of profit opportunities as objectively existing. Or are they?