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Reflections on the Misesian Legacy
in Economics

Israel M. Kirzner

s I begin this paper for the issue of the Review of Austrian Eco-

nomics published in honor of the memory of Murray N. Roth-

bard, my mind goes back over 40 years, to the first time that I
met him. It was at the opening session of the Seminar in Economic
Theory which Professor Mises conducted in the fall semester of 1954.
That occasion was also my first meeting with Ludwig von Mises, and
it is etched deeply in my memory. Two statements by Mises at that
seminar meeting stand out in my recollection. One statement was his
very opening substantive sentence that evening. “The market,” Mises
began, “is a process.” (See also the statement in Human Action [1966,
p. 257]: “The market is not a place, a thing, or a collective entity. The
market is a process.”)

Coming as I did from a rather spotty undergraduate training in
economics (and mainly along Keynesian lines), Mises’s statement, I
recall, left me completely puzzled. I had thought of the market as a
place, an arena for exchanges, as an abstract idea referring to volun-
tary exchange transations. I could not fathom what on earth could be
meant by the observation that the market is a process. I now, in retro-
spect, consider that all my subsequent training and research in eco-
nomics, both before and after obtaining my doctorate under Mises, has
consisted in learning to appreciate what it was that Mises meant by
this assertion.

The second statement by Mises which stands out in my memory
from that September 1954 evening, is a reference that Mises made to
Murray Rothbard. Murray had, it appeared, recently completed a pa-
per which Mises found to be excellent. He briefly but warmly compli-
mented Murray on that piece of work, and expressed the hope and the
prediction that Murray would continue to produce a great deal of future
work of similar excellence. The years since 1954 have amply borne out

*Israel M. Kirzner is professor of economics at New York University.

The Review of Austrian Economics Vol. 9, No. 2 (1996): 143-54
ISSN 0889-3047

143


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144 The Review of Austrian Economics Vol. 9, No. 2

Mises’s hope and his prediction. Murray Rothbard’s output during
these four decades has been prodigious. The breadth of his reading
across so many disciplines has been breathtaking; his sheer energy in
producing thousands of pages of published work has been stupendous.
It is a privilege to contribute this paper to a memorial issue dedicated
to the memory of Murray N. Rothbard.

My paper will have to do with the first of the two statements made
by Mises at that 1954 seminar session. I will be taking issue with a
certain tendency, present in a number of recent expositions of Mises’s
work, to de-emphasize (or even flatly to deny) the centrality of the idea
of the market as a process in the Misesian system. I consider clarifica-
tion concerning the character of the Misesian system to be of critical im-
portance for the future direction of modern Austrian economics, and for
its ability to contribute fruitfully to the restoration of economic under-
standing for the economics profession and for intelligent lay people at
large. And this matter is also, of course, of fundamental importance in
projecting an accurate overall view of Mises’s own contributions. While I
shall, in my argument, be taking issue with a number of relevant state-
ments by Rothbard, I trust that the reader will appreciate that the pur-
pose of this paper is simply to further that very Misesian legacy to which
Rothbard dedicated his entire life’s work as an economist. It is as a me-
morial to Murray Rothbard’s consistency in this regard, and his willing-
ness to bear formidable costs to his professional career in order not to
compromise the honesty of his expositions, that this paper is being writ-
ten. The purpose of any critical observations in this paper (whether di-
rected at Rothbard or at others) is certainly not to stir up strife within
the Austrian camp; quite the reverse. I am convinced that a clear,
shared understanding of Mises’s central vision can bring together all
those who appreciate the intellectual content of the Misesian legacy.
To contribute an attempt in this direction, in honor of the memory of
an outstanding exponent of that legacy, is the purpose of this paper.

The Misesian Market Process

My own understanding of what Mises means when he describes the
market as a process can be stated simply:

(1) Mises saw the market process as a continually corrective proc-
ess driven and constituted by active entrepreneurial grasping of pure
profits. “The essential fact is that it is the competition of profit-seeking
entrepreneurs that does not tolerate the preservation of false prices of
the factors of production. The activities of the entrepreneurs are the
element that would bring about the unrealizable state of the evenly
rotating economy if no further changes were to occur” (Mises 1966, pp.
337-38; emphasis in the original). The market process consists, that is,


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Kirzner: Reflections on the Misesian Legacy in Economics 145

in the continual correction of false prices that occurs in the course of
entrepreneurial competition. If exogenous changes were not to occur,
this corrective process would eventually lead to a price structure for
factors of production and consumer goods, in which all entrepreneurial
profit has been squeezed out. In the real world, at any given moment,
factors of production are able to be purchased at false prices, prices
which permit entrepreneurs to capture pure entrepreneurial profits.
False prices are false in that they incorrectly reflect the relative ur-
gency of consumer demand for the various alternative possible prod-
ucts that can be created with these factors. It is this discoordination
between what might be produced and what in fact is being produced,
which offers alert entrepreneurs opportunities for pure gain. “What
makes profit emerge is the fact that the entrepreneur who judges the
future prices of the products more correctly than other people do buys
some or all of the factors of production at prices which, seen from the point
of view of the future state of the market, are too low” (Mises [1951] 1962,
p. 109). Entrepreneurs “are the first to understand that there is a discrep-
ancy between what is done and what could be done.” Their activity brings
about a systematic adjustment of factor prices. They “bid higher prices
for some factors of production and lower the prices of other factors of pro-
duction by restricting their demand for them.” Their activity also gener-
ates price adjustments for consumer goods. “In supplying the market
with those consumers’ goods in the sale of which the highest profits can
be earned, they create a tendency toward a fall in their prices. In restrict-
ing the output of those consumers’ goods the production of which does not
offer chances for reaping profit, they bring about a tendency toward a rise
intheir prices. All these transformations go on ceaselessly and could stop
only if the unrealizable conditions of the evenly rotating economy and
of static equilibrium were to be attained” (Mises 1966, p. 336). All this
ceaseless sequence of corrective price adjustments constitutes Mises’s
entrepreneurial market process.

(2) This Misesian corrective process from a false set of prices to-
wards a set of fully mutually adjusted prices may be restated in the
terms in which Hayek understood the market process to constitute a
“discovery procedure” (Hayek [1968] 1978, chap. 12). “False” prices re-
flect the decisions of entrepreneurs who have not yet understood the
correct implications of consumer preferences (present or future) for
the relative values of resources today. The way in which en-
trepreneurial activity tends to correct such false prices is through
their realization of the profit possibilities inherent in such false prices.
Grasping these profit possibilities is the way in which entrepreneurs
express their discoveries concerning the correct valuation of resources
(and thus, in effect, concerning better ways in which resources can be


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146 The Review of Austrian Economics Vol. 9, No. 2

deployed in serving the preferences of consumers). The tendency
which this entrepreneurial process generates towards equilibration is
thus one of gradually enhanced mutual anticipation on the part of
market participants. In the theoretical limit, in the hypothetical state
of equilibrium in which no entrepreneurs would earn profit or suffer
losses, we would be able to say that “all people. . . anticipate correctly
the future state of the market” (Mises [1951] 1962, p. 108). Although
it was Hayek, rather than Mises, who extensively articulated the na-
ture of the market equilibrating process as one of gradually enhanced
mutual knowledge, there can be no doubt that an interpretation of the
Misesian process in terms of enhanced mutual knowledge is a valid
one. Disequilibrium prices are “false” prices; as entrepreneurial profit
taking nudges prices towards their correct levels, entrepreneurs have
been led to more accurate anticipations concerning relevant future
market configurations.

(3) What makes possible the entrepreneurially driven process of
equilibration is active market competition. It is only the possibility of
unrestricted entrepreneurial entry which permits more alert entre-
preneurs to deploy their superior vision of the future in order to correct
the misallocations of resources reflected in the false prices which char-
acterize disequilibrium. It is the continual threat of such entry which
tends to keep incumbent entrepreneurs alert and on their toes. The
reason that Mises had little patience for the concept of perfect compe-
tition (see his approving reference to Hayek's pioneering essay on this
matter “The Meaning of Competition,” in Mises 1966, p. 278n), was
that this concept can relate only to an already attained state of equi-
librium. It has nothing to do with, and can throw no light upon, the
competitive forces which drive the entrepreneurial market process. In
deepening his (and our) understanding of the competitive process as
consisting in a discovery procedure, Hayek was articulating insights
that are, at the very least, thoroughly consistent with Mises’s own un-
derstanding of the dynamic entrepreneurial competition which, for
Mises, constitutes the heart of this market process.

The Shared Understanding of Mises and Hayek
on the Market Process

To draw attention, as we have in the preceding paragraphs, to the
shared understanding that is apparent in Mises’s and Hayek’s treat-
ment of the market process, is not to “homogenize” separate systems
or “paradigms” of economic thought. Mises and Hayek are, to be sure,
distinct thinkers with different views—sometimes fundamentally dif-
ferent views—on many issues in economic theory and method. There
is a definite contribution to be made, towards properly understanding


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Kirzner: Reflections on the Misesian Legacy in Economics 147

each of these two great Austrian economists, by drawing attention to
the matters on which they disagree. But, we must insist, (a) the gen-
eral character of the market process does not constitute such an area
of disagreement; and (b) this area of shared understanding is so cen-
tral to the work of both Mises and Hayek, that our awareness of their
common position in this matter must definitively dispel any sugges-
tion of the existence of a Misesian “paradigm,” in regard to the market
process, that is sharply to be distinguished from a Hayekian “para-
digm.” Yet such claims have recently been made.

Mises and Hayek Dehomogenized?

Professor Salerno has, in a number of recent papers (1990, 1991, 1993,
1994), initiated a line of intellectual historiography designed to drive
a wedge between Mises’s and Hayek’s understanding of markets. Mur-
ray Rothbard and Jeffrey Herbener (Rothbard 1991, 1992, 1994; Her-
bener 1991) have hailed Salerno’s thesis as providing definitive
grounds for the rejection by all “Misesians” of what Salerno, Rothbard,
and Herbener see as grave “Hayekian” errors."

The asserted distinctions on the basis of which Salerno declares
the existence of two paradigms, a Misesian and a Hayekian, can be
summarized as follows: (a) Hayek was trained under Wieser, and this
accounts for his failure to have absorbed the Mengerian insights
which, through the teachings of Bohm-Bawerk, later matured into the
Misesian position (Salerno 1993, p. 114); (b) Hayek believed that “in
order for prices to fulfill their knowledge-disseminating and plan-co-
ordinating functions, the economy must subsist in a state of (what
Salerno calls) ‘proximal equilibrium,’ wherein realized prices are always
fairly accurate indicators of future prices” (p. 128); Mises, on the other
hand, considered the concept of equilibrium as only a mental tool. It “is
impossible to determine and meaningless to suggest that the real econ-
omy is closer to the FSR [final state of rest], and therefore manifests a
superior coordination of plans and greater allocative efficiency, at one
instant of time than it was at a previous instant” (p. 129). The social role
fulfilled by prices does not depend on the attainment or near attainment
of the FRS. This leads directly to the next point. (c) For Hayek, allocative
efficiency consists in plan coordination among market participants. For
Mises, on the other hand, the social efficiency achieved by the market con-
sists (and is always perfectly attained) in the ex ante “appraisement and
allocation of resources [by entrepreneurs] in strict accordance with antici-
pated consumer preferences” (p. 130). Salerno recognizes that, in regard

Because of Salerno’s initiating and prominent role in the “two-paradigm” litera-
ture, this section refers primarily to his writings. However, similar statements can
typically also be found in the above cited papers of Rothbard and Herbener.


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148 The Review of Austrian Economics Vol. 9, No. 2

to ex post efficiency, entrepreneurial errors are inevitable in a world of
uncertainty and change. However, apparently the only systematic
process which Salerno recognizes in Mises as tending to correct such
ex post inefficiencies, is that in which less astute entrepreneurs come
to be weeded out of the system through their repeated speculative fail-
ures and resulting losses (pp. 131ff). (d) For Hayek the essence of the
market process and of its social function, is in its overcoming of the
“knowledge problem” arising out of dispersed knowledge “among the
multitude of individual consumers and producers” (p. 115). It is this
property of the market, and its absence in the socialist economy, which
identified, for Hayek, the fundamental weakness of socialist planning.
For Mises, on the other hand, Salerno and his colleagues claim, even
ifthe socialist planners were miraculously endowed with perfect infor-
mation, they would nonetheless be unable to “rationally calculate how
to combine resources to render efficient production” (Herbener 1991,
p. 43).

It is, indeed, especially the interpretation of Mises’s thesis con-
cerning the impossibility of socialist economic calculation that has
been perhaps the central focus of Salerno’s “two-paradigm” thesis. Af-
ter a number of pages in which Salerno (quite unsuccessfully, it must
surely appear) seeks to refute Leland Yeager’s definitive paper (Yeager
1994) demonstrating that Mises’s thesis does, after all, require that
we attribute to Mises at least implicit recognition of Hayek's “knowl-
edge problem,” Salerno sums up as follows: “Thus market oriented PC
(i.e., perfect competition] theorists, such as Hayek and Yeager, and neo-
classical/socialist GE [i.e., general equilibrium] theorists are brothers un-
der the skin” (Salerno 1994, p. 119).% Let us indeed, then, take up Salerno’s
treatment of the Misesian thesis; it will, I believe, permit us to confront
Salerno’s major points of contention. We shall, I further believe, be able in
this way to place our finger not only on the source of the two-paradigm fal-
lacy, but (at the same time), also on a significant element in Mises to
which Salerno has properly drawn attention. The circumstances that
Salerno’s recognition of this element in Mises has, in our judgment,

The biting sarcasm employed in this assertion is but a relatively mild example of
the rhetorical excesses appallingly to be found in the “two-paradigm” literature against
such writers as Hayek, Lachmann, and others charged with having diverged from the
asserted “Misesian paradigm.” I take this opportunity strongly to protest the use of
verbal terrorism in Austrian economics. Even if (which is farfrom being the case) the
asserted criticisms of Hayek, Lachmann, and others were valid, there would be abso-
lutely no justification for the manner in which these great economists have been treated
in the literature under discussion. The near-demonization of Hayek and Lachmann for
alleged deviations from an asserted Misesian orthodoxy is a most distressing phenome-
non. If Austrian economists (and the Review of Austrian Economics) are to be able to
work constructively in the rough and tumble of the intellectual market place, anything
approaching rhetorical brawling must once and for all be rejected.


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Kirzner: Reflections on the Misesian Legacy in Economics 149

unfortunately misled him (and Rothbard) to see fundamental diver-
gence where none exists, should not blind us to the value of this char-
acteristically Misesian insight for Austrian economic understanding.

Mises and the Calculation Problem

Salerno and Rothbard are fully justified in emphasizing the subtlety
of the Misesian concept of economic calculation. With much of what
they say in exposition of that concept, this writer is in full agreement.
He objects only to the quite unwarranted conclusion which they draw
from that exposition to the effect that the Misesian calculation prob-
lem has nothing whatever to do with Hayek’s knowledge problem. A
possible contribution to this unfortunate misunderstanding lies, I be-
lieve, in Hayek's earlier ambiguity concerning the nature of his knowl-
edge problem. This writer has for a number of years (see Kirzner
[1984] 1992, p. 149), pointed out that Hayek's brilliant 1945 paper,
“The Use of Knowledge in Society,” was seriously confused in making
it appear that the function of prices in communicating knowledge was
a function that is filled, in principle, also in the state of equilibrium.
Salerno and Rothbard would be on firm ground if they objected, as this
writer has objected, to such an equilibrium treatment of the place of
knowledge and the communication function of prices. But the truth is
(as becomes evident in Hayek's later work, see especially Hayek [1968]
1978) that Hayek’s knowledge problem relates fundamentally to those
states of affairs in which—precisely because of the knowledge prob-
lem—market agents are making plans which do not, in the fullest
sense of the term, dovetail with each other.

As Salerno and Rothbard point out, calculation is needed in order
to appraise the wisdom of prospective action. Without the tool of genuine
money prices, economic agents would be reduced to comparing goods sac-
rificed and goods received, in the face of their obvious heterogeneity and
incommensurability. Such an agent would be called upon, in effect, (ex-
cept in the simplest of Crusoe economies), to make decisions with his eyes
closed; he would have no way of knowing whether his outcome represents
profit or loss. Market prices provide the indispensable tool needed for cal-
culation. Because the socialist society does not include resource markets,
its central planners must operate without known resource values. Their
decisions must be made, in effect, with eyes closed.

Under capitalism, entrepreneurs make their plans based on their
entrepreneurial awareness of the resource prices they must pay in the
more immediate future, and of the product prices they anticipate that
they will be able to command in the more remote future. These antici-
pated prices provide the entrepreneur with cardinal numbers on the ba-
sis of which to appraise the profitability (or its absence) of prospective


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150 The Review of Austrian Economics Vol. 9, No. 2

entrepreneurial activities. In the absence of resource prices under so-
cialism, rational central planning is literally impossible, as Mises
stated (and as Salerno and Rothbard quite correctly emphasize in
their interpretation of Mises).

Where Salerno and Rothbard have (as demonstrated by Yeager)
gone astray,’ is in their refusal to recognize that this impossibility of
rational calculation and action under socialism can illuminatingiy be
recognized as arising out of the limitations of the human planning
mind—in other words, as consisting in a disastrous knowledge gap
which, without market prices for resources, it is impossible to bridge.
We may readily concede that Mises did not articulate his calculation
problem in terms of knowledge; but this does not in the slightest imply
that that problem cannot be seen to consist of a knowlege problem.
Reasonable interpreters of Mises may disagree on whether (as this
writer emphatically believes to be the case) Mises’s calculation prob-
lem is indeed seen more clearly when its knowledge implications are
made explicit. But there is no basis whatever for claiming that, in ex-
posing these knowledge implications of the Misesian argument, one is
distorting or falsifying that argument.

To be unable to calculate the worthwhileness of a prospective ac-
tion taken in a market society, is, after all, to not know the importance
to others of the goods and services one commits to that action, and the
importance to others of the goods one will obtain from that action. It
is quite true, that Mises pointed out (and Salerno and Rothbard cite
this again and again) that the calculation problem would exist even for
a socialist planning authority possessing on its desks and in its computer
memories, the fullest technological information of the age, full informa-
tion on available resource availabilities, and full (and somehow, unani-
mous) information of the social ranking of the importance of ends. This
is because, even armed with such “knowledge” (or, perhaps, precisely be-
cause the authority would be engulfed by these floods of information), the
members of the authority would still not know what they would need to
know, in order to calculate. As Leland Yeager has explained, possessing
all this information is not the same as having assimilated it, and having
been able to deploy it (whether by computing the solution to simulta-
neous equation systems, or whatever) to discover the relative values
of the relevant resources and products. The members of the authority

3This paper concentrates critically only upon those aspects of Salerno’s and Roth-
bard’s papers which are directly relevant to our placing the market process at the center
of Mises’s system. We do not take up here any criticism of a number of related assertions
contained in these papers (concerning: entrepreneurship, uncertainty, the future,
alertness, discovery, and coordination) which this writer finds puzzling, contradictory,
or otherwise based on possible misunderstanding.


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Kirzner: Reflections on the Misesian Legacy in Economics 151

would not know what one needs to know in order to calculate the
worthwhileness of prospective decisions.

For Mises (as Salerno and Rothbard correctly point out) prices are
not primarily signals economizing on the cost of communicating in-
formation.* Their social function consists in providing decision mak-
ers with meaningful cardinal numbers with which to calculate the
worthwhileness of prospective actions. To be “meaningful” we do not
require these cardinal numbers to be roughly equal to or close to rele-
vant equilibrium values. We require only that, at each point in time,
these cardinal numbers reflect the interplay of the decisions made by the
keenest (as well as those less keen) of the entrepreneurial minds in the
market economy. In all this, I am in complete agreement with Salerno
and Rothbard.

But it is precisely here, I believe, that Salerno and Rothbard have,
in properly drawing attention to an underemphasized element in
Mises’s position on economic calculation, been led into error. The ele-
ment being here referred to is that, for Mises, even market prices that
are very far from their equilibrium values perform a valuable role in
enabling entrepreneurs to calculate. Let me emphasize even more
starkly the aspect of this element in Mises which appears to have
most impressed Salerno and Rothbard: Even if we could imagine that
the equilibrating market process has not yet succeeded in nudging
disequilibrium prices at all towards equilibrium, these prices yet per-
form their social role in making possible economic calculation. It is
apparently this aspect of the Misesian position which has taught
Salerno and Rothbard that what makes calculation possible cannot be
and is not that knowledge-enhancing process which, for Hayek and
other Austrians, constitutes the process of market equilibration. It
followed, for these two scholars, that the Misesian calculation prob-
lem under socialism cannot and must not be identified with the
Hayekian knowledge problem (which tends to become solved during
the course of the equilibrating market process). But there is no rea-
son at all to arrive at such an understanding (or, rather, misunder-
standing) of Mises’s position.

False Prices and Less False Prices

As cited earlier, Mises certainly did recognize that disequilibrium
market prices are, in a sense, “false prices”: they reflect erroneous
expectations (i.e., erroneous “knowledge”) being held by entrepreneurs

“This is the aspect of Hayek’s 1945 paper which the mainstream literature (and
now Salerno, et al.) have seen as central to Hayek's position. This writer has long
deplored according centrality to such a “communication” role, and has argued that
Hayek’s later work suggests that he, too, saw beyond such a narrow interpretation of
the role of prices (see Kirzner [1984] 1952, chap. 8).


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152 The Review of Austrian Economics Vol. 9, No. 2

concerning the true preferences of consumers. It is the equilibrating
force generated by the process of entrepreneurial competition, we saw,
which for Mises tended to replace false prices by less false prices. We
have every reason to believe that, when Mises sees market prices as
effective tools for entrepreneurial calculation, his view of prices is, at
the very least, rendered even more benign by his understanding of the
market process in which earlier false prices have tended to have be-
come replaced by less false prices. (Of course this tendency may be
frustrated by entrepreneurial error in an uncertain, changing
world. There is no guarantee that today’s prices are necessarily less
false than yesterday’s. But this possibility does not eliminate the
existence of a systematic process in which entrepreneurial profit-
seeking activity identifies those false prices which promise pure prof-
its, and, by grasping those profits, tends to replace them by prices
which more accurately reflect the true values to consumers, of re-
sources and products.)

Salerno and Rothbard are right to emphasize that for Mises the
prices which prevail at any time fulfill their function of rendering eco-
nomic calculation possible. This, we must insist, is not because all
prices, at all times, are “market clearing prices,” in any sense relevant
for our evaluation of the social efficiency of the price system. After all,
false prices reflect production plans which are, by definition, at variance
with the true preferences of consumers. The Misesian insight that all
prices, at all times, render economic calculation possible, arises out of two
closely related circumstances: (a) at each instant in time, the price offers
and bids, and thus also the realized prices, reflect the expectations of the
most canny entrepreneurs in the market (so that what may, a day later,
with the wisdom of hindsight, indeed be seen as having been false prices,
were nonetheless, in terms of the most perceptive entrepreneurial assess-
ment of the preceding day, at that time expressive of the most judicious
readings—the best knowledge—of consumer preferences); (b) at each in-
stant in time, current prices are the outcomes of processes of en-
trepreneurial profit-seeking corrections of still earlier false prices; at no
time, in the real world, can we say that the corrective market process has
not yet begun its work. At each instant, therefore, current market prices
reflect the best conceivable estimates of relative consumer preferences. The
calculations which entrepreneurs make by reference to such prices
(and by reference to such expected future prices), are thus informed
by the assessment of the shrewdest of entrepreneurs, operating under
the powerful incentive of winning pure profits.

What we wish to stress is that the capacity of market prices to in-
spire calculative economic activity is based solidly on the extent to
which prices do express correct assessments of (i.e., the relevant


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Kirzner: Reflections on the Misesian Legacy in Economics 153

knowledge regarding) both current and future preferences of con-
sumers, and the current and future production plans of other entre-
preneurs. As Mises pointed out in his first statements on the calcula-
tion problem (see, e.g., Mises [1922] 1936, pp. 115-17), market prices
are not perfect tools in this respect: but they are extraordinarily valu-
able tools nonetheless. Their value surely lies in the expression of the
best available entrepreneurial knowledge concerning market condi-
tions.

It is quite true that for Mises this “best available entrepreneurial
knowledge” expressed in current market prices would be valuably use-
ful for calculation purposes even if one could imagine these prices not
already to reflect the corrective entrepreneurial market process which
tends to replace false prices with prices less false. But the circum-
stance that in fact current market prices reflect that corrective market
process (and our awareness that Mises did indeed emphasize this cir-
cumstance in regard to market prices) should convince us that an ap-
preciation of the role of market prices stated in terms of the
“Hayekian” knowledge problem is simply a somewhat differently ar-
ticulated appreciation for the calculative properties Mises taught us
to understand to exist in those market prices.

Some Observations on the Misesian Legacy

Mises had a profound and subtle understanding of the market’s opera-
tion. In that understanding, the character of the market as a process
in which mistaken entrepreneurial judgments tend to come to be re-
placed by more accurate judgments (and thus one in which false prices
are replaced by less false prices), was a central feature: Hayek, too,
had his own understanding of the market’s operation. In certain re-
spects, particularly in its articulation of the role of knowledge and dis-
covery, that understanding can be differentiated from that of Mises.
But the centrality of the knowledge-corrective character of the market
process for both Mises and Hayek cannot seriously be doubted. What-
ever the differences between a Hayekian articulation of the market
process and a Misesian articulation, the centrality of the notion of the
corrective process for both, is the crucially important circumstance. It
is this that should convince us that any talk of a Hayekian “paradigm”
which differs fundamentally from the Misesian paradigm should be
dismissed as not only reflecting a mistaken doctrinal judgment, but as
reflecting a mistaken judgment with potentially catastrophic implica-
tions for the future of Austrian economics.

Austrians are a beleaguered minority in the economics profession
today. One of the core doctrinal issues separating Austrian economics
from the mainstream is that Austrians understand the entrepreneurial


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154 The Review of Austrian Economics Vol. 9, No. 2

character of the market process. We learned this from Mises. From
Hayek we learned additional, complementary insights. If we wish to
preserve and build upon the Misesian legacy, we must not generate
confusion (both among Austrians and their opponents) by exaggerat-
ing perceived differences between Mises and Hayek, to the point where
the centrally shared insights of both are dangerously obscured.

References

Hayek, Friedrich A. von. 1978. “Competition as a Discovery Procedure.” In New
Studies in Philosophy, Politics, Economics, and the History of Ideas. Chicago:
University of Chicago Press. Chap. 12. This paper was delivered as a lecture
in 1968.

Herbener, Jeffrey M. 1991. “Ludwig von Mises and the Austrian School of Econom-
ics.” Review of Austrian Economics 5 (2): 33-50.

Kirzner, Israel M. 1984. “Prices, the Communication of Knowledge and the Dis-
covery Process.” In Kurt R. Leube and Albert H. Zlabinger, eds., The Political
Economy of Freedom: Essays in Honor of F. A. Hayek. Vienna: Philosophia
Verlag. Reprinted in Kirzner, The Meaning of Market Process: Essays in the
Development of Modern Austrian Economics. London and New York: Rout-
ledge, 1992. Chap. 8.

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