Kirzner on Mises’s Consumer Sovereignty
In Light of the Market as a Process
©J. Patrick Gunning
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May 25, 2007
Kirzner on Mises’s Consumer Sovereignty
In Light of the Market as a Process
Abstract
The aim of this essay is to evaluate Israel Kirzner’s assessment of the consumer sovereignty
concept in the works of Ludwig von Mises. Kirzner claimed that Mises’s main achievement in
economics was to introduce the idea that the market is a process. This idea leads directly to a critique
of mathematical economists who are content to comprehend economic interaction by comparing
equilibrium states. Kirzner did not understand the role played by consumer sovereignty in Mises’s
value free science. As a result, he neglected the traditional goal of evaluating interventionist
arguments. In so doing, he showed that he also failed to comprehend the broader contributions of
Mises.
Kirzner on Mises’s Consumer Sovereignty
In Light of the Market as a Process
Neo-Austrian economists, broadly speaking, have a distorted view of Ludwig von Mises’s
economics. The blame for this rests squarely on his two most famous American students, Israel
Kirzner and Murray Rothbard. They were the main conduits for lessons taught by the older
Austrians. Most of the modern neo-Austrians are either students of Kirzner or Rothbard, students
of their students, or students farther down the neo-Austrian economics supply chain. However, these
two prominent Mises students did not transmit the key to understanding Mises’s economics.
Two myths predominate. The first is that Mises’s economics is based on a utilitarian ethic.
I have previously sought to dispel this myth (Gunning 2005a, 2005b, and 2008). This essay takes
Mises’s value freedom for granted. A second myth is that Mises’s economics consists mainly of the
insight that the market is a process. The main proponent of this myth has been Kirzner. Although the
market process is certainly an element in Mises’s economics, it is by no means his most important
insight. Moreover, excessive focus on this element leads to a dead end. Once one makes the point
that the market is a process, there is nothing left to do but to criticize those who err in neglecting this
fact. My goal in this paper is to analyze Kirzner’s thesis in light of my claim that consumer
sovereignty is the key to Mises’s economics (Gunning 2008).
This essay is not an assault on the idea that the market is a process. On the contrary, to the
extent that this idea is considered within the context described by Mises, I accept it as one that
should be understood by every student. What I propose to do is to show that Kirzner attached undue
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importance to the idea in his discussion of Mises’s ideas. At the same time, he was led to
misinterpret the significance of consumer sovereignty. Most importantly, his focus on the market
process seems to have diverted his attention from the underlying goal and procedure of economics
which gave meaning to the market process.
This paper begins in part 1 with a brief restatement of my previously-published interpretation
of consumer sovereignty in Mises’s Human Action (1966). Then, in part 2, I compare Mises and
Kirzner by illustrating their differences on the issue of price regulation. Part 3 describes Kirzner’s
interpretation of Mises’s consumer sovereignty and shows that he failed to account for the theorem
of the harmony of rightly understood interests. Part 4 discusses Mises’s market process idea, as it
was presented in Human Action. It shows that it was subordinate to the concepts of consumer
sovereignty and entrepreneurship. The paper ends in part 5 with a brief conclusion.
1. REVIEW OF THE ROLE OF CONSUMER SOVEREIGNTY IN MISES’S ECONOMICS
I claimed in my recent essay (2008) that Mises’s economics was based on the goal of
evaluating arguments for and against economic intervention that are made by utilitarians who
understand the potential utilitarian benefits that can be achieved by a division of labor. An
equivalent way to characterize the arguments is to say, following Mises, that they are made on the
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basis of the knowledge of the harmony of rightly understood interests (HRUI).1 He built his
economics around the image of a pure market economy seeking to show that the benefits of a
division of labor, as viewed by the HRUI utilitarian, would be greater than under a system in which
there is intervention in the pure market economy. He recognized that such an economics might not
be relevant to people with other values.
The key characteristic of the pure market economy is consumer sovereignty. The actions of
individuals in the role of the resource suppliers and producers are aimed toward maximizing money
income. Such actions tend, in a pure market economy, to lead to the satisfaction of consumer wants,
with the minor exception of monopoly. When a person relentlessly tries to maximize money income
but fails, there is a corresponding failure to satisfy consumer wants as best as possible, from the
standpoint of HRUI. Since people try to avoid errors, however, and since they have the ability to do
so, the tendency is assured. A person who diverges from the goal of maximizing money income in
order satisfy her own wants merely elevates her own wants above those of the consumers whose
wants she would otherwise cause to be satisfied. In the case of monopoly, the owner of a resource
may be able to maximize income by withholding some of the resources from the satisfaction of
1
Mises devotes a section of his Chapter twenty-four of Human Action to the concept of “The
Harmony of Rightly Understood Interests.” Although he defines this term clearly, he devotes most of the
section to the relationship between the concept and socialism. This may be the reason why readers of
Human Action have failed to realize its relevance to interventionist arguments. Larry Eshelman (1993)
was able to flush out the concept in Human Action. However, he saw it as a method of justifying laissez
faire, as opposed to a means of achieving value freedom in economics.
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wants even though the consumer benefits are greater in terms of money than the sacrifice to the
supplier, in terms of money.2
2. KIRZNER’S MARKET PROCESS APPROACH TO MARKET INTERVENTION
In a chapter on pricing under the conditions of the pure market economy, Mises used the term
“market process” to help describe how prices are determined. Seizing on this usage, Kizner and
others have sought to elevate this notion to the point where they have strongly suggested or outright
stated that Mises’s economics is best characterized by a concern with the market process, as opposed
equilibrium analysis. The goal of those who have advanced this view is usually to contrast Austrian
or neo-Austrian economics with “the mainstream,” which the sometimes label “neoclassical.” The
implication is that Mises’s economics should be contrasted with most, if not all, of the other
economics that is done in the world. In referring to arguments favoring or opposing market
intervention, these interpreters have expressed the view that while Austrian economics views the
effects of intervention in terms of processes, the neoclassicals view them as equilibrium outcomes.
Thus the Austrians have an edge in evaluating such arguments. Such a view often falls on deaf ears
2
Mises does not discuss the possibility of a consumer buyout of the monopoly right. He also does
not discuss transactions costs. This is reasonable since he does not regard monopoly as important in the
evaluation of interventionist arguments. He thinks of it mainly as a theoretical exception.
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partly because a large per cent of non-Austrians already recognize the limitations of equilibrium
analysis, even if they do not appreciate some of the finer points of Austrian economics.
Kirzner’s Approach
Consider how Kirzner has described the market process approach to regulation.
Let us suppose that the need to regulate is asserted on the basis of some perceived "undesirable"
phenomenon arising from the unregulated market. For example, the prices of certain goods are held to be
"too high" (milk to consumers?), or "too low" (wheat prices received by farmers?). Or the quantity
available of a certain product is held to be "too low" (medical care?) or "too high' (unsafe toys?). And so
on. Let us imagine (perhaps fancifully) that government decisionmakers are motivated solely by the urge
to induce a pattern of phenomena that faithfully reflects consumer preferences (which they believe to have
been somehow frustrated by the uncoordinated free market). Our discussion should have made clear that
these selfless, public-minded officials lack the means to be able to respond to the innumerable rankings
of preference (by consumers and owners of resources) of which they may initially not be directly aware.
There is no way they can know the "correct" price or the "correct" quantity for any particular product or
resource. There is nothing (corresponding to the entrepreneurial motive to discover pure profit
opportunities) that could lead them systematically to discover where failures of coordination in fact exist.
More serious is the fact that direct controls by government on prices, quantities, or qualities of
output production or input employment may unintentionally block activities which have, as yet, not been
specifically envisaged by anyone (Kirzner 1982: 9-10).
We learn here that the market process approach to regulation sees the price outcomes of market
interaction as largely, if not totally, outside of the ability of economists and policy makers to predict.
In essence, this means that the economists and policy makers cannot even formulate price goals that
are achievable. To formulate a goal requires knowledge that does not exist. Thus, price intervention
is a fruitless exercise regardless of whether the intentions are good. Price intervention from this point
of view is a false hope. It follows that all interventionist arguments that set the goal of a particular
set of “prices, quantities, or qualities of output or input” are flawed.
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Kirzner and Mises Compared
How different this is from Mises’s approach to price intervention. Mises wrote a chapter on
the “Interference with the Structure of Prices” (Chapter 30), which approaches the subject from a
very different point of view. The question Mises asks is this: under what conditions is it likely that
intervention will achieve the goal that is intended? His conclusion is that there are two possible
conditions: absolute rent and monopoly prices (Mises 1966: 764). In other cases, he reaches the
following conclusion:
Economics does not say that isolated government interference with the prices of only one commodity or
a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary
to its purpose, that it makes conditions worse, not better, from the point of view of the government and
those backing its interference (ibid.).
It is worth noting that he writes here of “isolated” interference. This presumably means that he is not
referring to a specific market economy in which interference is already taking place. One might
reasonable presume also that he was writing about an economy with complete private property rights.
In such an economy, he says, unionism which aims to raise the wages of workers in a particular
profession is capable of achieving that goal. It thus can benefit some people. But it diminishes the
wages in other professions (ibid.: 770). The important point is that while the economist is in a
position to identify goals that price intervention cannot help to achieve, he is not in the business of
deciding independently whether such interference is good or bad.
Economics does not say labor unionism is a bad myth. It merely says it is an inappropriate means of raising
wage rates for all those eager to earn wages. It leaves it to every man to decide whether the realization of
the labor-union myth is more important than the avoidance of the inevitable consequences of labor-union
policies (ibid.: 884).
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When Mises writes “to all those eager to earn wages,” one must presume from the context (not
provided here) that he is referring to HRUI.
The difference between Mises and Kirzner is this. Kirzner argues that price regulators are
unable to formulate a plan that will achieve an equilibrium price. Price regulators do not have
sufficient information to identify the equilibrium. Mises, on the other hand, argues that price
regulation will cause events in the market economy for which HRUI goals are less well achieved
than they would be without the regulation.
From the point of view of the advocate of laissez faire, the positions of Kirzner and Mises
seem similar. They both advocate a non-interventionist policy. Kirzner argues, however, that policy
makers cannot identify a policy that will achieve any goal at all. Mises argues that, with the
exceptions noted, they cannot improve on the pure market economy, from the viewpoint of achieving
harmony of rightly understood interests.
3. KIRZNER’S INTERPRETATION OF MISES
Kirzner discusses Mises’s consumer sovereignty in writings published in 2000 and 2001. I
begin with his 2000 paper.
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Mises 2000 Paper on the Misesian Legacy3
In the 2000 paper, Kirzner first discusses the market process, demonstrating the view that
this phenomenon deserves top billing in a description of the Misesian legacy (Kirzner 2000: 170-1).
His argument is that in emphasizing consumer sovereignty, Mises was completing the Mengerian
vision.
Menger recognized how it is the consumer valuation of output which tends to be reflected in the market
prices of the relevant inputs – which Menger identified as "higher order goods"– making Menger a
pathbreaker in the development of neoclassical marginal productivity theory” (ibid.: 169).
He proceeds toward the end of his paper to report on the section of Human Action called “The
Sovereignty of the Consumers.” He points out that the only exception to consumer sovereignty is
monopoly (ibid.: 171).
Kirzner is ambivalent on the importance of consumer sovereignty in Human Action. He
writes that “following the section on consumer sovereignty, “not much further attention is paid to
the idea of consumer sovereignty, but there can be no doubt as to its centrality for Mises's
understanding of the market economy (ibid.)” He bases this judgment on his recollections from
Mises’s lectures and seminars.
Next he refers to both a normative and positive use of the consumer sovereignty concept. The
normative use, he suggests derived from Mises’s assumption that his audience wanted to endow
consumers with such sovereignty. Accordingly, Kirzner implies, Mises showed the audience that a
3
Kirzner says that this paper was written for publication in 1996. A paper with the same name
was published in the Review of Austrian Economics. However, the earlier paper did not contain the
section on consumer sovereignty and property rights which form the basis for the discussion here. Instead
the section was contained in a later paper (Kirzner 1999a).
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free economy does this and, therefore, that the market is desirable from their standpoint. . Regarding
the positive use, consumer sovereignty was a “scientific theorem marking the completion of
Menger's vision” (ibid.). It is fundamentally important, says Kirzner, to recognize that in the market,
the “value scales of consumers come to govern the disposition of potential factors of production”
(ibid.: 173).
In a discussion of how the doctrine of consumer sovereignty offered Mises “an insight into
the social role fulfilled by the institution of private property,” he writes that “[t]he doctrine of
consumer sovereignty demonstrates the harmony of interests existing in a market economy between
owners of resources and consumers”. “Recognizing this harmony of interests,” says Kirzner, “is
merely another way of sharing Menger's vision” (ibid.).
Discussion
In light of my interpretation of Mises’s consumer sovereignty, several things stand out in
Kirzner’s report. The first is the top billing given to the market process. We discuss this in part 3.
The second is the use of the popular mainstream distinction between positive and normative. Mises
makes no such distinction. Consumer sovereignty is meant to refer to the consequences of imposing
the conditions of the pure market economy for those who appreciate the increase in productivity
achieved by a the division of labor. The elucidation of consumer sovereignty is merely an extension
of the division of labor to a market economy with a complete set of private property rights, free
enterprise, and the use of money in exchange. As oppose to the single traders in a dyad being able
to benefit, everyone benefits. We can comprehend these benefits by referring to the roles of the
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consumer, resource suppliers, and producers who act in the entrepreneur role. To question the
benefits due to consumer sovereignty is tantamount to questioning the benefits due to the
productivity of labor. One does not make a value judgment, as Mises sees it, when she says that
consumers benefit from a pure market economy, with the exception of monopoly. She merely draws
a logical conclusion the same as she does when she recognizes the higher productivity due to a
division of labor. Just as the higher productivity of a division of labor was recognized by the classical
economists to harmonize rightly understood interests, so also does the pure market economy, with
the exception of monopoly.
In light of my discussion in the earlier paper, is ironic that Kirzner writes “that not much
further attention is paid to the idea of consumer sovereignty” in Human Action, after the discussion
in Chapter 15.
As I have demonstrated, the entire structure of the economics part of the treatise is founded upon this
concept. Mises repeatedly refers to it, albeit not with the name consumer sovereignty. It is also ironic
to see Kirzner use the term “harmony” when referring to the relationship between consumers and
the factors of production. This has nothing to do with the harmony of rightly understood interests,
as presented by Mises.
Kirzner’s 2001 Book
In his 2001 book on Ludwig von Mises and his Economics, Kirzner places his discussion of
Mises’s “doctrine of consumer sovereignty” in his chapter on the “Market Process” and repeats the
interpretation of his 2000 article. The reason he treats consumer sovereignty in this way is revealed
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in a later chapter and in a section entitled “Mises, Wertfreiheit, and the Scientific Case for the Free
Market.” After an introduction, Kirzner introduces what he regards as the crucial questions:
How could Mises, in his role as objective scientist (as distinct from his political position as a classical
liberal) denounce governmental price-fixing? How could he denounce government antitrust policy? or
protectionism?” (Kirzner 2001: 167).
In formulating an answer to the question, Kirzner begins with the following interesting observation:
Mises never did explore in any detail the difficulties surrounding the translation of positive economic
science into policy advice. He appeared to believe that the economic goodness or badness of a policy
could, if the relevant economic theory is thoroughly understood, easily be recognized (ibid.).
He then proceeds to propose two Misesian criteria for saying that a policy is bad or good (ibid.: 168):
The first is that a policy may be called “‘bad’ not because it produces results which, the economists,
as citizens, do not like, but because it leads to results at variance with the objectives aimed at for that
policy by the policy makers themselves.” The second is that a policy may be called bad if the plans
which the policy encourages cannot be completed. He then introduces a third criterion, based on his
interpretation of consumer sovereignty. He regards the third criterion as a kind of hybrid. In his
discussion, he refers to the same “normative” proposition that he introduced in his other discussion
of consumer sovereignty. He writes that “Mises was simply assuming that his readers held consumer
sovereignty to be a desirable feature in an economic system.”
Discussion
We can safely conclude that Kirzner’s view of Mises’s consumer sovereignty had not
changed. As in the earlier case, the difficulty with Kirzner’s interpretation is his failure to understand
the function of the idea of harmony of rightly understood interests.
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4. THE MARKET PROCESS IN HUMAN ACTION
I have argued that consumer sovereignty was the key to understanding Mises’s economics.
The market process played a role in that economics also. For Mises, elucidating the market process
is the same as elucidating pricing in the pure market economy. In this section I discuss Mises’s use
of the term market process in Human Action.
To understand how Mises defined "market process," it is necessary to closely follow his
description of the market economy. In my earlier paper, I showed that Mises’s procedure for
evaluating interventionist arguments began with a series of chapters in which he elucidated the pure
market economy (part four, chapters fourteen to twenty-four). This is followed by a series of chapters
in which he evaluated various arguments relating to intervention (part six, chapters twenty-seven to
thirty-six). Chapter fourteen is about scope and method. In chapter 15, he introduces the pure market
economy. His lead paragraph in the chapter begins with a short definition: "The market economy is
the social system of the division of labor under private ownership of the means of production." In
the second paragraph, he distinguishes between the market economy and the market. He begins this
paragraph with the sentence: "This system [i.e., the market economy] is steered by the market."
His third paragraph gives a clearer indication of what he means by the market:
The market is a process, actuated by the interplay of the actions of the various individuals cooperating
under the division of labor. The forces determining the – changing – state of the market are the value
judgments of these individuals and their actions as directed by these value judgments. The state of the
market at any instant is the price structure, i.e., the totality of the exchange ratios as established by the
interaction of those eager to buy and those eager to sell. The market process is entirely a resultant of
human actions. Every market phenomenon can be traced back to definite choices of the members of the
market society.
The market process is the adjustment of the individual actions of the various members of the
market society to the requirements of mutual cooperation. The market prices tell the producers what to
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produce, and in what quantity. The market is the focal point to which the activities of the individuals converge. It is the center from which the activities of the individuals radiate (Mises 1966: 257-258, italics
added).
In this introductory statement, Mises conceives of the state of the market as the price
structure, a state that is caused by the market process. The market process, in turn, is the continuing
economic interaction among individuals. These individuals make deliberate choices in an
environment that enables them to take advantage of the higher productivity of the division of labor.
Because the market process is a continuous adjustment, the state of the market is continuously
changing.
Mises does not use the term “market process” in this chapter after these introductory
statements. He turns, instead, to the features of the pure market economy that he will later use in the
evaluation of interventionist argument. These are consumer sovereignty and entrepreneurship.
Practically all of the detailed discussion of the market process is in his following chapter entitled
“Prices” (chapter sixteeen).
The State of the Market
In chapter sixteen, we learn more about the “state of the market.” We learn that this refers
to (1) the prices of consumer goods, (2) the relationship between the prices of factors of production
(and, therefore, incomes) and the prices of consumer goods and (3) the allocation of the factors
among alternative uses. These three are determined together.
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[T]he price structure of the market, the allocation of the factors of production to the various lines of
want-satisfaction, and the determination of the share of each individual...are...different aspects of one
indivisible phenomenon which our analytical scrutiny separates into three parts (ibid.: 338).4
Purpose for Using the Term
Mises's main use of the term "market process" was to refer to the assumption that the market
economy consists of economic interaction among human beings. He wanted to emphasize that the
market economy is not a model containing automatons. Following Menger, he was especially
inclined to use the term when emphasizing the irrelevance of mathematics to the study of the market
economy.5 The following three quotations illustrate this emphasis.
Some . . . mathematicians have gone so far as to declare that economic calculation could be
established on the basis of units of utility. They call their methods utility analysis. Their error is shared
by a third variety of mathematical economics.
The characteristic mark of this third group is that they are openly and consciously intent upon
solving catallactic problems without any reference to the market process . . . (Mises 1966: 353-4, italics
added)
Later in the same section, Mises says:
Both the logical and the mathematical economists assert that human action ultimately aims at the
establishment of such a state of equilibrium and would reach it if all further changes in data were to cease.
But the logical economist knows much more than that. He shows how the activities of enterprising men,
the promoters and speculators, eager to profit from discrepancies in the price structure, tend toward
eradicating such discrepancies and thereby also toward blotting out the sources of entrepreneurial profit
and loss. He shows how this process would finally result in the establishment of the evenly rotating economy. This is the task of economic theory. The mathematical description of various states of equilibrium
is mere play. The problem is the analysis of the market process. (ibid.: 355-6, italics added)
4
The “phenomenon” he refers to is the pricing process. He seems to use this term, the market
process, and the economic process interchangeably in this chapter.
5
On Menger's use of the term, see Jaffe (1976: 521).
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Finally, he says:
. . . The problems of process analysis, i.e., the only economic problems that matter, defy any mathematical
approach . . . The main deficiency of mathematical economics is not the fact that it ignores the temporal
sequence, but that it ignores the operation of the market process. (ibid.: 356, italics added)
Elucidating the Market Process
The method that Mises uses to elucidate the market process consists of using the imaginary
construction of the evenly rotating economy as a final state of rest.
We conceive the operation of the market of consumer's goods in a twofold way. We think on the one hand
of a state of affairs which leads to acts of exchange; the situation is such that the uneasiness of various
individuals can be removed to some extent because various people value the same goods in a different
way. On the other hand we think of a situation in which no further acts of exchange can happen because
no actor expects any further improvement of his satisfaction by further acts of exchange. We proceed in
the same way in comprehending the formation of the prices of factors of production. The operation of this
market is actuated and kept in motion by the exertion of the promoting entrepreneurs, eager to profit from
differences in the market prices of the factors of production and the expected prices of the products. The
operation of this market would stop if a situation were ever to emerge in which the sum of the prices of
the complementary factors of production – but for interest – equaled the prices of the products and nobody
believed that further price changes were to be expected. Thus we have described the process adequately
and completely by pointing out, positively, what actuates it and, negatively, what would suspend its motion
(ibid.: 334).
It is important to emphasize this method for two reasons. First, it is an example of the procedure for
elucidating market interaction that Mises described in his elusive chapter on scope and method (ibid.:
247-8). In that chapter, he referred to it as the “static method.” Second, it reminds us that Mises aims
to educate his readers on the use of the method. He calls market interaction the “market process”
and, to be clear about the praxeological foundations of economics, he shows how economists can
elucidate that interaction. The economists must first conceive of how the process is actuated and they
must second conceive of an end state in which the interaction would cease. No matter that the market
process never ends. To elucidate, we need the concept of the entrepreneur as a role that actuates the
process and we need the evenly rotating economy to represent the imaginary end state.
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Recognizing these facts, we can see why Mises delayed discussion of the market process until
he had exhaustively (in his view) elucidated the concept of the entrepreneur in chapters fourteen and
fifteen. It is much more convenient to present the concept of an actuator by referring to this role than
by referring to every individual in the market economy, even though every person in a market
economy is an entrepreneur.
For Mises, the role of the entrepreneur is partly a device for simplifying the presentation of
the market process. But the role performs another function. It is the agency that responds to the
wishes of the consumer. Thus it is also a device for communicating the consumer sovereignty
characteristic of the pure market economy. This is necessary, as Mises sees it, in order to accomplish
the primary goal of evaluating interventionist arguments on the basis of whether they achieve HRUI.
Thus, the fact that Mises’s discussion of the market process in chapter sixteen contains numerous
references to consumer sovereignty and entrepreneurship, causes the astute reader to realize that
while an elucidation of the market process is a necessary part of the elucidation of the pure market
economy, this elucidation is itself a necessary part of the broader project, a project in which the
concept of consumer sovereignty is the primary focus.
The Market Process and Growth
It might appear at first that the market process contains no distinctly human action source for
growth. The promoting and speculating entrepreneurs are responsible for actuating an adjustment
process that would culminate in the imaginary construction of the evenly rotating economy if there
were no further changes in the data. If entrepreneurship consisted only of adjustments to changes
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(and of discovering price discrepancies), it could not also be responsible for growth. Yet, it must be
evident to everyone that the cause of growth in a market economy is distinctly human action. How,
then, does Mises deal with growth?
The answer is partly that he deals with it before he elucidates the market process. In his
chapter fourteen on “The Scope and Method of Catallactics,” which Kirzner seems to have
disregarded, he writes that “[t]he driving force of the market, the element tending toward unceasing
innovation and improvement, is provided by the restlessness of the promoter and his eagerness to
make profits as large as possible” (ibid.: 255). Here he defines the promoting entrepreneur in such
a way that it is responsible for progress.
His discussion of this issue is not so clear in his chapter on the pricing process. However, it
is deeper. Consider the following paragraph:
The economic process is a continuous interplay of production and consumption. Today's
activities are linked with those of the past through the technological knowledge at hand, the amount and
the quality of the capital goods among various individuals. They are linked with the future through the very
essence of human action; action is always directed toward the improvement of future conditions. In order
to see his way in the unknown and uncertain future man has within his reach only two aids: experience
of past events and his faculty of understanding. Knowledge about past prices is a part of this experience
and at the same time the starting point of understanding the future (ibid.: 337).
Mises has already said that “[t]he agents of progress are the promoting entrepreneurs intent upon
profiting by means of adjusting the conduct of affairs to the best possible satisfaction of the
consumers” (ibid.: 297). In this paragraph, he seems to add that due to the presence of understanding
in distinctly human action, in conjunction with experience, the promoters are able to take actions that
lead to economic growth. One presumes that these actions cause innovation.6
6
This fact seems to suggest that Mises’s market process, unlike that of Kirzner, has room for a
Schumpeterian entrepreneur. For Kirzner’s interpretation of the relationship between his concept of the
entrepreneur and that of Schumpter, see Kirzner (1999b).
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A Debt to Menger
The quotation above on how to elucidate the market process – i.e., showing the isolated
factor that actuates it and the endpoint at which it stops – is followed in Human Action by a reference
to Gossen, Menger, and Bohm Bawerk (ibid.: 334). He mainly attributes the method of elucidation
to these authors. This is significant because, as we have seen, Kirzner claims that Mises’s focus on
the market process amounts to a completion of Menger’s vision. Yet by diminishing consumer
sovereignty and disregarding the scope and method that Mises employs, Kirzner gives the impression
that the “Mengerian vision” has nothing to do with these concepts. If this is what Kirzner really
means, he is guilty of misrepresenting Mises’s reference to Menger. In a paper on Menger, Kirzner
(Kirzner, 1992) sees this vision merely as the process through which goods of higher order are
transformed into goods of lower order for the benefit of consumers. He writes nothing about
Menger’s method for elucidating the market process. We can safely conclude that the link
established by Kirzner between Mises and Menger is shallower than that implied by Mises’s
reference to Menger in Mises’s chapter that contains the bulk of the discussion of the market process.
5. CONCLUSION
In his interpretation of Mises’s economics, Kirzner stresses the primacy of Mises’s theory
of the market process. He recognizes Mises’s own concern with consumer sovereignty. But he views
Kirzner on Mises's Consumer Sovereignty in Light of the Market as a Process
19
that concept as being related to related to a Mengerian vision to the effect that the values of the
higher order goods are derived from the values of the lower order goods. Kirzner did not view
consumer sovereignty as a key to understanding Mises’s economics. Correspondingly, he completely
neglected the theorem of harmony of rightly understood interests.
It is perhaps not surprising that Kirzner misinterpreted Mises’s economics. Mises’s
presentation of it was messy to say the least. In any case, although one cannot be certain of the
consequences of this omission, I believe that, in combination with Rothbard’s rejection of what he
incorrectly identified as Mises’s utilitarian ethics, Kirzner’s misinterpretation has led to a situation
in which progress in Austrian economics along Misesian lines, is highly unlikely until the various
myths about Mises’s praxeological economics are dispelled.
Kirzner on Mises's Consumer Sovereignty in Light of the Market as a Process
20
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