Customer Reviews

How Markets Work: Disequilibrium, Entrepreneurship & Discovery (Hobart Papers)

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The main value of Kirzner's research along with all of the Austrian's is that Neo-classical Economists do not have any thorough treatment of entreprenuership or transition economies. In the last 15 years this has become of vital importance to transitioning countries and to people who study Game Theory. Kirzner NEVER tries to throw away Neoclassical Economics and he stresses this point many times. In his words he is just "filling in the GAPS" that are now wide open in the canon of of conventional economics. This is not so clear to people who have not done in depth research into developing countries where they utilize Austrian theory everyday in research and praxis. The new wave of Chinese Economics has utilized this research extensively. Try to read Professor Tony Fu-lai Yu from Hong Kong if possible. You cannot read kirzner with out having a little background in institutional economics.
Please enjoy, Professor Alan Partee PhD (business Econ.)

The basic thrust of Kirzner's IEA pamphlet is to examine the differences between textbook perfect competition and the Austrian discovery process - and how this affects long-term growth in the economy. It's a micro text that's a little dry in places. But overall, Kirzner succeeds in keeping the reader on board.

Once the main differences are out in the open, the author then goes on to describe how the discovery process affects different markets and differing situations - advertising and insurance.

How Markets Work will be of value to financial economists and analysts working in the equity markets. It contains lots of examples of market processes that would be very useful in valuation analysis. What it isn't, though, is a generalist text. Three/Four stars.

Kirzner tries to show that the Austrian school of economics (absent in Austria) gives us deeper insights into how the economy works than mainstream microeconomics. Sadly, he has no clue about mainstream theory. This book is full of mischarachterizations of neoclassical theory.

He confuses Stigler's model of information with the whole of information economics. He obviously never heard about assymetric information. This book was written in 1996!

He blames neoclassical economists for saying that marketing is only a form of manipulating consumers tastes. This is funny, since preferences are usually treated as exogenous. As an example of such a neoclassical economist he names John Kenneth Galbraight- a instituionalist in the tradition of Veblen.

The text has many flaws like that, but that's not all. The views he defends are flawed too. He argues for example that natural monopolies are no problem as long as the government doesn't prohibit entry. When the prices are too high, a entrepreneur can enter the market and drive the price down. But this doesn't work always. The monopolist has only to lower the price to drive the challenger out. But isn't that going to serve consumer interest after all? No. The ability to charge a lower price serves as a credible threat. Nobody would enter the market just to lose his fix costs. So our monopolist doesn't have to actually lower his price to keep the monopoly.

I could go on and on, but this book surely isn't worth the effort.

The only reason Austrian economics still exists is it's simplicity. You don't need more knowledge to read ,say , Mises than you need to read Ayn Rand. That makes them very popular among conservative non-economists.