The Entrepreneur As Equilibrium And Disequilibrium Creator

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The approach of Israel Kirzner (1979, 1997) brings this out very clearly. It does not only go beyond Schumpeter and provide novel avenues of analysis and novel insights. It actually provides a critical result that, in one sense, contradicts a Schumpeterian conclusion, but basically is complementary with the latter. In Kirzner's work, what distinguishes the entrepreneur is superior alertness to business opportunities. The successful entrepreneur is the one who is first to spot such opportunities and to take advantage of them. The prototype case is an opportunity for profitable arbitrage. But arbitrage has a close relation to equilibrium. An arbitrage opportunity can occur only in the absence of equilibrium because, by definition, in equilibrium all avenues for enhancement of earnings through change must have been employed to exhaustion. Moreover, arbitrage is a process that is constructed so as to move matters toward equilibrium. In other words, the side of entrepreneurship on which Kirzner focuses entails unrelenting pressure moving matters toward equilibration whenever the state of affairs is not an equilibrium. The alert entrepreneur observes a state of disequilibrium that constitutes an opportunity for profitable arbitrage, and then quickly inaugurates measures that, by taking advantage of the opportunity, work toward elimination of the disequilibrium. The disequilibrium may or may not be eliminated entirely, but the entrepreneur's standard activities certainly work toward reduction of its severity and toward bringing it to an end.

But in a significant sense, this is the reverse of Schumpeter's story, though it is important to recognize that there is no conflict between the two. Rather, it is only when we consider the two analyses together that we become aware of the two crucial sides of the story. In Kirzner, the entrepreneur's activities cannot abide continuation of disequilibrium, and can be relied upon to work toward its elimination. In contrast, Schumpeter's entrepreneur constitutionally cannot abide continuation of an equilibrium. He is driven to search constantly for innovation opportunities, but an innovation, by its very nature, upsets any equilibrium that provided the opportunity for the novel product or process that the entrepreneur introduces.

Thus, we have the Kirzner entrepreneur who cannot abide disequilibrium, and Schumpeter's entrepreneur who cannot abide its absence. But the two, seemingly conflicting, observations only together enable us understand what is going on. In sum, the entrepreneur is the agent of change, no matter what the situation. It is the status quo, whatever it may be, that he is impelled to disturb. From these two parts of the story we end up not only with a better understanding of the role of the entrepreneur, but also of the pertinence of the concept of equilibrium itself for the behavior of the economy in reality.

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