For such a process of discovery of changing ends-means frameworks it is necessary to introduce something from outside the Robbinsian economizing terms of reference. For the purposes of the economist it is not necessary to explore the psychology of the learning process, which is the result of market experiences in which plans were found to be unworkable (or in which it has been found that alternative, preferable courses of action were in fact available). But it is necessary to build formally into our theory the insight that such a learning process can be relied upon. For this, the recognition of the entrepreneurial element in individual action is completely adequate. As soon as we broaden our theoretical vision of the individual decision-maker from a “mechanical” Robbinsian economizer to Mises’s homo agens, with the universally human entrepreneurial elements of alertness in his makeup, we can cope with the task of explaining the changes which market forces systematically generate.
— Israel Kirzner, Competition and Entrepreneurship (Indianapolis: Liberty Fund, 2013 ), p. 57.
Just to follow up on themes explored in this blog earlier this week, how can we understand the entrepreneurial element? Build a model that abstracts from, and even “distorts,” reality.
Writes Kirzner (from the same page),
And the analytical device of concentrating all entrepreneurship into the role of the hypothetical pure entrepreneurs enables us to achieve the same kind of explanation. We may in this way continue to envisage a market in which consumers and resource owners are strictly Robbinsian economizers, exclusively price-takers, and shift the entire burden of price changes and changes in methods of production and of output quality and quantity upon the pure entrepreneurs. As we have seen earlier, this becomes all the easier once we perceive the near-inevitability of an entrepreneurial role’s being filled by the producer.