In one of the sessions of the one-day colloquium on Harold Demsetz, moderator Harry DeAngelo asked Joe Kalt, Bob Topel, and me to reminisce about Harold as a person and also about his contributions to us and to economics.
In response to one of Harry DeAngelo’s questions (at the 3:07:00 point,) Joe Kalt answered that Harold viewed competition as a process rather than as an equilibrium. I totally agree.
I do want to add two points, though. First, I got that view more from Ben Klein’s Industrial Organization class than from Harold’s. The second point is one that Ken Elzinga of the University of Virginia made to me in a side conversation after that session: namely, that even though it’s true that Harold pushed that view, the economists who should get credit for it are the Austrian economists. I’m thinking here of contemporaries of Harold such as Israel Kirzner. But you can also find it in earlier works of Austrians. Joseph Schumpeter, who was Austrian, but sometimes is not thought of as a member of the Austrian School, laid out that view beautifully in his Capitalism, Socialism, and Democracy. But you can also find the idea in the late 19th century work of Carl Menger.
Incidentally, if I recall correctly, Ben Klein had us purchase Israel Kirzner’s Competition and Entrepreneurship, a book in which Kirzner lays out the view of competition as a process. Ben was very hung-ho on that book.
READER COMMENTS
Jon Murphy
Jun 22 2022 at 9:14am
I first came across “competition as a process” when I started reading Café Hayek. As an undergrad who was trained in a fairly standard neo-classical manner, that blew my mind.
Kevin Corcoran
Jun 22 2022 at 5:11pm
This is a good example of an idea in economics that might sound almost trite if one only has a surface level understanding of what’s being said, but when understood deeply has profound implications. I’d give credit to the Austrians for this point as well. I started to grasp the idea when pondering Hayek’s take on the standard economic model of “perfect competition”, and his argument that competition doesn’t actually exist in a “perfectly competitive” market. To some economists (Joseph Stiglitz comes to mind), the fact that real-world markets don’t match up to the “perfect” models taught on blackboards provides justification for state intervention. To someone with a more Hayekian understanding of markets, the fact that the real world doesn’t actually look like those blackboard models strengthens, rather than weakens, the argument for using the market process.
To crib a line from Arnold Kling – some economists say “markets work, use markets”, some economists say “markets fail, use government”, and others say “markets fail, use markets.” Understanding the ideas of Hayek and Kirzner (among others) moved me into the third camp.
Richard Ebeling
Jun 23 2022 at 12:03pm
For an appreciation of Schumpeter, including about his market process approach in contrast to neoclassical perfect competition and monopoly theory, may I suggest this article of mine on, “Joseph A. Schumpeter: Outsider Looking In”:
https://www.aier.org/article/joseph-a-schumpeter-outside-looking-in/
David Henderson
Jun 24 2022 at 2:45pm
Thanks to both Kevin Corcoran and Richard Ebeling above.
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