Israel M. Kirzner, “Knowing about Knowledge” (1979)

Kirzner’s essay is a compact Austrian intervention into the economics of information. It begins from the growing recognition that markets cannot be understood apart from what actors know, believe, expect, or fail to notice.

IN RECENT YEARS a good deal of effort has been expended on exploring the role human knowledge plays in the economic process and the degree to which received economic theory takes cognizance of this role.

His distinctive move is to radicalize subjectivism. Economic knowledge matters not as objective data stored somewhere in the system, but as awareness that enters into action. For Kirzner, this includes guesses, expectations, doubts, and mistaken views, so long as they help explain what people do.

When we discuss the ways people acquire knowledge, we refer to the ways they acquire the opinions and views, doubts and guesses, as well as certainties, that account for their actions.

The essay’s central paradox is that a subjectivist economics of knowledge must attend not only to what actors know, or know they lack, but also to what they do not yet realize is available to be known. This is the zone of entrepreneurial discovery: the unnoticed opportunity, the unperceived price discrepancy, the possibility that no one has deliberately set out to find because no one has yet imagined it as worth finding.

What we shall discover, however, is that a subjectivist approach leads to recognition of precisely that kind of knowledge about which men know nothing at all.

Kirzner’s main critical target is the post-Stigler economics of search. Search theory treats ignorance as a rational investment problem: actors compare expected gains from additional information with the costs of acquiring it. Kirzner accepts that such deliberate learning occurs, but argues that it cannot explain the origin of all knowledge, since any decision to search already presupposes some prior awareness of what might be gained.

The wealth of literature patterned on this model has tended to suggest that the only way knowledge is acquired is through deliberate, cost-conscious search or learning activity.

Against this model, Kirzner emphasizes spontaneous discovery. People become aware of things without having chosen to search for them: through perception, contact, advertising, conversation, accident, or alertness. The crucial economic category is therefore not simply information cost, but the difference between costly search within a known frame and discovery that changes the frame itself.

This distinction grounds Kirzner’s theory of entrepreneurship. The entrepreneur is not merely a calculator optimizing with better data, but an alert discoverer of opportunities others have overlooked. Profit opportunities signal discoordination; entrepreneurial alertness notices them and tends to convert them into mutually beneficial exchanges. The market process is therefore not reducible to equilibrium allocation or to the efficient transmission of already-recognized information. It is a discovery procedure through which unknown possibilities become actionable knowledge.

The essay’s importance lies in its subjectivist reconstruction of information economics. Kirzner argues that markets coordinate not only because prices economize on known information, but because the lure of profit stimulates awareness of what had not been deliberately sought. In this sense, the market process reveals what actors did not know they needed to discover.