Israel M. Kirzner, “Subjectivism, Freedom and Economic Law” (1992)

This file is a single-author memorial lecture/paper. Kirzner uses the inaugural Ludwig Lachmann Memorial Lecture to address a foundational Austrian problem: whether radical subjectivism, by insisting on the freedom and unpredictability of human action, dissolves the very possibility of economic law. The essay’s governing claim is the opposite: economic regularities are intelligible only when economics takes seriously the open-ended, entrepreneurial character of action.

Few will dispute the observation that the unifying thread running through Lachmann’s social science was his radical subjectivism.

Kirzner begins from Lachmann’s refusal to reduce subjectivism to preferences or tastes. Against Pareto-style indifference-map economics, he stresses that action is mediated by “mental acts”: knowledge, expectation, conjecture, and discovery. External facts matter, but only through interpretation by active minds. This creates the central tension of the lecture: if action is not determined by objective circumstances, how can economics explain systematic market tendencies?

In what follows I shall attempt to show that subjectivist freedom of the decision is not only not fatal for the possibility of economic regularities but, in fact, is the indispensable ingredient necessary for attaining understanding of such regularities.

The structure of the argument is dialectical. Kirzner first shows why mainstream microeconomics secures determinacy only by draining choice of its human features. Its consumers maximize over given preferences, while market decisions are assumed already “pre-reconciled” in equilibrium. Such models preserve a thin subjectivism of tastes but exclude imagination, error, surprise, and discovery. Kirzner then turns to Shackle and Mises to recover action as genuinely human: future-oriented, uncertain, and purposeful.

To say that action is purposeful is to say that it is inspired by that restless activity of the human mind, that ceaseless exercise of the human imagination, that continual peering of the mind's eye into the foggy future—which are the characteristic watermarks of man's attitude to his human condition.

This is the essay’s decisive conceptual move. Uncertainty does not merely obstruct rational choice; it calls forth entrepreneurship. Kirzner reads Misesian action as containing an entrepreneurial element, not confined to businesspeople but present in all human action insofar as actors notice, revise, and discover. Thus the openness emphasized by Lachmann need not imply randomness.

Open-endedness means that man is free to choose for himself, that is, to determine for himself what he believes the relevant framework for decision to be.

From here Kirzner reinterprets economic law as a process phenomenon rather than an equilibrium postulate. Price convergence, arbitrage, and the tendency for pure profit opportunities to disappear cannot be explained by perfect knowledge, since pure profit exists only where something has not yet been noticed. These regularities depend on entrepreneurial alertness: the propensity to notice discrepancies, opportunities, and errors.

We are inevitably driven to the insight that it is man's entrepreneurial propensity upon which we must rely for our reasonable confidence that changes in external circumstances do tend, sooner or later, to come to be noticed by entrepreneurial market participants.

The essay’s later sections recast market process as the spread of knowledge. Changes in external conditions become economically significant only as they alter what participants know or expect. This also links subjectivist freedom to institutional freedom. Kirzner is careful to distinguish the two, but argues that discovery is weakened where people cannot act on what they discover.

Subjectivist freedom refers not to any institutional arrangements permitting substantive liberties to the individual market participant, but strictly to the absence of determining control over human behavior exercised by external circumstances.

The relevance of the lecture lies in its mediation between two critics of Austrian subjectivism. Against neoclassical critics, Kirzner argues that equilibrium models assume what must be explained. Against ultra-subjectivists, he insists that uncertainty and error do not erase the systematic tendency of entrepreneurs to discover profit opportunities. The market’s order is neither mechanical determination nor chaotic spontaneity, but the unintended result of purposeful discovery.

Markets do work. They work so obviously well that our scientific curiosity is aroused to seek understanding of the counter-intuitive phenomenon of this success.

Kirzner’s tribute to Lachmann is therefore also a correction of him: radical subjectivism, properly understood through Misesian entrepreneurship, grounds rather than undermines economic explanation.