EVOLUTIONARY ECONOMICS, GERMAN WETTBEWERBSTHEORIE, AND AUSTRIAN MARKET PROCESS THEORY

Up to now, we have dealt with one of the two main deficits of the neoclassical theory, that is, the neglect of institutions, and we have shown how the institutional framework can best be incorporated in the analysis of the market phenomena. In this chapter, we shall try to eliminate the second deficit of the neoclassical economic theory, that is, its unsatisfactory way of dealing with novelty. Thus, we shall defend the idea that market competition is an evolutionary process. The starting point of such a theory of evolutionary competition is the fact of the division of knowledge among market participants that is concomitant with the division of labor in markets. If one takes the issue of subjectivism seriously and acknowledges that economic agents differ not only in their wants but also in their knowledge, then a theory of the market must not only provide an account of how this variety of knowledge is generated and transmitted, but also explain how it grows in competitive exchange settings.

Since the time of Hayek's formulation of the central problem of economic theory of “how the spontaneous interaction of a number of people, each possessing only bits of knowledge, brings about a state of affairs in which prices correspond to costs etc.”