Austrian and Post-Keynesian Criticisms of the Standard Neoclassical View of the Competitive Process

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Various schools of thought give different ideas and views on competitive process. Competition, according to the neoclassical theory, is an equilibrium situation in an economy. However, the theory emphasizes that a static equilibrium condition in the market does not allow the entrepreneurship functions to take place in a right manner because there exists no changes in things such as technology, endowment data and preference. Hayek, (1978) argues that different assumptions by schools of thoughts, criticized the traditional theory of neoclassicism, which was only based on competitive equilibrium market. Austrian theory emerged in the period of 1940 due to the dissatisfactions on market competition assumptions. New theories to emphasize on perfect market competition also emerged to explain entrepreneurial activities, dynamic marker forces relationships and the importance of government involvement in the modern world economy. According to Austrian theorist such as Mises (1949), the way in which the economy of a nation operates is determined by the competition among the entrepreneurs. Austrian theorists emphasize on both fundamental uncertainty and entrepreneurial functions in the competitive market process. They criticize the neoclassical theory on static equilibrium, which mixes certainty and uncertainty in explaining competitive market. Fundamental uncertainty hinders the agents from rational determination of outcome through calculation due to changes over time. The role of entrepreneurs to ensure normal profits in the market competition is explained by the uncertainty concept. Austrians argues that in a competitive process entrepreneurial function involves a lot of errors and mistakes due to fundamental uncertainty. According to the Austrians, (Krizner 1978) market efficiency is not attained by the assumptions of neoclassical theory of equilibrium point

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