Entrepreneurial Activity Continually Creates and Recreates Production “Functions”

The first problem here is that they miss Lavoie's point completely. The issue of data creation (or discovery, as in Hayek [1978] and Kirzner [1989]), is about how to draw out of market participants the bits of tacit knowledge that they unknowingly possess. As Lavoie argues, the data required by the planners may not even exist, and only the discovery process of competition can draw it out. This is not a mystification of the entrepreneur. The argument is not that entrepreneurs are somehow endowed with superhuman powers of reason or insight, but that they act within a set of institutions, namely markets with money prices, that provide them with information about what to do and how to do it.  In addition, that same set of institutions provides incentives (in the form of monetary profit) for doing the job well. Even further, the entrepreneurial errors that do occur in markets (which are recognized by all Austrians) can be taken advantage of by other entrepreneurs through the knowledge spread by money prices.

Cottrell and Cockshott see Austrians as denying that “production function information is...given once and for all” (1993, p. 90, fn. 15). That is true, but it does not go far enough. The point is not just that production functions change, but that production functions are not objectively knowable. Entrepreneurs are continually discovering and rediscovering the relationship between inputs and outputs as they operate in a competitive market process. Entrepreneurial activity continually creates and recreates production “functions.” The reason for the quote marks is that the whole notion of a “function” presumes some stable relationship between inputs and outputs. It is the objectivity and stability of that relationship that the Austrian critique calls into question, which is precisely why planners cannot access that information. Entrepreneurs have the advantage of the language of money prices to at least provide them with ex ante and ex post information about the economic efficiency of their perceived production options. Government funded “innovation specialists” would lack this learning process with which to know whether their innovations were economically efficient.

—Steven Horwitz, “Money, Money Prices, and the Socialist Calculation Debate,” in Advances in Austrian Economics 3, ed. Peter J. Boettke and David L. Prychitko (Bingley, UK: Emerald Group Publishing, 1996), 72.