One of the first lessons of economics is that we live in a world of scarcity. Scarcity necessitates that people choose between competing alternatives. How should people spend their limited time and resources? What is the best way to produce things so that we don’t waste resources that would be better used elsewhere? How do we coordinate our actions with other people who are pursuing their own diverse goals? The theory of the market process offers answers to these questions. The market process has four main characteristics, which are explained in this video: 1) It requires an environment of property rights and market prices; 2) It is driven by entrepreneurship and profit and loss; 3) It is a spontaneous order; and 4) It is an open-ended, ongoing process.
Additional Readings and Videos
Here are recommended readings and additional videos that could be added to a syllabus or lesson plan on this topic.
Books and Articles
“The Law of Supply and Demand” by Israel M. Kirzner (article)
“Entrepreneurial Discovery and the Law of Supply and Demand” by Israel M. Kirzner (article)
“The Irresistible Force of Market Competition” by Israel M. Kirzner (article)
“Toward an Austrian Critique of Governmental Economic Policy” by Israel M. Kirzner (article)
“Entrepreneurship” by Russell S. Sobel (article)
Thomas DeGregori: “Resources are Not: They Become: An Institutional Theory” Journal of Economic Issues 21, no. 3, Sept. 1987: 1241-1263).
Joseph Schumpeter, Capitalism, Socialism and Democracy, Third Edition, Harper Perennial Modern Classics, 2008; chapter 7.
Israel Kirzner, “The Alert and Creative Entrepreneur: A Clarification”
Tyler Cowen, Creative Destruction