Peter G. Stillman wrote:   
What I am curious about -- because I think Schumpeter was pretty   
smart -- is, what would be Schumpeter's answer, not to what Pat says   
(which strikes me as the Austrian response to central planning), but   
to an equivalent question, i.e., what does Hayek (or what do the   
Austrians) leave out that is important for Schumpeter.  
  
Replay by Michael Nuwer:  
  
I do not know how Schumpeters would reply to Pat's comments, but Witt, Potts, and Loasby,
who see themselves as "Evolutionary Economists" in the tradition of Schumpeter and how are
sympathetic to Austrian ideas, claim that Austrians miss the significance of creativity
and novelty.
  
The general point runs along the following lines summarized by Loasby:  
"The basic facts of human cognition are that our brains have the capacity to establish an
extremely large number of possible networks of connections, but can actually establish
only a small fraction of this potential.  As a consequence, the total number of
connections and therefore the total amount of knowledge and skills, within a community can
be greatly increased if the members of that community act in ways which lead them to make
different connections.  That is why Smith was right to make the division of labour an
accelerator of scientific knowledge and the foundation principle of economic growth, and
why Marshall was right to emphasis the role of organization, of various kinds, in the
development and use of knowledge.  Differentiation between individual entrepreneurs or
between firms (sometimes labelled as Schumpeter I and Schumpeter II) then provide the
basis for distinctive innovations and thus the foundation of the positive case for
competition ...."
  
Brian J. Loasby. "Connecting Principles, New Combinations, and Routines Reflections
Inspired by Schumpeter and Smith."
http://www.compilerpress.atfreeweb.com/Anno%20Loasby%20Connecting%20Principles,%20New%20Co
mbinations,%20and%20Routines%202000.htm
  
============  
Ulrich Witt, 1999. "Do Entrepreneurs Need Firms? A Contribution to a Missing Chapter in
Austrian Economics," Review of Austrian Economics, Vol. 11, pages 99�109.
  
Witt: "The Austrian school recognizes the significance of entrepreneurial imagination
without making the connection to the particular institutional conditions of the firm."
  
============  
Jason Potts, 2001. "Knowledge and markets," Journal of Evolutionary Economics, vol. 11(4),
pages 413-431.
  
Potts:  
"A market, then, is two mechanisms, depending upon whether knowledge is  
viewed as a state or as a process. ..."  
  
"In evolutionary economics, the growth of knowledge is viewed as an openended  
mechanism or a process. ..."  
  
"...[B]oth a price mechanism and knowledge ... can be read in Hayek�s view of markets
depending upon whether our inclination is Marshallian or Schumpterian."
  
===========  
Brian J. Loasby, 2001. Knowledge, institutions, and evolution in economics, Routledge (See
the chapter on markets near the end of this book.)
  
Brian J. Loasby, 1998. "The organisation of capabilities," Journal of Economic Behavior &
Org., Vol. 35, pages 139-160.
  
  
Michael Nuwer