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