Entrepreneurial innovation marshals resources in new and creative ways so that desires once too costly to satisfy become cost-effective to satisfy.
This is indisputable. The existence of scarcity implies the existence of desires as yet unmet. The challenge is to discover and arrange opportunities to use resources in ways that cost-effectively allow us to satisfy as many as possible of these desires.
At this year's SALT New York conference, Jean Hynes, the CEO of Wellington Management, took to the stage to discuss the role of active management in today's investment environment. Hynes succeeded Brendan Swords as the CEO of Wellington at the end of June after nearly 30 years at the firm. Wellington is one of the Read More
Most human desires are not worth satisfying, for the costs of satisfying these low-ranking desires – namely, the subjective value to us of desires that must go unmet in order to use whatever resources are used to satisfy low-ranking desires – are too high. For example, for me to satisfy my desire to know how to play the piano is too costly, as I judge matters. While I’m confident that knowing how to play the piano would give me positive pleasure, the time and effort that I must sacrifice to gain this knowledge is too great. So I will likely go to my grave not knowing how to play the piano.
And what is true for me and piano-playing is true for me and the playing of the clarinet, the trumpet, the flute, the trombone, the guitar, and lots of other musical instruments. My desire to know how to play these musical instruments ranks too low, in my scale of preferences, to justify my actually taking the steps necessary to satisfy this desire. So these desires of mine go unmet.
But suppose that some entrepreneurial genius invents a teaching method that dramatically lowers the cost of learning how to play the piano. By using this revolutionary new method, I can learn to play the piano quite well in a mere three-hours time. And further suppose that the inventor of this method is soon obliged by the forces of market competition to charge no more than $99 per person to teach someone through this method to play the piano. In this case, I would learn to play the piano.
As long as there is scarcity, there are unmet human desires.
Entrepreneurial innovation marshals resources in new and creative ways so that desires once too costly to satisfy become cost-effective to satisfy. In this example, my as-yet-unmet desire to know how to play the piano is a job opportunity for someone or a group of someones. The fact that no one is now working at this particular job is due to the reality that the expected payoff to people of performing other jobs, or of enjoying leisure, is higher than is the expected payoff to them of trying to teach me to play the piano.
To return to the key point: as long as there is scarcity, there are unmet human desires. And as long as there are unmet human desires, there are potential jobs – jobs to satisfy those desires. An economy is successful to the extent that it encourages resources and human creativity to be employed as effectively as is possible to satisfy as many human desires as possible. Policies or cultural attitudes that discourage resources and human effort from being used to satisfy desires that would be satisfied in the absence of these policies or attitudes are responsible for keeping people poorer than otherwise and, often, for causing resources that would otherwise be employed to be unemployed.
Republished from Cafe Hayek.
Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.
This article was originally published on FEE.org. Read the original article.