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So-Called “Market Failures” Are Profit Opportunities

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The point has been made, in many different ways, repeatedly by economists of an Austrian bent (whether they wear that label or not). Philip Wicksteed, Ludwig von Mises, Joseph Schumpeter, F.A. Hayek, Ronald Coase, Armen Alchian, Yale Brozen, James Buchanan, Donald Dewey, Vernon Smith, Israel Kirzner, Harold Demsetz, Elinor Ostrom, Dominick Armentano, and Deirdre McCloskey are among some of the more notable economists who understand that part of the very essence of markets is the entrepreneurial search for ways to profit from arranging for markets to work better.

Unfortunately, although the full list of such economists is longer than the one offered above, it’s not long enough, not by a long shot. Far too many economists simply do not understand the market process.

Here, however, is a small example of the market process at work [2]. It’s a start-up company trying to earn profit by better arranging for people to work remotely in non-urban areas. (I thank my dear friend Lyle Albaugh for alerting me to this entrepreneurial venture.)

Who knows if this entrepreneurial venture will work? I hope it does, but for purposes of this post, this company’s eventual failure would be just as significant as its eventual success. The future is uncertain, and so to make it better, it’s best to have as much entrepreneurial speculation and experimentation as possible. Only some experiments will succeed; many will fail. Indeed, in open and innovative markets, failure is evidence of the success of those markets. After all, if only one firm – say, Acme Inc. – is allowed to experiment with new ideas, Acme Inc. is more likely to succeed (that is, to earn sufficient profits to remain in business) than it is if there are no restrictions on other firms trying out new ideas in competition with Acme Inc. Yet Acme’s ‘success’ in a restricted market would be no great victory for consumers, given that entrepreneurs with better ideas or abilities were prevented from competing against it.

Where politicians, pundits, and poor economists see markets failing to perform ideally, entrepreneurs see profit opportunities, and good economists see lures for entrepreneurs whose actions make the market process work. Good economists see not market failure but sparks for market success.