Providing value through entrepreneurship

In a free market there are people who are competing to provide value to consumers: entrepreneurs. These individuals attempt to achieve profits by buying goods and transforming them into goods for sale. If you can sell for more than you bought, then you make a profit. This means the society at large values higher what an entrepreneur made than the input factors in their prior state.

It’s always possible for someone to fail at this exercise, as they find out reality worked out differently than how they anticipated and end up with losses. Losses and bankruptcy can also come after a long period of profits. These losers in a free market go back to the rank of worker. They can work for an entrepreneur who is still profitable; meaning who is still organizing and transforming goods in a socially beneficial way.

Entrepreneurship is not easy. It requires a vision, dedication, good timing, and much more. So through this mechanism, there is a socially beneficial process of selecting for good entrepreneurs.

People can also go from being a worker to an entrepreneur by creating savings, and taking those savings and risking them (by yourself or with others) in entrepreneurship. In a free market anyone is free to make this attempt.

Partaking in production through labor

Is everybody able to be a worker? The division of labor provides a surplus for all participating in it. This means if I produce something and my neighbor produces something else, and then we trade, we will both be better off than if we both had to produce both things by ourselves. This surplus is also true if one of the two exchange partners is able to produce more or in a higher quality than the other. As long as they focus most of their energy at that which they are best at relative to each other, they stand to gain. In conclusion, every able bodied person, if he specializes enough to overcome the cost of trading, can be included in the division of labor; either as an entrepreneur or as a worker.

Expanding employment possibilities

There are also lesser-abled bodies, who have a certain physical impediment that makes them less productive. As a glasses-wearer I am such a person. I cannot see sharply very far without eye-correction, and I would be in big trouble in a hunter-gatherer society. In an advanced society glasses can help me overcome this problem, which allows me to be fully productive; except for a handful of professions where glasses are a problem. Through the productivity of a society, by way of the division of labor, savings and investment, and competitive markets that go through continual evolution, low costs and a wide variety of goods are brought about, so that more and more people can be included in the division of labor and contribute to the well-being of others; instead of having to rely on others to be given resources.

Sources of unemployment

So what of the people who are unemployed in today’s society? The first thing Austrian economists look for are impediments to this configuration of social production. Are there situations where there are people who believe they can benefit from production and then trade with each other, but are not allowed to do so? Examples of impediments are minimum wage laws, trade barriers between countries, non-market based licensing requirements, intellectual property, and so on.

Long-term effects of intervention

When resources are taken away from the productive members of society, then the society is made less productive; meaning higher prices and less products available. This means that some people then are no longer able to sustain themselves, because their costs have gone up while their productivity has not. Low prices are necessary for a society to generate savings. Savings are necessary for capital investment to have low prices in the future. Economies are complex interrelated systems and interventions will have medium and long term consequences.

Long-term effects of free markets

The free-er a market is, the easier it is to save for retirement or sickness. If you didn't have to pay for foreign adventures by the military nor for all kinds of government services which are not offered in a competitive environment, then your cost of living would be drastically lowered, which would make it easier to save and to take care of yourself. This means there would be a smaller amount of people who had no choice but to rely on others. And if people were generally richer, then it would be easier for them to take care of a person who was truly unable to be productive.