In a recent piece published on the Foundation for Economic Education website, Peter Boettke encouraged people interested in economics to consider the ‘mystery of the mundane,’ the complex processes in which market participants coordinate to produce an extraordinary array of goods and services for the masses.
To understand the inherent complexities of everyday products we take for granted, Boettke suggested we ‘drive around town. Pick any good or services and track down all the exchange relationships that must have been formed to enable that good or service to be available to people like you.’
When taking this leisurely, yet profound, drive of economic discovery, I would ask you to also consider the extensive, and often superlative, acts of creativity informing the production of goods and services, from the largest and most expensive product to the smallest and cheapest.
One of the more iconic concepts in economics is that of ‘creative destruction,’ joined by Joseph Schumpeter in his 1942 classic book Capitalism, Socialism and Democracy:
‘The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.’
Most popular accounts of Schumpeterian creative destruction emphasise the ‘destructive’ elements of unfolding market processes, in which certain forms of production, and the outputs they produce, are made economically redundant through the introduction of alternative production modes and outputs.
With frequent media reports of business bankruptcies and employment losses, most people might well perceive market developments as being predominantly destructive which, then, leads to demands for government interventions to halt economic change.
Such perceptions do not duly recognise the ‘redemptive’ aspects of economic failure, enabling those affected to seek higher valued uses for their resources, skills and talent, but even so, shouldn’t we pay due recognition to the ‘creative’ essence of the market process?
The ‘wealth of nations’ is founded upon the production and exchange of valued goods and services, and a necessary condition for this state of economic prosperity we enjoy are the economically creative acts of the entrepreneur.
The entrepreneur is responsible for making decisions about what, why, how, when and where to produce commodities, at given prices, in the hope of securing sufficient sales to customers which more than cover the costs of production.
Consider ‘why’ an entrepreneur might wish to engage in such complex and risky activities.
Most critics of the market process tend to emphasise the profit‑making aspect as the sole or primary motivation inspiring entrepreneurship, and, to be reasonable about it, successful efforts should not go unrewarded, but there are typically broader, even altruistic, motivations underpinning why entrepreneurs take the courses of economic action they do.
More often than not, entrepreneurs report an important reason why they coordinate the supply of new or varied outputs is so that they can help potential customers solve problems.
Henry Ford produced motor vehicles so that ordinary people could travel affordably, while Steve Jobs produced the iPhone so that people could portably access internet services.
This element of entrepreneurial decision‑making requires creative energies to be expended, since the entrepreneur needs to imagines him or herself in the customer’s shoes when mapping potential product solutions for conceived problems.
When contemplating ‘how’ imagined product solutions could become a reality, entrepreneurs must establish how heterogeneous capital, capital, land, raw materials might be coalesced to produce the output, and how to attain finances making these creative ideas a productive reality.
Ultimately, the provision of outputs, at given prices, not only embody distilled bits of economic knowledge but bold and daring acts of entrepreneurial creativity.
In turn, these supply acts are creatively judged by discerning consumers, who selectively purchase those products which are expected to most effectually resolve their problems, needs and desires.
The implications of conceiving the market as a creative process are profound.
The kinds of creativity exuded by the entrepreneurial function are akin to other expressions of creativity, such as painting, sculpting, writing, acting or making music, which tends to be accorded greater respect within modern society.
The very fact that economic creativity is not on the same pedestal with artistic creativity might help explain why too many people seem agreeable to the high taxes, prescriptive regulations and inefficient government spending that stifle market processes.
But if the market process is inherently creative just like other forms of expression, we should recognise the risks of government intervention in effectively preventing people from expressing their economic creativity, just as we guard against, say, impositions upon free speech.
So, by all means, go for that drive about town, as Boettke recommends.
When journeying through the streets you know so well, also consider what powers of creative application it takes for the market to feed, clothe, house, transport, and entertain you, and those you see around town.