Free Markets Let Entrepreneurs Help Everyone
FEBRUARY 01, 1999 by DONALD BOUDREAUX
On a recent drive through an affluent San Francisco neighborhood boasting truly spectacular homes, I did what almost every ordinary person does in such circumstances: I wondered to myself, “What can I do to earn enough money to be able to afford such a home?” My thinking continued: “To earn such wealth requires that I produce a product that lots of people value more than it would cost me to produce. Okay! Good! I’ve identified the general formula. Now all I need to do is to think of a product for which people will pay a price higher than my cost of production.”
“What can I produce? . . . What can I produce? . . . What creative idea can I come up with that will earn me a bundle? . . . What can I produce?.’.. Think, Don: think, think, THINK!”
Melancholy engulfed me as I drew a blank—the same embarrassing blank that I drew on each of the thousand-and-one previous occasions when I tried to think of a new product or service that consumers would value.
Fact is, I possess absolutely no such entrepreneurial creativity. None. Zippola.
And yet, despite my mind’s barrenness on this front, how fortunate I am! How amazingly, breathtakingly fortunate—and wealthy—I am!
My good fortune is that I live in a society in which I benefit immensely and directly from other people’s creative ideas-no one of which I would have dreamed up in several lifetimes. The distinguishing feature of a depoliticized free-market economy is that it not only inspires creative people to create, but it also inspires these creative people to create things and processes that benefit even me and others who are hopelessly non-creative.
Here’s what I mean. I’m writing these words somewhere over the State of Utah as I hurtle toward New York City at a speed of 600 miles per hour. Less than a foot from my arm the air temperature is 50 degrees Fahrenheit below zero. And yet I’m cozy, comfortable, and safe as I sip complimentary gourmet coffee. Two hours ago I was in California; three hours from now I’ll be in New York. My thoughts are being recorded (with help from my fingers) on a laptop computer that has more computer power than was on Apollo 11. I can check my e-mail messages by plugging my laptop into the telephone nestled in the seat in front of me.
Each of these wonders—and they are wonders!—is made possible by countless creative ideas of people whom I don’t know and who don’t know me. I am responsible for none of the ideas that enable me to write on a computer as I fly safely across the continent. But here I am, the happy beneficiary of these astonishing creations.
What’s more, I’m an ordinary American. I’m not rich by modern American standards. But so what? In truth, I’m astoundingly wealthy. I (like nearly all other Americans) can acquire these luxuries in exchange for just a tiny fraction of my work time.
Let’s tally up the cost to me, today, of the luxuries that I identify above. The round-trip coach airfare is $338. My new laptop, complete with modem and all of the requisite software for word processing and for e-mailing, costs a total of $2,000. Because I’ll probably keep this laptop for at least two years, the daily cost to me of this laptop is no more than $2.74 (which is $2,000 divided by the 730 days that there are in two full years). To check my e-mail will cost me about $35 in telephone charges—a figure calculated on the assumption that I’ll be on the air-phone for ten minutes (which is far more connect time than I’ll probably need).
So what do we have? All told, it costs me a paltry $375.74 to fly from New York to California and back and to write this column en route and to check my e-mail. $375.74—that’s all! A mere $375.74 is all that I paid to do what twenty years ago no one at all could do, and what only four or five years ago only the wealthiest of the wealthy could do.
Yet today laptop computing on a jetliner is so common in Western society that we take it for granted. My fellow passengers are no more astonished to see me typing on my laptop than they would be to spot a pigeon in Central Park.
The 1997 annual report of the Federal Reserve Bank of Dallas is entitled Time Well Spent: The Declining Real Cost of Living in America. I encourage you to read this remarkable document. (Note: The Dallas Fed is something of a renegade among government agencies. Its leadership and staff of economists rank among the most free-market-oriented group of scholars in America today.) The report’s authors—W. Michael Cox and Richard Alm—document how the real cost of living in America has fallen dramatically over the past century, and how it continues to fall. Cox and Alm measure cost of living by using work time—the amount of time the typical American worker must labor to purchase various goods and services.
Almost any good or service you can name costs less work time today than it cost just a few years ago. For example, in 1984 the typical American worker had to work 435 hours to purchase a personal computer. Today, a vastly more powerful computer is available for only 76 hours of work by the typical American worker. A cell phone in 1984 cost 456 hours of the typical American’s work time. A much better cell phone today costs a mere nine hours.
Of course, many goods and services that we today take for granted could ten years ago be purchased at no price whatsoever—such as checking e-mail from a commercial jetliner.
The marvels to which we each have daily access are the product of millions of creative minds figuring out how better to please consumers—by producing new or improved products and by reducing the costs of producing existing products. Many of these creative people earn (and deserve) millions of dollars; some earn (and deserve) billions of dollars; most earn handsome but not princely sums. Everyone, however, in industrial society profits greatly from every market entrepreneur’s creativity.
I need not lament that I, personally, have no creative, productive ideas. I have the great good fortune to live in a society that encourages truly creative people to share the fruits of their creativity with me. My blessings are literally too great to count.
Donald J. Boudreaux