Several weeks ago the Southern Economics Association held its 78th annual meeting. At the close of the Presidential Address several hundred economists made their way to the escalators. There were two running upwards, but for some reason everyone was packing into the nearest one, the more distant of the two being six inches further left. In Austrian terminology the empty escalator represented an unexploited opportunity for gain. None of these mainstream economists were alert enough to recognize that they could get to where they were going faster by taking one step to the left.
A Neoclassical economist might explain this situation as a rational response to unavoidable costs. The switching costs of taking one step to the left could have been too great to bear. Perhaps there was a “first mover problem” in coordinating the formation of a whole new line. Or maybe imperfect capital markets rendered the financing of such a move impossible!
As is often the case the Austrian explanation makes the most sense. After a minute or so of trying to pack into one escalator somebody finally noticed that there was a second one only one step away. After one alert person stepped to the left others followed, and the second elevator filled up. Here we can see the importance of entrepreneurship. As Israel Kirzner has pointed out many times, some people are more alert to opportunities for gain than others. Less alert persons can remain in a state of ignorance, even regarding fairly simple adjustments in their actions. Entrepreneurs lead the way in adopting new means towards greater satisfactions of our ends. To put it simply, the failure of most of these economists to notice a simple and seemingly obvious opportunity suggests that Professor Kirzner is right in his assertion that relatively few people possess the characteristic of alertness.
The more notable entrepreneurial moves lead to major improvements in consumer well being, and such opportunities are typically difficult to discern. In the above example gain is so obvious and easily realized that one must wonder how such a highly educated crowd (PhD economists) did not all notice it immediately. Furthermore, we should ask why most of these very same people downplay the importance of entrepreneurial alertness, and instead teach a paradigm of economics where entrepreneurship plays no significant role.
Further Reading
Competition and Entrepreneurship by Israel Kirzner
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Now the neoclassical economists will claim there is a negative externality. The person who first discovered the method of moving to the left has not been properly compensated for his genius discovery, and, therefore, must be granted a monopoly patent on the method of moving to the left. Only then can he charge people and regain what he lost in his discovery. That will help spur on innovation!
Ah, the wonders of poor reasoning!
I’d venture a guess that the Marxist might say that the person who discovered it was born lucky, probably an heir to the means of production, and therefore has no right at all to this discovery. That the people who failed to discover it only failed because they did not possess the same means as the fortunate one who did, and that because so, they should all receive some sort of compensation for his ingenuity.
Yeah, those poor exploited PHDs.
“After one alert person stepped to the left others followed, and the second elevator filled up. Here we can see the importance of entrepreneurship.”
Doesn’t this mimic life. One person comes up with an innovative idea and suddenly there are hordes of imitators. Hollywood comes to mind immediately.
In the situation you describe note that the entrepreneur had no power to block access and charge monopoly rents on access to his ‘discovery’ of a substitute good – one step to the left. The real owner of the facility might want to give some thought to making escalators coin operated. This would save power expense and provide revenue to service the cost of capital embodied in the escalator. This charging for a good tends to alert people to substitution opportunities.
While I appreciate the applied logic there is one unrelated cause for the one line. People tend to be sheeple. I see it at intersections all the time. One lane lines up with cars while the other is empty. I always roll up to the front of the empty lane and without fail other cars then move over behind me. Carry on….
“The enticing wonder of the discovery of a profit opportunity, which keeps the entrepreneur coming back and entering into the market process, is the discovery of something obtainable for nothing at all. It is the same as the quest of the explorer and the artist and the scientist and the philosopher – to discover something never known before. The profit seeking motive is this same motivation, this same human phenomenon. Therefore as you can see, the profit seeking motive is part of the human operating system, something to be appreciated – not to be condemned as an evil.”
Well in reality somebody will come along and convince the government that the advantage gained by the entrepreneur’s ingenuity, and subsequent mass migration of others to this new found prosperity (2nd escalator) were as a result of mind control.
Our unwitting opportunist will be declared a witch, subjected to an embarrassing public trial, in which they are convicted based upon emotional bias (rather than facts), resulting from jury selected specifically for it’s lack of common sense or basic worldly knowledge, who are played by a lawyer with no training in the law of the land.
All assets will be seized by the state to be put to use for the greater good.
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