137. Murray Sabrin’s 7-Point Entrepreneurial Solution to the Medical Care Crisis

Entrepreneurs solve problems for customers. There are few problems bigger than the horribly perverse medical care system under which patients suffer in the US. The system has evolved over time, with the stimulus of bad decisions, bad actors, and bad incentives. Entrepreneurship can solve the system problem with specific actions at the component level, each of which are practical and do-able, and can interact to create a new outcome at the system level.

Murray Sabrin has studied both the system and the component solutions, and he joins the Economics For Business podcast to enumerate his proposed actions.

Key Takeaways and Actionable Insights

Healthcare is a consumer good, and a consumer responsibility. Medical care is a provider proposition.

Consumer sovereignty is a cornerstone concept in Austrian economic theory. Consumers determine what is produced as a result of their buying or not buying. Does this principle apply in healthcare?

To answer requires us to differentiate between healthcare and medical care. Healthcare is an individual choice and a personal responsibility: we do everything we can to maintain a healthy lifestyle of eating and drinking, exercise and sound physical and mental health practices. In the internet age, there is plenty of knowledge available to help us in our decision-making. Medical care is what we turn to when sound healthcare proves to be insufficient to keep us off medication and out of hospital.

How do consumers realize value from medical care providers? To do so is very challenging due to (among other barriers) price fixing, price opacity, price inflation, monopolistic and duopolistic market structures, the misuse of insurance, bureaucratic management, perverse incentives, government intervention, and barriers to entrepreneurial entry.

Are there potential solutions in the face of this systemic dysfunction? Yes: solutions that come from the best countervailing source — entrepreneurship.

Entrepreneurial Solution #1: Direct Primary Care — Restoring the doctor-patient relationship.

Murray Sabrin recalled the $5 doctor visit of the past, characterized by a personal relationship with no bureaucracy or insurance forms. Entrepreneurs are now re-establishing that relationship via Direct Primary Care. DPC is retainer fee-based access to unlimited doctor visits, including office-based testing and additional services, with no insurance forms. DPC doctors have fewer patients in their practice and can consequently provide more time and attention. Stronger relationships are built, which is the essence of entrepreneurial value-generation.

Entrepreneurial Solution #2: Transparent versus distorted pricing.

Pricing is one of the most important bulwarks of free markets. In medical care, pricing is opaque to the point of invisibility, distorted, and inflated. It is unresponsive to the normal choice-based supply-demand mechanisms, and not indicative of value.

Some entrepreneurs are acting to change these pricing conditions via what is termed fee-for-service: transparent pricing for specific services. An often-cited example is Surgery Center of Oklahoma, where specific prices for specific surgical services are openly posted on their website. Other members of the Free Market Medical Association provide similar price transparency.

One of the results is revelatory price comparison: Murray told the story of a DPC practice patient who identified a 75% price reduction at Surgery Center of Oklahoma compared to a local South Florida hospital.

Entrepreneurial Solution # 3: One stop shopping at local non-profit clinics.

Murray described the launch and success of several non-profit local and regional clinics, including one for which he was the founding trustee. These are philanthropically established and funded local clinics with volunteer staff, providing a range of services. Equipment and pharmaceuticals may be fully or partially donated by the manufacturing companies. The combination of direct primary care doctors and specialists can make these clinics one-stop shopping solutions for patients seeking quality medical care. With a little philanthropic assistance, they could eliminate the need for Medicaid.

Entrepreneurial Solution #4: Direct Contracting.

Insurance companies purposefully inflate medical care prices to fund their business model. Murray told the story of a large (4-500 employees) company that contracted directly with a service that brought a vehicle with an MRI machine to the employers location, and charged $400 per MRI to the employees. The same vehicle was utilized by a nearby hospital that charged $6,000 for the same MRI. Direct contracting saved $5400 per unit cost, or 90%.

Direct contracting has the potential to significantly reduce costs in the Medical Care system, while opening access and increasing convenience.

Entrepreneurial Solution #5: The 3-tier household medical care budget system.

Murray has a well-constructed and eminently practical household medical care budget system. There’s a version for families with at least on member in employment and an alternative for those on Medicare today. There are three elements:

  • Direct Primary Care for a monthly fee, covering unlimited office visits and routine tests.
  • A Health Savings Account to cover costs of specialists, prescription drugs, medical equipment, major tests and brief hospitalizations.
  • Catastrophic insurance coverage for major operations and hospitalizations and long term care.

Greater detail is provided in Murray’s book, Universal Medical Care From Conception To End Of Life.

Download our corresponding PDF, which features an adapted table from Murray’s book: Download the PDF

In a system of personal responsibility, we would all manage our household medical care budgets with these kinds of tools.

Entrepreneurial Solution #6: Voluntarism And Mutualism.

Voluntarism has a long tradition in America. Mutual aid societies were prevalent before the New Deal. Ethnic, religious and trade groups joined together for mutual support. The Federal Government co-opted these functions and now people look to Washington DC to solve their problems.

But young people today are more interested in voluntarism and non-political social activism. 30 years ago in the Wall Street Journal, Peter Drucker argued for the non-profit sector to replace the welfare state. Creative and innovative people find ways to surmount institutionally-erected barriers in all phases of life, and medical care is certainly one of those. There’s a liberating and energizing sense of acting as the custodian of one’s own life and helping others who need it. It’s the entrepreneurial ethic.

Entrepreneurial Solution #7: Distributed Knowledge.

There is so much available knowledge today about healthy life habits and about the symptoms and characteristics of various medical conditions, and about options for treatment. We as individuals are free to explore, and responsible for gathering our own store of knowledge. The outcome of the research may not be definitive, and we may find ourselves making a choice between alternatives. But doctors and hospital administrators make choices too, and they are not infallible. It may be possible for an individual to gather more knowledge about their own specific condition from the internet than any single doctor can know, simply as a consequence of concentrated effort. Each of us can take responsibility for our own life.

Summing up: Murray Sabrin’s prescription:

  • Eliminate employer-based insurance.
  • Make a single exception for the case in which the employer pays the direct primary care fee for the patient.
  • The resultant employer savings are deposited in employees’ health savings accounts.
  • Employees determine their best medical care options.
  • Phase out Medicare and Medicaid.
  • Let young people create super health savings accounts so that they don’t need Medicare in the future.
  • Hospitals price at realistic market pricing, not insurance-inflated prices.
  • All prices are transparent.
  • Get the government out of medical care — it’s none of their business.
  • Free up resources from the medical-pharmaceutical-insurance complex and redirect them to savings, investment and philanthropy.

Additional Resources

Read Murray’s book, Universal Medical Care from Conception to End of Life: The Case for A Single-Payer SystemBuy It On Amazon – It’s self-published and all proceeds go to charity and non-profits.

“Individual Single-Payer Alternative For Employer-Based Insurance” (PDF): Download PDF

Surgery Center Of Oklahoma: surgerycenterok.com

Forward: goforward.com

Direct Primary Care Coalition: dpcare.org

Volunteers in America: vimamerica.org

136. Max Hillebrand on Free Software Entrepreneurship with Bitcoin

Entrepreneurs are developing a new world of innovative business models far from regulated markets, crony capitalism, and corporate control. It’s a new world of cyber security, free software, value-for-value exchange, integrated with bitcoin. Max Hillebrand operates in this new world, and he shares both his vision and his expertise on the Economics For Business podcast.

Key Takeaways and Actionable Insights

The praxeology of cyberspace.

Praxeology is timeless, with equal application in this era of cyberspace and the internet as in any other era. Individuals are in a state of unease, and they can perceive a better future in which their unease is relieved. They allocate resources to achieve that end.

Those resources can be scarce or non-scarce. Non-scarce goods are non-rivalrous; I can share them with you and not give them up for myself. Information goods are non-scarce. They are patterns of words and symbols that can be shared. This is the world of free software.

It’s also the world of cyber security. Cryptography is just a math formula. If I wish to express myself freely to one other person or a small group of people, I can enable my non-scarce expression for only that small group, giving them the private key to decrypt the message.

The value of free software: scratch your own itch.

A growing cadre and movement of internet entrepreneurs is engaged in the preparation and distribution of free software. Free doesn’t mean it’s not valuable. New technologies and new free software are created to solve customer problems more efficiently and more effectively. One of the beautiful attributes of free software is that it is open to user contribution — anyone who can read the software can change the software and publish those changes, so that future users can enjoy an even better experience. Everyone in the free software community — producers and consumers — is incentivized to ensure that the tools that they all use are running at their best.

This is sometimes referred to as the “scratch your own itch” ethos. The creators of the software are also the users of the software. Customers know the problems that they want to have solved, and give the ultimate feedback of fixing it themselves.

Free software in business.

Producers of free software create the highest quality technology tools. Entrepreneurs looking for the best technology have an incentive to seek out these producers and their products. There is no lack of demand. How do the producers get paid for their development efforts?

One way is via a service exchange. Users of free software often like to add customization, personalization and locally specific integration features to free software that they use. Producers can be contracted and compensated for these customization services. Red Hat followed this business model of servicing Linux users all the way to a $US34 billion valuation in an acquisition transaction with IBM.

Value-for-value exchange: a new business model?

The second way to get revenue from free software production is via donations — users recognize the value of the experience of using the product and voluntarily send payment to the producer, even though no “price” was asked.

This emergent concept of voluntary payments made for freely distributed valuable content and products is beginning to bloom into a new form of exchange, which has been given the name of the value-for-value (VFV) model. It’s especially prevalent on the blockchain and on bitcoin networks.

Take a freely distributed podcast as an example. The producer can put a Bitcoin lightning network public key in the RSS feed and listeners can voluntarily send any amount of bitcoin back for every minute they are listening to the podcast. This happens automatically in the background when the listener hits Play and stops when he or she hits Pause or Stop. One-time payments can be made as well, if preferred. Payment can be boosted if the listener here’s something they deem especially valuable to them and wish to extend an extra reward. It’s the ultimate market feedback mechanism.

Bitcoin as free software

Bitcoin is another tool of cyberspace, engineered and designed to solve the problem of money. Many innovators over time have made attempts to create digital money to make internet transactions fast, infinitely cheap, stable and private. But none of the attempt, until bitcoin, were able to solve the problem of verification of transactions and enforcement of rules without a trusted third party. Bitcoin solves the important problems, not just of verification but of “who verifies?”

Verification is always and ultimately human. Bitcoin entrains entrepreneurs who download the bitcoin software and confirm they are running the agreed monetary rules on their own hardware. When another entrepreneur connects and asks for rules-based verifications of valid transactions, bitcoin merchants on the network are running the software and checking the transactions of others. They are entrepreneurs producing verification according to established and agreed rules. It’s an entrepreneurial merchant network.

Get paid in bitcoin, hold bitcoin, invest with bitcoin.

Max emphasizes 3 aspects of the bitcoin enabled life that can insulate and protect entrepreneurs from the inflationary fiat future.

Get paid in bitcoin

To get paid in bitcoin means to have a “censorship resistant” method of receiving payment from customers. People who do not have access to a bank account can become entrepreneurs. People whose bank accounts might get shut down can remain entrepreneurs. Anyone who fears for the future of the fiat system can insulate themselves against future payment system uncertainty.

Hold cash reserves in bitcoin

Saving should mean holding an asset without counterparty risk. Bitcoin serves that purpose — it’s counterparty risk-free money. Holding a reserve without counterparty risk frees the individual to make a trade with an entrepreneur at any time in the future. There I no risk of inflation. Your saving can’t be diluted.

Denominate your contracts in bitcoin

When more and more entrepreneurs denominate their contracts in bitcoin, a stable monetary asset that cannot be inflated, the detrimental cycles identified by Austrian Business Cycle Theory can be eliminated. This is the exciting long term prospect of bitcoin.

It may be a long path, and it will take time and courage to complete the journey, but it is possible. There are entrepreneurs today (Max is one) who get paid exclusively in bitcoin and hold their cash reserve in bitcoin.

Additional Resources

Max’s website: TowardsLiberty.com

Some examples of free software tools:

Professor Mohammad Keyhani’s Entrepreneur ToolsVisit The Site

Cryptoeconomics: Fundamental Principles of Bitcoin by Eric Voskuil: Buy It On Amazon

The 6 Principles For Managing Continuous Innovation.

This post is based on Managing Continuous Innovation In A Rapidly Changing World by Annika Steiber (Springer) and utilizes some of that book’s language and phraseology.

The economy, and every system and sub-system within it, including all markets, are continuously changing. Customer preferences change, technology changes, competitors change, regulation changes, new creative ideas change what’s imagined and what’s expected, new research delivers new possibilities, politics changes the parties in charge of government, nothing is static or fixed or stable.

One of the contributors to continuous change is innovation: the application of new inventions or new combinations of resources or implementations of new ideas in commercial markets to serve customers in new, different or better or cheaper or faster ways. Innovation improves customer value. Since the best value and the greatest satisfaction are what the customer most desires, innovation will make them switch, change their behaviors, select new suppliers and vendors, and make their sovereign contribution to the rate and degree of change.

The task of firms and their management teams is to deliver this continuous innovation flow to the market. The process can never stop, and its tendency is to accelerate, as the evolution of technology opens up new prospects for customers to imagine new ways for their goals to be reached, their needs to be met, and their dissatisfactions to be removed. On the supply side, new startups are emboldened, growth is lavishly funded, and new business models are tested. There is no rest for business managers.

This poses an existential problem. Our thinking about business management has historically reflected a preference for stability and predictability. We look for stable earnings from our public companies. We look for companies with a stable structure and strong organization based on hierarchical models with a dominant CEO. We look for well-established brands that command customer loyalty and generate reliable cash flows.

Annika Steiber is the Director of the Rendanheyi Silicon Valley Center at Menlo College. Her position provides an immediate clue to her unconventional thinking about firms and their organization. Rendanheyi is a new idea about companies and their structure, indeed their entire rationale, originated by the Chairman of Haier, Zhang Ruimin. Here’s how he describes the import of Rendanheyi:

It’s now time for every employee to be his or her own boss. Even Peter Drucker told us that ‘everyone can be a CEO’. And if everyone acts as a CEO, we will grow collectively as an enterprise, and no longer be dependent on a few key people.

So, with the RenDanHeYi model we move away from being like an empire (with a traditional, closed pyramid) to be more like a rain forest (with an open networked platform). Every empire will eventually collapse. A rain forest, on the other hand, can be sustained.

Literally, “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.


There are no managers calling the shots at Haier, and no-one telling employees what to do. The spirit is self-organization. Small entrepreneurial teams run their own businesses, petitioning for internal venture capital when they need it to initiate a new innovation.

Haier represents one form of organization for continuous innovation. Professor Steiber, via a global multi-corporation study of innovative companies, including US-based examples such as Google and W. L. Gore, has developed a set of 6 principles by which firms can maintain continuous innovation in a fast-changing world environment.

Dynamic Capabilities

This is the company’s ability to integrate, develop, and reconfigure internal and external competencies to meet rapidly changing surroundings. Dynamic capabilities are seated in firms that accept that change is continuous, and firms that change continuously can be more profitable than those that prefer stability. The basis for dynamic capabilities lies in sensing subjective value, i.e. what customers and customer groups value and how this is changing, and developing innovative new pathways to customer-perceived value, and seizing the opportunity to bring the innovation to market quickly. Dynamic companies are able to quickly reallocate resources to these new innovation pathways.

A Continuously Changing Organization

Continuously innovative companies must continuously change their organization – not just when the need arises, but via a constant, continuous, proactive process of change. This process is not orderly. It involves self-organizing, where there is no central governance directing people or business units how to act. Employees have freedom to improvise based on data from the marketplace, adapting when conditions and the environment change. The organization is not structured. The binding agents are the shared understanding of objectives, a shared culture, and shared information. There is collaboration, but no top-down direction. Teams can form and disband and re-form. Projects can be initiated by small teams close to the customer. New solutions arise out of synergy between teams and units, even while those teams and units are changing.

Continuous innovation companies are conscious of three time horizons simultaneously: history, the present, and the future. Time-axis thinking involves experimentation to obtain knowledge from each horizon: examining previous experiences for future value, adapting to relevant real-time experiences, and launching multiple experiments to determine what will work and what won’t in the future. Leadership and management communicate the overarching objectives so that employees and teams can use them as the basis for their own independent decisions on each time horizon. Management may also be able to play a synchronization role by identifying and sharing patterns that may emerge from the analysis of multiple experiments across multiple units and teams.

A People-Centric Approach

Traditional management focuses on control, especially control of people: telling them what to do and how to do it. Continuous innovation requires the opposite approach: belief in individual creativity and in releasing the inherent innovative powers of every employee. Innovations can arise anywhere in a company, and it should be organized as a river system, enabling ideas and initiatives to flow unencumbered to the endpoint of marketplace implementation and customer satisfaction. Control gives way to implicit guidance – values and guidelines and shared orientation. There is a direct positive correlation between the treatment of employees and the innovation performance of the organization. People are the most important asset.

An Ambidextrous Organization

Continuous innovation might sound like chaos to traditional managers. In fact, close to chaos and far from equilibrium are happy places for innovators. But the everyday business of the company must continue in a disciplined fashion: producing, delivering, serving customers, gathering data. Continuous innovation companies are good at both the everyday and the futuristic. Some companies separate the two, and establish an innovation arm, but that is not a necessity. The two parallel missions can co-exist in the same company so long as there is a shared objective.

An Open Organization That Networks With Its Surroundings

A lot of business thinking entertains boundaries – the boundaries between a firm and its suppliers and partners, for example, and the boundaries between industries. Modern systems thinking emphasizes openness – the permeability of systems that encourages interaction with the environment and is a source of the active, continuous and often unpredictable change called emergence. A company must be an open system if it is to thrive over the long term. An open system searches beyond itself for innovations that can increase revenues, accelerate growth and contribute to robust commercial health. Networks and alliances with customers, suppliers, start-ups, universities, and sometimes even with competitors can serve as crucial resources for a company’s innovations. The flow of ideas must include those originating outside the organization.

A Systems Approach

Management theories have been built on foundations of structure, process, competitive advantage, resources, industry “forces”, and many more. None of these is adequate for the digital age. A systems perspective is required. A systems view focuses on the connections between and interactions among its components and characteristics. Systems viewed in this way can generate emergent results and emergent capabilities, whereby the output of the whole system is greater than merely the capacity of its components.

Guidance is provided by the long-term mission and human purpose of continuous innovation. The system culture is common to every individual and every division and unit. The system is committed to learning and adapting. The system’s purpose is innovations and surprises. The energy is provided by creative individuals, unleashed to innovate, each guided by the shared orientation. A system can’t be managed but it can be guided by an intent to generate customer value and an aspiration to make a better world.

Principles And Practices

Annika Steiber’s 6 Principles are translated into a set of practices that can act as practical guides to any company seeking to achieve continuous innovation. I’ll try to summarize them in a future post. In the meantime, you can find Professor Steiber’s book here.

135. Mark Packard: How to Put Time on Your Side

Entrepreneurial action occurs in time. This brings uncertainty, because of continuous change. We can’t know what will be our future result, yet we must produce now in order to discover it. Are there answers to this conundrum? Yes. They’re found in action, and the timing of action. Mark Packard joins the Economics For Business podcast to share his research.

Download The Episode Resource “Mastering Time” (PDF) – Download

Kay Takeaways and Actionable Insights

There are three ways we can think about time.

Eternalism: Time goes back in the past to infinity and forward in the future to infinity. It’s a real thing, e.g., we can identify “points” in time. This is the time of physics.

Presentism: Past time does not exist, it is a memory pattern; the future is undetermined, it’s just a mental image. The only time that exists, and is real, is now. This is the time of Austrian economics.

Growing tree: The past is real, it has been determined, and there is one real historical truth (think roots and branches). The present is real and unfolding (new leaves growing every day). The future is undetermined.

Presentism is the view of time that best aligns with Austrian entrepreneurship and subjectivism. Entrepreneurs act based on their own sense of time, which can be both objective (the clock is ticking) and subjective (how I act in time and how I feel about it).

Entrepreneurial action occurs in time, which brings uncertainty.

Why must entrepreneurs deal with uncertainty? Because production takes time, and there is continuous change, so the outcomes of the production process in the future can’t be known. Even if the entrepreneur knows what demand is today, it can change over time, and can’t be known in the future. Businesses choose entrepreneurial action long before they know how it is going to turn out. Entrepreneurial uncertainty is a consequence of the existence of time.

Time is scarce, but it’s not a resource.

We can legitimately refer to time as being scarce. We often feel as though there is not “enough” of it. We’d like to be able to try to pack more effort and action into the time available to us.

When we talk in terms of scarcity, it’s tempting to think that time is a resource, akin to other scarce resources. We manage those other resources, we allocate them, we combine them, we use them efficiently.

We’d like to think the same way about managing time. But we don’t have control of it. Time just flows. It’s not at our disposal to use and allocate as we see fit. We can’t defer judgement on how to allocate our time, for example, because time keeps flowing and by deferring judgement we just did allocate some present time to not acting.

The resource over which we do have control is our effort.

We can choose how to allocate our efforts in time. Our efforts are not scarce in the same way that time is scarce. Our efforts are limitless; we can put effort into a wide range of applications. It’s because time is scarce that effort must be allocated as if it were scarce.

As time flows, customers’ perception of value changes, and entrepreneurs must follow this change process closely.

The effects of the flow of time are not exclusively limited to the allocation of entrepreneurial effort. They are also manifested in the customer’s Value Learning Process. (Mark Packard describes this in detail, and gives us some management tools: Mises.org/E4E_44Mises.org/E4E_55Mises.org/E4E_62, and Mises.org/E4E_73).

As a result of the flow of time, customer value is a process. Customers prefer the best satisfaction they can presently identify. As time flows, and they gain more knowledge and experience, what they value changes. Their preferences are different in the future than in the present. There is continuous change.

Since consumers are sovereign to the entrepreneur, it is mandatory to keep up with these changes. The continuous process of value learning never stops, and entrepreneurs must follow closely, gathering feedback, empathically interacting with this feedback, and making adaptive changes in their value propositions in response.

Sometimes, customer preferences may stabilize. Entrepreneurs may come to believe that there is a loyal cadre of reliable customers, and may invest in nurturing this loyalty and in relationship building. But they can not permit themselves to become too comfortable in these relationships. Customers are not loyal to a product or service or brand or supplier. They always seek the best satisfaction, and once new knowledge is available to them, they will change their behavior.

All entrepreneurial choices about action are made in the context of time, with significant consequences for outcomes.

Because customer preferences are continuously changing through time, entrepreneurs are faced with an uncertain decision about when to act. At what point in time do they have enough knowledge to go to market with a new value proposition, or a new or improved product or service? They know that, as soon as they act, customer preferences are going to change further (perhaps as a consequence of the action). If the entrepreneur decides that acting as the first mover in introducing an innovation gives them an advantage, they also know that competitors have an opportunity to process the new changes and overtrump that advantage as a second mover. Both are competing over the customer’s shifting sense of greater satisfaction.

When does the entrepreneur know enough? How does a business identify the narrow window in the customer’s value learning process that provides a signal to act? Timing is a big, important piece in the entrepreneurial puzzle.

There are several areas of time management where entrepreneurs can improve their skills.

While time isn’t a resource to be allocated, it provides a context for action in which entrepreneurs can subjectively make changes for the better.


Is your internal clock moving too fast or too slow? Do you find that you are always running late, or, alternatively, arriving too early and consequently “wasting” time (i.e., burdened with time periods you can’t fill with appropriate action)? If so, it’s time to recalibrate. Change the pace at which you do things. The world proceeds objectively at clock time, but your internal clock is subjective. You may need to align the clocks better. Change your schedule or rearrange your tasks to make your internal clock better aligned with real clock time.

Better time planning

Sometimes we simply err in assessing how much time to allocate to each of our various tasks. Each one takes longer than we planned, and by the end of the day, we’re several tasks “behind” and some will remain undone. If that happens over and over again, if there is regularity in your mistiming, you should change your mode of planning. Allocate different — more realistic — amounts of time to the completion of each task. Allow for delays. Don’t “lose track of time”.

Fix your prospective memory

Do you put tasks on your to-do list for the future and then forget them? This is a failure of prospective memory — your memory of the future. Prospective memory is your recall of the schedule you had planned out for yourself. One answer is to use mechanical or digital aids. Write down your to-do’s on a calendar. Enter them into your phone. Set an alarm as reminder.

Whatever, happens, don’t be the bottleneck.

Time management is not trivial. For entrepreneurs, being late, missing meetings, missing deadlines, or experiencing delays is likely going to cost you dearly.

Don’t be the bottleneck, don’t be the one causing the problems, for your colleagues, your partners, your customers, or any collaborators. Fix your own timing issues.

Additional Resources

“How to Master Time” (PDF): Download PDF

“Value is a Learning Process” (PDF): Download PDF

The Fairest Society Is The One Which Most Energetically Promotes The Entrepreneurial Creativity Of All Its Members.

This post is based on – and utilizes a lot of the language from – The Theory Of Dynamic Efficiency by Jesus Huerta De Soto, an essay that highlights with great clarity some of the essential differences between Austrian economics and mainstream economics.

It seems as though those of us who favor free markets and the unleashing of the creative power of entrepreneurship have lost control of the language.

Take the word fairness as an example. In today’s perceptions of social justice (which, in itself, is an other term we’ve lost to irrational interpretation), fairness is deemed to require equalized outcomes for all. No-one should have more wealth or income than anyone else. Any institution or process or arrangement that tends towards an outcome that can be deemed unequal is unfair. 

Is this way of thinking good for society? There is an entirely different way of thinking, one which will lead to a much more dynamic and productive society that advances with great agility and energy towards a better future for all.

Economist Jesus Huerta de Soto calls this way of thinking “dynamic efficiency”. Efficient is another word that is typically misused in economics. It has been made to mean something like using fewer resources in order to achieve a given output. The point about dynamic efficiency is that output is never given. Thanks to individual human creativity, especially in the form of entrepreneurship, output is always changing, improving, becoming more effective and more useful and more valued by customers. The question should not be how to use fewer resources, but how to use resources in a good way to produce better outcomes.

Neither resources nor technology are “given” in real life. They can vary and actually do vary continually – as a result of entrepreneurial activity. This is the essence of dynamic efficiency – continuous change for the better. When so-called welfare economics calls for redistribution of resources in order to address perceived inequality, it is based on a static view. Interpersonal comparisons of what economists call utility require a snapshot to freeze data in time in order to analyze and decompose It. Meanwhile, time and economic conditions and entrepreneurship and innovation continue apace, and whatever comparisons are made are rendered irrelevant.

Such comparisons completely ignore dynamic efficiency, the capacity to foster entrepreneurial creativity and co-ordination and collaboration, and to seek, discover and overcome any maladjustments or unmet needs in society and among its members. The most important goal is to apply these dynamics and continually shift possibilities to a new higher level.

The driver of this creative and dynamic energy of improvement is entrepreneurship. This can be understood as the typical human ability to recognize opportunities for profit that appear in the environment and to act accordingly to take advantage of them. Entrepreneurs are alert to these opportunities. They are creative in producing new knowledge, new solutions, and new possibilities. The entrepreneurial process never stops or ends. There are always new opportunities to be seized, whether in the form of new ends (things we achieve that we never thought we’d be able to) or new means (better ways to reach goals for which we may have been striving for a long time).

Will there be waste as all these new opportunities are pursued? Probably. Can perfect equality or static efficiency be reached. No – because the dynamic creation and discovery of new outcomes is never balanced, it’s always tilted towards change and towards a better future.

What, then, can we say of the ethics or the social justice of this dynamic and creative economy? We address that question from the perspective that every person possesses an innate creative capacity that enables them to perceive and discover the profit opportunities that arise in their environment, and to act accordingly to take advantage of them. Entrepreneurship is the typically human ability to perpetually create and discover new ends and means. The ethical principle is that each person has the right to the results of their entrepreneurial creativity. Whatever they create, they keep. It’s not a matter of redistribution, but it is a matter of equity. Earn it, keep it.

That’s why de Soto says, “the fairest society is the one which most energetically promotes the entrepreneurial creativity of all its members” – a society in which no authority will expropriate the results, partially or totally, of the creative entrepreneurial process. Social ethics hinge on the private ownership of that which is entrepreneurially created and discovered, based on the voluntary exchange of all goods and services. 

Regulation and state intervention in pursuit of redistribution or restriction of entrepreneurial activity impedes creative action, limits people’s creative capacity , and the new knowledge and innovation that moves society forward. State intervention is both dynamically inefficient and ethically reprehensible.

A dynamic and ethical society under these principles will evolve the institutions that can support them. Entrepreneurial behavior takes place best in emergent common law legal frameworks, and moral frameworks. Taxation policies can undermine entrepreneurship, as can misconceived regulation and economic intervention. The law should be on the side of entrepreneurial creativity.

Social justice concepts such as fairness and efficiency should be re-examined through the lens of economic dynamism and creativity driven by entrepreneurship. All in society thrive most in the entrepreneurial environment.

134. Per Bylund: The Unrealized

Understanding The Unrealized requires us as entrepreneurial businesspeople to think better, and to resist settling for what is merely feasible in a regulated, risk-mitigated world. We must ask what could be possible in a different world, and act on that basis. Sound economics supports such action. Per Bylund takes us through his thinking about The Unrealized.

Key Takeaways and Actionable Insights

First, see beyond what’s there.

From Bastiat’s famous parable about the broken window comes the economist’s instinct to think about 2nd, 3rd, and Nth order consequences of actions. These are typically unseen by those who don’t think like economists, and never even considered by politicians.

Entrepreneurs always have 2nd or 3rd alternative actions in mind if the consequences of their first choice are unexpected, and they will always adjust further if required by customer feedback, with the constant aim of producing high customer value and satisfaction. They see beyond what’s there.

Government regulators and legislators make promises on the basis of forecast 1st order consequences only.

Regulators promise that the consequences of their actions will be beneficial, at least to some groups. For example, in minimum wage legislation, they promise a pay raise for the lowest paid workers. What is not seen are all the jobs that disappear — are never offered — as a 2nd order consequence of making minimum wage labor unaffordable to the profit seeking entrepreneurs, the ones who create jobs.

Beyond the unseen is The Unrealized.

In reality, regulations are not what politicians promise. They are not actions to help people. They are restrictions on entrepreneurs’ economic behavior. Entrepreneurs are aiming at satisfying customer wants as much as possible. Regulations aim to restrict this customer-satisfying action by forbidding certain innovations, or declaring that they must be designed and implemented in ways that have value for the regulator and not for the customer or entrepreneur.

Entrepreneurs are forced to abandon some of their efforts to generate new value by satisfying customers, or to redirect their efforts into less value-producing channels. The potential output of their creativity goes Unrealized.

Society accumulates and compounds losses when entrepreneurial creativity is curtailed.

What could have been the case if entrepreneurs were unbound, if the regulatory chains were cast off? We can’t know. But we can know that The Unrealized is a cost to society.

And the cost is cumulative. Technology and innovation thrive and grow in response to observations of how customers experience value from it. Entrepreneurs introduce a new application of technology by building on what’s available today and adding to the value experience that they observe customers enjoying today. If innovation is restricted by regulation (or any other barrier), these observations can’t take place. The next big thing that builds on today’s big thing won’t happen. We keep falling behind what is possible because of these regulatory restraints. Consumers become cumulatively worse off. Society is permanently and increasingly damaged.

We are placed on a different value trajectory — one that limits our options.

What if Henry Ford had been restricted from introducing assembly line manufacturing of automobiles? It’s not hard to imagine such a case in the OSHA environment of today. What if the innovation cloud of new roads, better engines, gas stations with coffee and hot dogs, and all the other ancillary results of assembly line manufacturing had not been allowed to form?

Such a thought experiment demonstrates how regulation places society on a different trajectory than what is possible from unlimited entrepreneurial innovation. Will Uber’s technology launch us on a trajectory of ever-more-ingenious applications of on-demand service, stimulated by consumers’ unlimited imagination of greater and greater convenience? Or will taxi medallion regulation permanently limit that imagination to keep it within the boundaries of bureaucratic compliance and control?

Per Bylund’s term for the effects of bureaucratic control is limited optionality. Quality of life is elevated when we have greater optionality. Regulators don’t want us to have that experience. Less optionality means less value.

Continuous reinvention can’t be planned.

The second and third and Nth order consequences of unrestricted entrepreneurial creativity and consumer imagination are not subject to planning. Emergent new inventions and innovations are not predictable. The probability of positive outcomes from the creative process can be enhanced by entrepreneurial intent and aspiration and effort. But on the other hand, the range of positive probabilities is greatly reduced by restrictions on that intent and aspiration. What could be is bounded by what is attempted, and regulations narrow the field in which attempts are made.

Make sure you do not restrict your own creativity with self-imposed regulation-like limitations.

Regulation limits innovative possibilities. What if the same is true of your own entrepreneurial practice? What if The Unrealized is concealing itself in your own business? Are you sure that your imagination about possible futures based on your understanding of customer wants is expansive enough? Are you sure that you have considered all possible approaches to satisfying those wants, even the ones that are most unlikely? Have you examined every possible pathway to a unique position in the marketplace? Have you found every possible way to cut out cost and time from your production process? Are all your processes designed and engineered to remove all barriers to successful outcomes?

If you are inside a corporation, are there corporate restrictions that act like regulations, channeling your creativity into pre-ordained pathways and towards pre-selected attractors? Are there unnecessary constraints on emergence?

The Unrealized lurks everywhere. The entrepreneurial task is to root it out.

Additional Resources

Per Bylund’s book, The Seen, The Unseen, And The UnrealizedMises.org/E4B_134_Book

Mises U 2021 presentation, “The Seen, The Unseen And The Unrealized”: Mises.org/E4B_134_Lecture

“The Broken Window Fallacy” by Robert P. Murphy: Mises.org/E4B_134_Article1

“Compounding Shortfalls in Innovation” by Hunter Hastings: Mises.org/E4B_134_Article2

“Mark Spitznagel: At What Price Safety?” — another take on The Unrealized from an investing perspective: Mises.org/E4B_134_Article3