For the Austrians, entrepreneurs are an essential part of the economy. This is especially true for those who use prices and interest rates to coordinate economic plans, assess expected future prices and conditions to choose among alternative financial plans, and bear the risk of an uncertain future by taking ultimate responsibility for the success or failure of the chosen plan, according to Investopedia.
The Austrian School of Economics, which is different from those of private business theory, was founded in 1871 with the publication of Carl Menger’s “Principles of Economics.” Austrian Economics proposes an alternative approach to understanding the economy that accepts entrepreneurs and entrepreneurship, and believes it to be the driving force of the market. And the market is an undertaking that is never in general equilibrium.
Austrian Economics has entrepreneurship at the core and rarely uses statistical analysis or mathematical modeling. Instead, it focuses on uncertainty, value creation, and how manufacturers constantly regulate and try to meet changing consumer preferences.
Check these four insights from the Austrian School of Economics:
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Sovereignty of the customer
– As per Austrian Economics, the customer is not just king, but everything is created to ultimately satisfy them in some way, by providing value to them. This value lies in the customer’s full experience and is, therefore, decided completely by them. An entrepreneur can merely offer the goods or services, which in the end help the customer become better off, even if it sometimes requires educating them about the value of the product or service.
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Value controls the price, and cost is a choice
– Since the value of any product or service lies in the experience of the customer, the price they are asked to pay cannot be too high. The entrepreneur needs to figure out at what price their offering is favorable to the customer, and then determine a cost structure that allows for profit. Essentially, the price depends on the value users see in the product or service. The only two things the entrepreneur has a choice over is cost — how they can manufacture at a cost below the selling price to be profitable — and whether to produce.
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Entrepreneurship is about creating the future
– According to Austrian economist Ludwig von Mises, the ultimate origin from which entrepreneurial profit and loss are obtained is the uncertainty of the future demand and supply. This means that an entrepreneur should decide on the cost in the present in order to manufacture a product that will be sold in the future, based on the market situation. It is the entrepreneurs who bear this uncertainty.
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Be a monopolist
– In usual economics, competition comprises offering the same or similar products or services competing on price. However, according to the Austrian School of Economics, this is a disastrous strategy for entrepreneurs, whose primary job is to facilitate value. It is about working out a way to provide the best value experience possible for the customer, even if it involves trying something new and unique. Every innovation is basically a unique offering and, therefore, a monopoly.
