SUPPLY CREATES DEMAND

 

Snow Entreprenuers

During the recent shock snowfalls have entrepreneurs made their way to your door? The basics of free action and entrepreneurship can gel in the cold.

I spent 12 years in Pennsylvania where we had predictable snowfalls, one after the other requiring we shovel. At times, the snow was wet and heavy, heart attack snow. Other times it was white drifting snow not difficult to shovel. Municipal rules about clearing sidewalks in twenty-four hours were deemed to apply to our recently completed housing development.

On the first heavy snowfall in 2014 our doorbell rang with two young teens offering to clear our steps, sidewalk, and short alley driveway. They were unsure on how to respond to my question of the cost. I offered twenty for the task, they accepted, and our snow was cleared. On a subsequent snowfall two different young teens rang our doorbell offering to shovel the snow. I said I paid the last pair 20 dollars and they accepted saying that is what my neighbour across the street paid. Perhaps my neighbour and I freely established the value of the service. Some manageable snow and lighter snow followed which I shovelled.

On the following winters next heavy snowfall, the doorbell rang once more. At the door was a young teen who I recognized from offering to shovel the first year. One friend stood at the sidewalk. The price was still 20 dollars, but he added, proudly, that they had a snowblower to do the driveway. Now there were four of them, two in the back and two in the front. They were done in record time. When the leader came to collect their pay, he asked if I was a teacher at school. He explained they would get to these employees first after the snowfall. I had to ask more questions.

There were two teams that bumped into each other who decided to split the homes into two-block sections that each team could work exclusively and efficiently. Twenty dollars was a fair price for them.  After a few snowfalls they combined their territory and pooled their money to buy a used beat-up low capacity snowblower, for the driveways so the snow did not need to be carried to either side.

This service arrangement continued through the next two winters, one with abetter snowblower. I understand the enterprize fell apart when one of the workers found a girlfriend and another made varsity Basketball. Snow removal by young laborers reverted to scattered, inconsistent work, from within the development.  

None of these students had read Hayek, or been in AP economics but they realized significant, almost a priori essences of business entrepreneurship. There were no laws requiring a licence from the municipal government, no suggested pay rate and no mandatory rest or warm up period.  The market was free.

The snow existed, as did the need to remove it. Two young entrepreneurs ventured into the creation of a service. The production of that service created demand, which grew only when this service became available.

The homeowners acting independently, were the market that signalled a price. Competitors were drawn into this business. Rather than compete on price the two teams recognized that the market needed order. I am speculating that they realized cutting their price was not reasonable since no two could clear the snow fast enough to increase the number of houses served. Finally, the two teams recognized that combining their labour and investing in technology gave them a monopoly of sorts, and the ability to organically grow.

The entrepreneurs offering this service created the demand. There was no demand before there was this service, just kinetic potential.  It is the kinetic potential of an opportunity unshaped by a product that some mistakenly call demand. In this example it is erroneous to say that demand created the product or service.