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earns the difference in the form of interest. However, since uncertainty is absent from the ERE, so are the arbitrage opportunities that entrepreneurs can use in order to earn profits. Arbitrage opportunities arise from a lack of perfect functional knowledge about supply and demand by at least some economic actors interested in a given good. The entrepreneur's chance for profit arises when some economic actors have misinterpreted the supply and demand for certain goods and have thereby traded them at prices that would have been different had all relevant information been taken into account. By bidding prices up or down, in accordance with the particulars of the situation, the entrepreneur eliminates this market error, allowing supply and demand to meet and accurate information about them to spread through the new prices. In the ERE, with perfect certainty, all economic actors already possess accurate information about supply and demand. No discrepancies exist for the entrepreneur to correct and thereby earn a profit.

In the real world, interest and profit are often difficult to isolate from one another. If, however, a real-world economy is compared to an ERE where interest is still possible but profit is not, the entrepreneurial profit would be discernible as arising from factors that the ERE would inherently lack.

The three Austrian school models for states of rest each offer useful insights into the state of actual economies. The plain state of rest reflects the aftermath of many real-world market transactions. The final state of rest enables analysis of the effects of particular single economic changes. The ERE serves as a tool for distinguishing interest from profit and exploring the function of each in the real economy.

Learn more about this author, G. Stolyarov II.
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