WEBVTT NOTE Causal-Realist Answers to the Coasean Question 1 00:00:00.000 --> 00:00:14.000 Okay, I guess this talk is going to be a little bit unique because it will not be philosophy like Mark's talk and it's not going to be any macroeconomics as well, like most people. 2 00:00:14.000 --> 00:00:18.000 It's going to be more business than cycle, you could say. 3 00:00:18.000 --> 00:00:26.000 I'm calling this talk the causal realist answers to the cosine question, the mission of labor and the firm. 4 00:00:26.000 --> 00:00:29.000 And I guess it needs a little bit of explaining. 5 00:00:31.000 --> 00:00:35.000 The cosine question, for instance, goes famously asked, 6 00:00:35.000 --> 00:00:40.000 if the price mechanism is efficient, then why are there firms? 7 00:00:41.000 --> 00:00:45.000 So that's really what I'm trying to answer here from an Austrian perspective. 8 00:00:45.000 --> 00:00:48.000 And also I call it answers. 9 00:00:48.000 --> 00:00:50.000 I, of course, have the answer. 10 00:00:50.000 --> 00:00:52.000 But there are many out there. 11 00:00:52.000 --> 00:00:55.000 So I'm going to try to touch on them a little bit. 12 00:00:56.000 --> 00:01:26.000 So for my talk, I divided this into three main parts. I'll go through the theory of the firm as it is in mainstream economics, neoclassical or new institutional economics, and then go through the Austrian perspective as it is, the answers, and then I'll take a step to the comprehensive firm in the market view, which is the answer, my answer, 13 00:01:26.000 --> 00:01:38.120 So, the theory of the firm. This is the firm to most people, I guess. It could be anything, 14 00:01:38.120 --> 00:01:46.600 but men wearing dark suits in a nice office in Manhattan. They make a lot of money and 15 00:01:46.600 --> 00:01:47.600 and that's a firm. 16 00:01:47.600 --> 00:01:56.920 This is the neoclassical theory of the firm. 17 00:01:56.920 --> 00:01:59.880 As you can see, you have marginal revenue. 18 00:01:59.880 --> 00:02:05.000 This is a perfectly competitive market, so it's just a straight line. 19 00:02:05.000 --> 00:02:09.900 And then you have the average variable cost, where it intersects the marginal revenue is 20 00:02:09.900 --> 00:02:13.880 where you have the shutdown point below that point. 21 00:02:13.880 --> 00:02:16.000 You lose money all the time. 22 00:02:16.000 --> 00:02:23.000 And up there you make profits. I mean it's all really a math problem. It's like any neoclassical economics problem. 23 00:02:23.000 --> 00:02:29.000 You just push it through a computer and then boom, there you go. That's the economic truth. 24 00:02:29.000 --> 00:02:32.000 Very easy actually. 25 00:02:32.000 --> 00:02:44.000 But within the neoclassical framework, you have a new institutionalism that is trying to look a little bit to institutions as well, not just the number crunching thing. 26 00:02:44.000 --> 00:02:59.000 So, that is what I'm going to focus on, since the theory of the firm in terms of three or four curves is pretty boring, it doesn't really tell us much, I'll go through the new institutional theory instead. 27 00:02:59.000 --> 00:03:11.000 And that's really what is now the mainstream view, because it actually does attempt to explain what a firm is and why there are firms and so forth. 28 00:03:11.000 --> 00:03:17.000 So, it's all based on Ronald Coase's famous work from 1937. 29 00:03:17.000 --> 00:03:23.000 You might recall that he got the Nobel Prize in Economics in the 80s, I believe. 30 00:03:23.000 --> 00:03:32.000 Now, his point of departure in this article is the specialized market economy, 31 00:03:32.000 --> 00:03:37.000 where everything is efficient because they use the price mechanism. 32 00:03:37.000 --> 00:03:41.000 And that's when he started thinking about this problem. 33 00:03:41.000 --> 00:03:45.000 If the price mechanism is really, truly efficient, 34 00:03:45.000 --> 00:03:49.000 why in the world do people group together in firms 35 00:03:49.000 --> 00:03:52.000 when they should just contract on the market? 36 00:03:52.000 --> 00:03:54.000 A lot easier. 37 00:03:54.000 --> 00:03:57.000 So, obviously there is some kind of problem here. 38 00:03:57.000 --> 00:04:00.000 And he realized then that 39 00:04:00.000 --> 00:04:03.000 maybe there is a cost of using the price mechanism. 40 00:04:03.000 --> 00:04:09.660 Hey, maybe there isn't perfect information, which really is what this means. 41 00:04:09.660 --> 00:04:13.360 So he invented the term transaction costs. 42 00:04:13.360 --> 00:04:17.080 They're costs of using the price mechanism. 43 00:04:17.080 --> 00:04:21.240 Exactly what transaction costs are kind of depends on who you ask. 44 00:04:21.240 --> 00:04:27.200 It could be search costs, searching for a partner to contract with, could be information 45 00:04:27.200 --> 00:04:30.800 costs, could be contracting costs, could be enforcement costs for the contract, could 46 00:04:30.800 --> 00:04:52.800 Now, his solution is not only that it's costly to trade in the marketplace, it is actually less costly to be a socialist, which is something I cover in another paper, but Coase is a socialist, just trust me on this one. 47 00:04:52.800 --> 00:05:22.800 So he identified, it's one of his assumptions, he identified the firm as, and he quotes someone else here, Robertson I think, as the islands of conscious power, as a firm, because what you have there is the manager and he directs labor like this, and he tries to reproduce market allocation, I think we've heard this before in the socialist calculation debate, that hey all you need to do is 48 00:05:22.800 --> 00:05:26.800 If we could actually reproduce what the market would do, then socialism works. 49 00:05:26.800 --> 00:05:30.800 That's actually what happens in the firm, according to this theory. 50 00:05:30.800 --> 00:05:35.800 They put it in a much nicer language, of course, but that's basically what they're talking about. 51 00:05:35.800 --> 00:05:41.800 Now, Coase's work was completely ignored for 30-35 years, 52 00:05:41.800 --> 00:05:48.800 until next Nobel laureate came along, last year's Nobel laureate, Oliver Williamson, 53 00:05:48.800 --> 00:05:59.800 And he bases his reasoning for the firm on Coase's identification of the firm as a hierarchical construct based on fiat power, really. 54 00:05:59.800 --> 00:06:11.800 And he has established a theoretical framework in the new institutional economics that he calls the transaction cost economics. 55 00:06:11.800 --> 00:06:22.800 Now, when you read Williamson and especially his conclusions, you realize that he doesn't really have the same assumptions as Coase, but he uses the Coasean concept. 56 00:06:22.800 --> 00:06:28.800 Instead, he seems to be thinking about the perfectly competitive model here. 57 00:06:28.800 --> 00:06:37.800 So if you have perfect competition, well, all production is actually done in the firms, so that there is a firm is not a problem. 58 00:06:37.800 --> 00:06:49.800 So the problem here is, if you have very specific assets, then a firm can hold up another firm, and then you have a problem. 59 00:06:49.800 --> 00:06:59.800 And because people are rational and they want to extract quasi-rents from other firms, then they will act opportunistically. 60 00:06:59.800 --> 00:07:07.800 And that may be a cause or a reason for integrating two firms into one big firm. 61 00:07:07.800 --> 00:07:14.800 One famous article by Josco talks about a railroad track. 62 00:07:14.800 --> 00:07:22.800 Imagine if you would invest in a railroad track to supply transportation for coalmine. 63 00:07:22.800 --> 00:07:27.800 Now, would you just invest in that railroad track to that coalmine? 64 00:07:27.800 --> 00:07:36.520 Well, that coal mining operation might not buy transportation from you later on, so they 65 00:07:36.520 --> 00:07:43.280 could force you to lower your prices really down to the level of your costs, right? 66 00:07:43.280 --> 00:07:48.880 And that kind of opportunistic behavior is the big problem for Williamson. 67 00:07:48.880 --> 00:07:55.440 So in this case, the coal mining operation and the transportation firm would do better 68 00:07:55.440 --> 00:07:58.440 integrating and then just bossing people around within the firm. 69 00:08:06.480 --> 00:08:11.400 So if you summarize this thing, ontologically, 70 00:08:11.400 --> 00:08:14.120 the firm is hierarchy, power, socialism. 71 00:08:16.480 --> 00:08:19.200 It's really the more labels you have, the better. 72 00:08:19.200 --> 00:08:21.240 Sometimes that is what you're thinking 73 00:08:21.240 --> 00:08:23.120 when you read this stuff. 74 00:08:25.440 --> 00:08:30.440 It has a single cost. It's due to transaction costs. 75 00:08:30.440 --> 00:08:34.440 Were it not for transaction costs, there would be no firm. 76 00:08:34.440 --> 00:08:41.440 According to Coase, it's because socialism, at least in small islands, is cheaper than the market, 77 00:08:41.440 --> 00:08:43.440 because you don't have these transaction costs. 78 00:08:43.440 --> 00:08:51.440 And since the manager, he assumes, can reproduce market allocation of resources 79 00:08:51.440 --> 00:08:55.440 without having these costs, it's a pretty good deal. 80 00:08:55.440 --> 00:08:59.440 And with two Williams and then you have a lower risk 81 00:08:59.440 --> 00:09:03.440 this opportunistic behavior, you don't have that within the firm 82 00:09:03.440 --> 00:09:07.440 because you can actually force them to do whatever you like. 83 00:09:07.440 --> 00:09:11.440 So, in conclusion, the firm 84 00:09:11.440 --> 00:09:15.440 according to the neoclassicals, is 85 00:09:15.440 --> 00:09:19.440 a solution to a single problem. 86 00:09:19.440 --> 00:09:23.440 I think we've seen this before. It's usually the case in neoclassical economics. 87 00:09:23.440 --> 00:09:29.440 You have one problem, one solution, and math, and then you solve it. 88 00:09:29.440 --> 00:09:35.440 But what is the Austrian theory of the firm, you might ask? 89 00:09:35.440 --> 00:09:41.440 There it is. There is no Austrian theory of the firm. 90 00:09:41.440 --> 00:09:47.440 Which is kind of interesting, because Austrians tend to analyze the market as it is, 91 00:09:47.440 --> 00:09:53.640 Let's analyze the market as it is, whereas neoclassicals tend to analyze their own models. 92 00:09:53.640 --> 00:09:58.640 And in the market there are a lot of firms. So why don't we study the firm? 93 00:09:58.640 --> 00:10:05.520 Let's see what some people have said. In 85, Driscoll and Rizzo said there is no Austrian 94 00:10:05.520 --> 00:10:13.240 theory of the firm. In 97, Foss said that he talked about the Austrian lack of interest 95 00:10:13.240 --> 00:10:20.840 in the firm. And last year, Foss and my advisor said that until recently the theory of the 96 00:10:20.840 --> 00:10:26.920 firm was an almost completely neglected area in Austrian economics. It's in the 2000s. 97 00:10:26.920 --> 00:10:42.280 That's 70 years plus after COSE. So, what do we have? Well, we have a bunch of approaches. 98 00:10:42.280 --> 00:10:47.440 I went through the literature and I found there are a lot of toward and Austrian theory 99 00:10:47.440 --> 00:10:55.000 or a basis for toward and Austrian theory. 100 00:10:55.000 --> 00:11:02.600 Now some Austrians base this on the knowledge problem and they talk about coordination of 101 00:11:02.600 --> 00:11:04.880 the knowledge within a firm. 102 00:11:04.880 --> 00:11:09.120 You have knowledge of how to produce something, you don't really want to let that knowledge 103 00:11:09.120 --> 00:11:18.160 So, you try to contract with these, all the factors and try to keep control of the information 104 00:11:18.160 --> 00:11:19.440 that you actually supply them. 105 00:11:19.440 --> 00:11:24.600 It's better to point them in the right direction than actually tell them what to do or how 106 00:11:24.600 --> 00:11:26.160 to do it. 107 00:11:26.160 --> 00:11:33.200 Then you have the production process view, which really focuses on the structure of production 108 00:11:33.200 --> 00:11:36.680 and it's about coordination of the production process. 109 00:11:36.680 --> 00:11:43.180 Now both of these are coordination of a certain thing, as you can see. One is coordination 110 00:11:43.180 --> 00:11:48.220 of the knowledge that you have as an entrepreneur when you establish a firm. The other is coordination 111 00:11:48.220 --> 00:11:55.780 of production. So you have different stages of production and you try to coordinate them 112 00:11:55.780 --> 00:12:01.300 so that you actually end up with the end product that you like. And you also have the coordinator 113 00:12:01.300 --> 00:12:06.500 of View, as I call it, just to use the word once more, which is really the entrepreneurial 114 00:12:06.500 --> 00:12:10.020 theory of the firm, some call it. 115 00:12:10.020 --> 00:12:15.740 Now here the entrepreneur is really the force that coordinates the whole firm, doesn't really 116 00:12:15.740 --> 00:12:21.540 matter if it's knowledge or production process or both or something third. 117 00:12:21.540 --> 00:12:30.540 And the fourth is uncertainty, so the firm is really some kind of calculation or planning 118 00:12:30.540 --> 00:12:33.100 to control uncertainty. 119 00:12:33.100 --> 00:12:41.460 These are the four basic kinds of Austrian approaches to the firm. 120 00:12:41.460 --> 00:12:43.020 Now, what does this tell us? 121 00:12:43.020 --> 00:12:48.300 Well, first of all, we don't really have a theory of the firm. 122 00:12:48.300 --> 00:12:57.580 And what we have are approaches focusing on just certain aspects of what is a firm and what is a market. 123 00:12:57.580 --> 00:13:04.460 So we just have these fragments, we have the knowledge theory of the firm, and we have 124 00:13:04.460 --> 00:13:08.760 the production process theory of the firm, and what about knowledge in the production 125 00:13:08.760 --> 00:13:09.760 process? 126 00:13:09.760 --> 00:13:13.220 Don't we have both in the firm? 127 00:13:13.220 --> 00:13:19.060 It should be pretty obvious that we do, but we have no comprehensive view, no firm in 128 00:13:19.060 --> 00:13:24.620 the market theory, as I call it, because these firms were trying to, or these theorists, 129 00:13:24.620 --> 00:13:39.620 I mean since I have the answer. They focus on these fragments, but they don't focus on the firm in the market and the interdependence and how things happen, what's going on in the market process. 130 00:13:39.620 --> 00:13:50.620 So what they're really lacking is the entrepreneur as the driving force behind the social creation of wealth, because that's really what has happened, what is going on here, right? 131 00:13:50.620 --> 00:13:55.620 What we're trying to explain is really the market process and why there are firms in the market process. 132 00:13:57.620 --> 00:14:08.620 So what I'm asking is for a firm in the market, of the market, by the market, and for the market. Why is that firm? 133 00:14:09.620 --> 00:14:16.620 So when I did this, I really started with our view of the market, in a totally free market. 134 00:14:16.620 --> 00:14:31.620 Coase does the same, he's talking about atomistic competition, but that view is quite neoclassical, or maybe classical even, a little bit. 135 00:14:31.620 --> 00:14:38.620 But what we do have is the specialized free market economy. What do we know about that? 136 00:14:38.620 --> 00:14:46.900 Well, there was this guy back in 1776, he talked about the division of labor, and we 137 00:14:46.900 --> 00:14:52.860 used that in Austrian economics as well, right? 138 00:14:52.860 --> 00:15:00.180 Mises talked about the division of labor, and he went a lot further than did Smith. 139 00:15:00.180 --> 00:15:05.660 I'm sorry for this beautiful PowerPoint slide here, but Mises said the division of labor 140 00:15:05.660 --> 00:15:11.220 Labor splits the various processes of production into minute tasks, many of which can be performed 141 00:15:11.220 --> 00:15:12.780 by mechanical devices. 142 00:15:12.780 --> 00:15:18.060 It is this fact that made the use of machinery possible and brought about the amazing improvements 143 00:15:18.060 --> 00:15:21.540 in technical methods of production. 144 00:15:21.540 --> 00:15:25.180 Mechanization is the fruit of division of labor, its most beneficial achievement, not 145 00:15:25.180 --> 00:15:27.460 its motive and fountain spring. 146 00:15:27.460 --> 00:15:31.140 Power-driven specialized machinery could be employed only in a social environment under 147 00:15:31.140 --> 00:15:32.700 the division of labor. 148 00:15:32.700 --> 00:15:37.460 Every step forward on the road toward the use of more specialized, more refined and 149 00:15:37.460 --> 00:15:42.460 more productive machines requires a further specialization of tasks. 150 00:15:42.460 --> 00:15:47.860 Now do you see something strange here? 151 00:15:47.860 --> 00:15:53.580 Suddenly specialization is not the problem, as it is with Coase and Williamson. 152 00:15:53.580 --> 00:16:02.580 Here specialization is the solution, that's the motive power of the economy. 153 00:16:02.580 --> 00:16:04.580 Let's go a little bit further. 154 00:16:04.580 --> 00:16:09.420 Division of labor, it's limited by the extent of the market, as Smith said. 155 00:16:09.420 --> 00:16:16.020 He talks about the pin factory, how labor, or how tasks are divided between labor factors 156 00:16:16.020 --> 00:16:17.300 within the firm. 157 00:16:17.300 --> 00:16:24.620 We have Marx, a little later, he talks about the closeness of factors. 158 00:16:24.620 --> 00:16:29.220 To really use the division of labor, you need the factors to be very close. 159 00:16:29.220 --> 00:16:36.340 And he really defined the firm as increased division of labor in the hands of the capitalist. 160 00:16:36.340 --> 00:16:42.780 And you had Durkheim four years before Coase, he talked about division of labor, you can 161 00:16:42.780 --> 00:16:50.820 use it to a higher degree when you have new technology in communication and transportation 162 00:16:50.820 --> 00:16:55.820 because that actually makes factors closer, in real way. 163 00:17:03.220 --> 00:17:05.820 So, let's have a look at this specialization view. 164 00:17:05.820 --> 00:17:08.980 Now, Mises, he talks about specialization 165 00:17:08.980 --> 00:17:12.160 as making the market productive and efficient. 166 00:17:13.300 --> 00:17:18.300 Coase, he kind of agrees with Mises on market efficiency, 167 00:17:18.300 --> 00:17:24.900 But he talks about the costs as well and of course the way to avoid those costs is socialism 168 00:17:26.060 --> 00:17:31.980 But this these costs the socialism is too costly when the factors are spread out 169 00:17:33.620 --> 00:17:36.440 Which is really what Durkheim was saying with 170 00:17:37.540 --> 00:17:44.500 New technology and transportation and communication because that brings the factors closer to each other at least subjectively closer 171 00:17:45.500 --> 00:17:47.500 and Williamson 172 00:17:48.300 --> 00:17:56.300 To him, the specialization is the problem. There's no perfect competition anymore. The firms are not exactly the same. 173 00:17:56.300 --> 00:18:04.300 So, specific assets must be integrated into firms. 174 00:18:04.300 --> 00:18:12.300 Here, I guess you could say that Coase is a little bit of a classical economist, whereas Williamson is more of a neoclassical. 175 00:18:12.300 --> 00:18:16.300 I don't need to define what Mises is, of course. 176 00:18:16.300 --> 00:18:35.300 The funny thing here is that all this is actually compatible, so Coulson-Williamson, they're both talking about specialization in different ways and they're compatible with Smith saying that specialization and division of labor is what drives the market. 177 00:18:35.300 --> 00:18:43.300 They're compatible with Marx who says that specialization in the firm is higher than in the market. 178 00:18:43.300 --> 00:18:53.300 Because that's basically what Williamson is saying, right, when he's saying that if you have very specific assets, you should have them integrated in the firm, because otherwise you have the risk of opportunism. 179 00:18:53.300 --> 00:19:05.300 That's what Marx said a hundred years earlier. And they're compatible with Durkheim, as I said before, and with Mises, which is very interesting. 180 00:19:05.300 --> 00:19:18.060 So what we have here is that the firm is a high density structure that really allows 181 00:19:18.060 --> 00:19:25.900 a greater level of specialization or division of labor than the market itself. 182 00:19:25.900 --> 00:19:32.900 So what I say here is that the firm is a super division of labor if you like. 183 00:19:32.900 --> 00:19:39.500 Now what does this lead us if we take this as a definition of the firm, as a way for 184 00:19:39.500 --> 00:19:46.580 the entrepreneur to actually create a higher density between factors to utilize division 185 00:19:46.580 --> 00:19:49.220 of labor to a higher degree than is possible in the market? 186 00:19:49.220 --> 00:19:55.060 Well, if we take these Austrian insights again, we have that the entrepreneur imagines a profit 187 00:19:55.060 --> 00:19:57.620 opportunity of some sort. 188 00:19:57.620 --> 00:20:05.940 This is the Cantillon-Night-Mises view of entrepreneurship, as Klein talks about. 189 00:20:05.940 --> 00:20:12.380 Now when he does that, he's really generating knowledge in his mind of a new type of structure 190 00:20:12.380 --> 00:20:17.020 of production, how to produce something new, if services are good or whatever, and of course 191 00:20:17.020 --> 00:20:24.540 he acts on this new profit opportunity, and he creates a firm leading them into specializing 192 00:20:24.540 --> 00:20:28.420 further than they could in the market 193 00:20:28.420 --> 00:20:31.500 and he teaches them how to work together 194 00:20:31.500 --> 00:20:38.060 to use this in a way that they could not do in the marketplace by themselves 195 00:20:38.060 --> 00:20:40.140 so the firm becomes 196 00:20:40.140 --> 00:20:43.500 a super efficient production structure 197 00:20:43.500 --> 00:20:48.900 because we know that division of labor makes you more efficient 198 00:20:48.900 --> 00:20:54.660 they're not dividing them, like switching between tasks all the time 199 00:20:54.660 --> 00:20:57.860 so let's have a short look 200 00:20:57.860 --> 00:20:59.620 I'm almost done 201 00:20:59.620 --> 00:21:01.100 at the firm versus 202 00:21:01.100 --> 00:21:05.540 atomistic competition, if we accept this definition 203 00:21:05.540 --> 00:21:10.700 well, we have a higher density within the firm which means we have a higher division of labor 204 00:21:10.700 --> 00:21:13.180 which means that we have higher efficiency 205 00:21:13.180 --> 00:21:17.980 and lower cost 206 00:21:17.980 --> 00:21:19.940 extra profits within the firm 207 00:21:19.940 --> 00:21:22.740 would cause increased competition in the marketplace 208 00:21:22.740 --> 00:21:27.380 because suddenly no one can compete with this firm that is organized. If everybody is 209 00:21:27.380 --> 00:21:31.100 self-employed, running around in the market trying to trade and someone 210 00:21:31.100 --> 00:21:34.740 establishes a firm where they can be more efficient, 211 00:21:34.740 --> 00:21:41.140 of course everybody else wants to establish a firm. 212 00:21:41.140 --> 00:21:46.500 It also means that you get specialization in administrative services. 213 00:21:46.500 --> 00:21:55.000 Suddenly within the firm, the entrepreneur can actually relieve these factors from all those extra services. 214 00:21:55.000 --> 00:22:03.200 Accounting, marketing, sales. If you're a carpenter, why don't you do carpentry? 215 00:22:03.200 --> 00:22:09.900 So you suddenly have specializations in these things as well. 216 00:22:09.900 --> 00:22:15.700 And you get new markets for these specialized labor factors. 217 00:22:15.700 --> 00:22:19.780 Both within production, where you specialize further than is possible in the market as 218 00:22:19.780 --> 00:22:27.780 self-employed, now you can go to other firms, because people would follow the lead of this 219 00:22:27.780 --> 00:22:29.020 entrepreneur. 220 00:22:29.020 --> 00:22:37.900 And also, suddenly you have a market for accountants, which would not exist before, possibly. 221 00:22:37.900 --> 00:22:45.460 Now the firm in the market, if you're self-employed, first of all you have to be compatible, you 222 00:22:45.460 --> 00:22:48.600 you have to be on the same level 223 00:22:48.600 --> 00:22:51.540 you can't produce something that is very very small 224 00:22:51.540 --> 00:22:53.220 that no one else can use 225 00:22:53.220 --> 00:22:59.620 you have to be basically the same level of specialization as all the others 226 00:22:59.620 --> 00:23:01.420 you must switch between tasks 227 00:23:01.420 --> 00:23:03.180 all the time 228 00:23:03.180 --> 00:23:08.260 you have to find customers, you have to find financing, you have to produce the stuff, you have to buy the stuff 229 00:23:08.260 --> 00:23:10.180 all these things 230 00:23:10.180 --> 00:23:11.900 you don't have to do that in the firm 231 00:23:11.900 --> 00:23:17.740 so it revolutionizes production 232 00:23:17.740 --> 00:23:21.500 and actually the firm like this explains why there is 233 00:23:21.500 --> 00:23:24.680 increased competition 234 00:23:24.680 --> 00:23:29.500 and it actually pushes the market towards an increased division of labor 235 00:23:29.500 --> 00:23:31.140 you will see the firm like this 236 00:23:31.140 --> 00:23:33.500 and it creates new markets for outsourcing 237 00:23:33.500 --> 00:23:36.540 imagine then the market takes another step 238 00:23:36.540 --> 00:23:39.020 in the division of labor 239 00:23:39.020 --> 00:23:42.860 and suddenly all firms have a marketing department. 240 00:23:42.860 --> 00:23:45.580 Well, why don't the marketing people 241 00:23:45.580 --> 00:23:48.220 suddenly go together, create a firm 242 00:23:48.220 --> 00:23:51.100 because they know what that is about 243 00:23:51.100 --> 00:23:52.820 and they sell these services in the market. 244 00:23:52.820 --> 00:23:54.860 So the entrepreneur says, 245 00:23:54.860 --> 00:23:56.320 okay, fine, I'll buy it on the market, 246 00:23:56.320 --> 00:23:57.420 that's more efficient. 247 00:23:58.760 --> 00:24:02.980 So in conclusion, this would be a holistic, 248 00:24:02.980 --> 00:24:07.940 comprehensive view through combining Austrian fragments 249 00:24:07.940 --> 00:24:10.020 and utilizing the strengths of the mainstream theory, 250 00:24:10.020 --> 00:24:11.640 both Coase and Williamson, 251 00:24:11.640 --> 00:24:14.120 just different degrees, I admit. 252 00:24:15.140 --> 00:24:19.340 Now the result is what I call a classical theory of the firm, 253 00:24:19.340 --> 00:24:21.340 because it's really following Smith and Marx 254 00:24:21.340 --> 00:24:25.740 and those people, so I'm totally skipping the neoclassicals, 255 00:24:25.740 --> 00:24:26.780 which feels good too. 256 00:24:28.940 --> 00:24:30.860 And to this classical theory of the firm, 257 00:24:30.860 --> 00:24:32.940 I add modern Austrian insights. 258 00:24:32.940 --> 00:24:39.940 And that's basically what I had.