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> Remember, a company is essentially a little island of command economics in the wider sea of the market. There's some truth in there, but it's a stretch. In a

> Remember, a company is essentially a little island of command economics in the wider sea of the market. There's some truth in there, but it's a stretch. In a true command economy, you can't opt out of the command economy without defecting/revolution/violence. In a company, you can quit and take your labor elsewhere. Likewise, suppliers can stop supplying and buyers can stop buying. Not so with the Commissar's Shoe Producing Command Division.

jacques_chester 15y ago
I'm not sure. You might be conflating command economics with totalitarianism. I'm not an economist so I can't be sure. In terms of historical examples of command economies, yes, they've lacked the ability of labour to walk away. Indeed one of the first things the USSR did was reintroduce a form of serfdom -- workers were bonded to their enterprise and couldn't move without permission. A good pop-econ/narrative read on the history of Soviet economics is Red Plenty by Francis Spufford.
- joelhaus 15y ago
  Calling a company an "island of command economics" is really just a harsh way of calling out the overly bureaucratic nature of many larger organizations, but the idea that a perfectly free market exists now or can ever come into existence is really just a fairy tale. The primary purpose of the notion of a perfectly free market is to make it easier for economists to publish theoretic papers and so politicians have economic issues to demagogue. It might also help to distinguish between the micro-economic and macro-economic issues raised above. While the two are dependent, they tend to approach problems from opposite ends of the transactional chain. Generally, a company's goal is micro-economic (to maximize profits), while governments are more concerned with macro-economic issues like employment and inflation (via fiscal/monetary policy). That said, IMO, the transaction costs are a symptom of the corporate rot that we see when a company rests too much on its laurels. Your point about the relationship between technology and company formation is also very well taken... it does seem that we are at a tipping point where technology is having a very pronounced impact on business decisions.
  - jacques_chester 15y ago
    You may have noticed that in my grandparent post I did not posit whether or not a "perfect free market" exists. Indeed the existence of the firm is seen as evidence that it does not, which is how Coase came to think about the origins of the firm in the first place. I don't think any serious economist has ever said a perfect market exists. But lots of folk sure like to beat that strawman up.

jacques_chester 15y ago

I'm not sure. You might be conflating command economics with totalitarianism. I'm not an economist so I can't be sure. In terms of historical examples of command economies, yes, they've lacked the ability of labour to walk away. Indeed one of the first things the USSR did was reintroduce a form of serfdom -- workers were bonded to their enterprise and couldn't move without permission. A good pop-econ/narrative read on the history of Soviet economics is Red Plenty by Francis Spufford.

joelhaus 15y ago
Calling a company an "island of command economics" is really just a harsh way of calling out the overly bureaucratic nature of many larger organizations, but the idea that a perfectly free market exists now or can ever come into existence is really just a fairy tale. The primary purpose of the notion of a perfectly free market is to make it easier for economists to publish theoretic papers and so politicians have economic issues to demagogue. It might also help to distinguish between the micro-economic and macro-economic issues raised above. While the two are dependent, they tend to approach problems from opposite ends of the transactional chain. Generally, a company's goal is micro-economic (to maximize profits), while governments are more concerned with macro-economic issues like employment and inflation (via fiscal/monetary policy). That said, IMO, the transaction costs are a symptom of the corporate rot that we see when a company rests too much on its laurels. Your point about the relationship between technology and company formation is also very well taken... it does seem that we are at a tipping point where technology is having a very pronounced impact on business decisions.
- jacques_chester 15y ago
  You may have noticed that in my grandparent post I did not posit whether or not a "perfect free market" exists. Indeed the existence of the firm is seen as evidence that it does not, which is how Coase came to think about the origins of the firm in the first place. I don't think any serious economist has ever said a perfect market exists. But lots of folk sure like to beat that strawman up.