Re: Of Coase

["Max B. Sawicky" <sawicky@xxxxxxxxxxxxxxxx>]

A couple of thoughts/questions:

1.  You state that the employee must work for someone else because of the
lack of capital, but Coase suggests (demonstrates?) that the firm
(employer-employee relationship) exists because of transaction costs.
Therefore, even if every worker starts with his own capital and is not
compelled to be an employee, firms would still be formed because they would
be more profitable (including for the salaried worker).

>>>> right.  Coase's logic of the firm holds no matter who has
the capital.  The firm in Coase is a bundle of transactions
covered by an implicit contract wherein the workers concede
control over their work time to the coordinator.
<<<<

2.  You state that the firm needs a coordinator, but Coase fails to explain
why the coordinator is not hired by the workers.  Isn't that because the
firm, by definition, always precedes the workers?  For instance, every
corporation is created by a person that incorporates the corporation,
initially finances the corporation and establish its purposes.

>>> Financing is a separate matter.  There is no financing in
Coase, nor any capital.  The basis for hierarchy is its favorable
cost, relative to market transactions.>>>

 Once the purpose of the firm is established, then that person determines
what labor is required to achieve the purpose, taking into consideration the
firm's resources and other factors.  Comparatively, is it possible to
imagine certain workers combining themselves without any specific purpose,
and then hiring a coordinator to provide them with purpose?  How would that
work?  I think this points to the necessary role of the entrepeneur in the
equation.  David Shemano

>>>  But such a purpose could be conceived by anyone.
Workers could hire somebody to conceive a firm.  In
Coase, the conceiving (which he describes as dealing
with uncertainty) can be marketized, contrary to Knight,
who (according to Coase) sees it as basic to the firm
and to the formation of classes.

Of course, workers don't hire their boss because they lack
sufficient capital.  With only a modest amount of capital,
sinking it into one business would be too risky for some.
With a lot of capital, the worker is not a worker any more.

In practice, before the advent of huge corporations,
ownership of capital confers the power to assign
'coordination' responsibilities.  Ergo, the ability
to economize on transactions costs provides a rationale
for the firm, it leaves to the imagination the nature
of the employee-employer relationship.

This may be old hat to a lot of people, but I'd like to
note that in Coase the entrepreneur's function is really
mechanical.  There is no innovation, creativity, or special
faculty being exercised.  (All of that you can buy.)
The coordinator is just another worker.  Maybe there's
something radical there.

mbs