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TheNatureoftheFirm
(1937)
R.H.COASE
Economictheoryhassufferedinthepastfromafailuretostateclearlyitsassumption.Economistsin
buildingupatheoryhaveoftenomittedtoexaminethefoundationsonwhichitwaserected
。This
examinationis,however,essentialnotonlytopreventthemisunderstandingandneedlescontroversy
whicharisefromalackofknowledgeoftheassumptionsonwhichatheoryisbased
,butalsobecause
oftheextremeimportanceforeconomicsofgoodjudgmentinchoosingbetweenrivalsetsof
assumptions.Forinstance,itissuggestedthattheuseoftheword
“firm
”ineconomicsmaybedifferent
fromtheuseofthetermbythe
“plain。man”’Sincethereisapparentlyatrendineconomictheory
towardsstartinganalysiswiththeindividualfirmandnotwiththeindustry,2itisailthemorenecessary
notonlythatacleardefinitionoftheword
firm
shouldbegivenbutthatitsdifferencefromafirmin
the”realworld,ifitaists,shouldbemadeclear.Mrs.Robinsonhas
saidthat
”thetwoquestionstobe
askedofasetofassumptionsineconomicsare:Aretheytractable?And
:Dotheycorrespondwiththe
realworld?3Though,asMrs
。Robinsonpointsout,
”Moreoftenonesetwillbemanageableandthe
otherrealistic,”yettheremaywellbebranchesoftheorywhereassumptionsmaybebothmanageable
andrealistic.Itishopedtoshowinthefollowingpaperthatadefinitionofafirmmaybeobtainedwhichis
notonlyrealisticinthatitcorrespondstowhatismeantbyafirmintherealworld
,butistractablebytwo
ofthemostpowerfulinstrumentsofeconomicanalysisdevelopedbyMarshall,theideaofthemargin
andthatofsubstitution
,togethergivingtheideaofsubstitutionatthemargin.4Ourdefinitionmust
,of
course,”relatetoformalrelationswhicharecapableofbeing
conceived
exactly.
”5
I
Itisconvenientif,insearchingforadefinitionofafirm,wefirstconsidertheeconomicsystemasitis
normallytreatedbytheeconomist
。LetusconsiderthedescriptionoftheeconomicsystemgivenbySir
ArthurSalter6
。“Thenormaleconomicsystemworksitself
。Foritscurrentoperationitisunderno
centralcontrol
,itneedsnocentralsurvey.Overthewholerangeofhumanactivityandhumanneed,
supplyisadjustedtodemand,and
productiontoconsumption
,byaprocessthati
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