Munger talks about why firms exist. If prices and markets work so well (and they do) in steering economic resources, then why does so much economic activity take place within organizations that use command-and-control, top-down, centralized structures called firms? Within a firm, most of the goods and services that the workers use are given away rather than allocated by prices--computer services, legal services and almost everything else is not handed out by competition but by fiat, decided by a boss. A firm, the lynchpin of capitalism, is run like something akin to a centrally planned economy. Munger's answer, drawing on work of Ronald Coase, is a fascinating look at the often unseen costs of making various types of economic decisions. The result is a set of fascinating insights into why firms exist and why they do what they do.
Tuesday, 15 January 2008
Munger talks about the Firm
Previously I made comment on an essay by Michael Munger, Bosses Don't Wear Bunny Slippers: If Markets Are So Great, Why Are There Firms? Now you can listen to Munger discuss his essay. He is interviewed on EconTalk by Russ Roberts.