Tuesday, 18 May 2010

Klein on "The Capitalist and the Entrepreneur"

Peter Klein, of Organizations and Markets fame, has a new book out: The Capitalist and the Entrepreneur: Essays on Organizations and Markets. In the introduction he writes,
Austrian economics, I am convinced, has important implications for the theory of the firm, including firm boundaries, diversification, corporate governance, and entrepreneurship, the areas in which I have done most of my academic work. Austrian economists have not, however, devoted substantial attention to the theory of the firm, preferring to focus on business-cycle theory, welfare economics, political economy, comparative economic systems, and other areas. Until recently, the theory of the firm was an almost completely neglected area in Austrian economics, but over the last decade, a small Austrian literature on the firm has emerged. While these works cover a wide variety of theoretical and applied topics, their authors share the view that Austrian insights have something to offer students of firm organization.
This point that there is little in the way of a truly Austrian theory of the firm has always puzzled me. They have written extensively on the market (and the entrepreneur) but haven't devoted much energy to exploring what underlies either side of the market: demand (households) or supply (firms). What determines the boundaries of a firm? How are the internal structures of the firm determined? In what organisational framework does the entrepreneur carryout his activities? Or in short, Does the entrepreneur need a firm?

There seems to be obvious, but as yet unexplored, overlaps between the Austrian approach to microeconomics, mainly to do with the market, and other institutions or organizations, such as the firm. Why such inactivity on the part of Austrian economists on the question of these other institutions? It seems to be a shortcoming in current Austrian thinking.

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