Saturday, 18 May 2019

Coase and Plant on the market versus the firm

In a 1937 paper, "Centralise or decentralise" Arnold Plant writes,
"[...] centralisation is the means by which the collaborating enterprises secure the advantage of specialised services or equipment which would not otherwise be available to them on such favourable terms, if at all. If the service or merchandise in question is freely bought and sold on any scale in a well-organised market, there will be no need for centralisation of firms. It is the absence of a well-organised market which may justify firms in pooling their requirements".
He sees a clear trade-off between market provision and in-house production. When markets are available and relatively cheap their use makes sense. But when they are expensive, or unavailable, production in a firm makes sense. Today we would express this by saying when transaction costs are high we use the firm but when they are low we use the market.

Plant's line of argument has a somewhat modern, Coaseian, feel to it. The question this gives rise to is, For how long had Plant been thinking in this way? And did he discuss this line of reasoning in classes that Coase took? Or does the causation run in the opposite direction? Plant's paper was published in 1937 and we know that Coase's analysis of the firm was largely complete by 1932. Did Coase discuss his approach with his former teacher? Or did the two of them reach similar conclusions independently?

I'm not sure we know enough to answer these questions, but it does raise an interesting possibility about the development of Coase's ideas on the firm.

  • Plant, Arnold (1974). 'Centralise or decentralise?'. In Arnold Plant, "Selected Economic Essays and Addresses (174-98), London: Routledge & Kegan Paul. First published in Arnold Plant (ed.), "Some Modern Business Problems: A Series of Studies", London: Longmans, Green and Co., 1937.

No comments: