Ch. 1, Austrian Economics and Organisation

A vast literature was developed in the 1920s and 1930s on economic organisation and management of the firm.[i] This literature continued the earlier work by primarily Alfred Marshall, who had discussed the abstract conception of a ‘representative firm’[ii] and offered an extensive study of industrial organisation.[iii] From our contemporary perspective, this literature culminated in the 1937 article by Ronald Coase,[iv] the Nobel laureate and founder of the modern economic study of the firm as a means to economise on transaction costs.[v] This research subsided within mainstream economics and was not revived until the rediscovery of Coase’s work in the late 1960s and early 1970s.

Interestingly, the emergence and development of this literature on economic organisation coincides with a high point of theoretical development and influence of the Austrian School of Economics, especially through Ludwig von Mises’s work on the economics of socialism that spurred the Socialist Calculation Debate.[vi] The Austrian or ‘causal-realist’ school’s focus on studying real phenomena in economy and therefore the market as it is, rather than – as in modern mainstream economics – highly formalised mathematical models with only occasional relevance to the real working of the market, suggests it perhaps should have researched the firm. After all, markets then and now are primarily populated by firms and most economic activity takes place within or between such organisations. Yet, in contrast to neoclassical economics, the Austrian school did not develop a theory of economic organisation, and even less a theory of the firm. As late as 1985 Gerald O’Driscoll and Mario Rizzo stated that ‘there is no subjectivist or Austrian theory of the firm’.[vii] Almost a full decade later Nicolai Foss made the same observation and could, another few years later, safely note ‘the Austrian lack of interest in the firm.[viii]

But things are changing. We can at present identify two trends related to the Austrian body of research and the study of the firm, its governance and organisation. One is the growing interest for issues relating to economic organisation from within the Austrian school and by Austrian scholars. Since the mid to late 1990s, articles and books have been published as part of the Austrian research program that propose directions for developing an Austrian theory of the firm. Indeed, even though ‘Austrian economists have not … devoted substantial attention to the theory of the firm’, write Foss and Peter Klein in 2009, ‘a small Austrian literature on the firm has emerged’.[ix]

The other trend started with the (re)discovery of and then growing use and influence of Austrian economic theory and concepts in the study of management and entrepreneurship.[x] These two distinct trends, while naturally addressing similar issues, have different starting points and approaches, and build off different theoretical frameworks. But, as we will see, they nevertheless amount to practically the same thing, only with different emphases.

Austrian Economics in Mainstream Research

For scholars in management and entrepreneurship, Austrian economics has offered an opportunity to open new venues for research. While the formal models in mainstream economics, especially industrial organisation (IO), originally laid ground for the study of strategic management, they are deficient for producing predictions and advice in a dynamic world. The formalised economic approach offers little support for more practically oriented or realistic research aiming for understanding and aiding in the creation or management of real firms. In contrast, the Austrian view of the market as a dynamic, entrepreneurship-driven competitive discovery process, and its focus on realism through explaining real empirical phenomena, has considerable potential to enhance research and practice in both management and entrepreneurship.[xi] Modern research in these fields has already adopted several core Austrian concepts and insights.[xii]

The study of strategic management was originally an offshoot of the so-called Bain/Mason paradigm of industrial organization (IO).[xiii] While IO focused on the overall efficiency of the economic system as compared to the perfectly competitive model, strategic management developed strategies for the individual firm to exploit the efficiency logic and so establish monopoly power through which it can earn above-normal returns.[xiv] But the empirical market in which business leaders draft strategies and make decisions is scarcely similar to the perfectly competitive model. Also, in stark contrast to the model, real production is neither optimised nor instantaneous, and business decisions are always made under uncertain conditions. The market, in other words, is in a constant flux. It is in changing disequilibrium rather than a stable equilibrium state, and this makes the formalised model describing maximising behaviour of rational actors with perfect information quite inapplicable in real business management.

It should therefore have been an obvious and expected development within strategic management to move toward adopting and analysing a more dynamic conception of the market and the firm. The change to focusing on the analysis of a more dynamic and ‘messier’ view of the market constituted a shift from the formal models of mainstream economics toward an Austrian conception of the market as a competitive and equilibrating process. As Robert Jacobson observed in 1992, there are ‘relatively few strategy researchers [who] explicitly attribute or link their analysis to Austrian economics’, but ‘the influence of Austrian thinking is more widespread than this lack of attribution might suggest’.[xv] He continues by noting that much of the recent strategy research ‘fit[s] squarely into the Austrian school of thought’ and that this work even ‘can be seen as forming an “Austrian School of Strategy”’.[xvi]

A similar shift has occurred in the study of entrepreneurship, though this field never as fully adopted the streamlined economic models on which strategic management was originally based. As entrepreneurship is commonly perceived of as some form of open-ended change, whether it is the fundamental ‘driving force of the whole market system’[xvii] or simply the act of creating firms,[xviii] it is profoundly difficult to express in formal notation. Entrepreneurship could therefore never rely as fully on the models of modern economic theory, which may be a reason why, as William Baumol expressed it, ‘[t]he theoretical firm is entrepreneurless – the Prince of Denmark has been expunged from the discussion of Hamlet’.[xix]

Since at least the 18th century studies in economic theory have placed the entrepreneur at the centre. Richard Cantillon, for instance, defines entrepreneurship as working for non-fixed income (and therefore the bearing of uncertainty)[xx] and saw in the entrepreneur the force that brings equilibrium to the market.[xxi] Adam Smith, commonly regarded the ‘father’ of economics, saw in the ‘undertaker’ an agent that transforms demand into supply.[xxii] Jean Baptiste Say saw the entrepreneur as a speculator who runs the firm for profit.[xxiii] The common denominator of the classical approaches to entrepreneurship is that it is considered primarily in terms of the role or function it plays in the economy. Modern entrepreneurship, in contrast, has to a great extent approached entrepreneurship as an empirical phenomenon, where entrepreneurship is measured as ‘self-employment’ or as the degree of non-concentration in an industry.

It was not until the work of Scott Shane and Sankaran Venkataraman,[xxiv] who suggested the study and implications of the entrepreneurial opportunity as common denominator for studies in entrepreneurship, that theorising without direct basis in empirical observation regained its foothold in the field of entrepreneurship. They relied heavily on the work of Israel Kirzner in reformulating the study of entrepreneurship, and contrasted Kirzner’s ‘alert’ entrepreneur with a conception of Joseph Schumpeter’s ‘disruptive’ innovator-entrepreneur.[xxv] This has ultimately led to Austrian economics having a strong influence in entrepreneurship.[xxvi]

The use of Austrian concepts in strategic management is as prevalent as in entrepreneurship, but far from as explicitly attributed. Where entrepreneurship theory was built on an openly Austrian foundation, strategic management research only infrequently recognizes that many of its core concepts have already been used, elaborated on and scrutinized by the Austrians. While there are indeed a number of studies in strategic management that explicitly use an Austrian approach or even adopts an Austrian theory, the measurable relative influence of Austrian economics has not increased.[xxvii] Instead, concepts such as resource heterogeneity, uncertainty and dispersed knowledge – and their implications – are reinvented and drafted anew. This has the potential to create a thoroughly strategic management flavour to these concepts that can create a distinct paradigm, but it also subjects the field to costs as already developed theoretical concepts are reinvented and problems of consistency. The latter is in line with a warning drafted by Jacobson, who cautioned that while Austrian economics is a mature theoretical framework and therefore useful and valuable, it is also highly integrated due to its strictly deductive method; this means that ‘inconsistencies can arise when attempting to integrate other frameworks with Austrian paradigms’.[xxviii] This may turn out to be a severe problem in strategic management as the field borrows several concepts from Austrian economics, and it can equally become a problem in entrepreneurship theory as it originated as an application of Austrian theory. But, as we shall see in the next section, it is a latent problem also in Austrian theories of the firm.

Coase and the Austrians

As I discuss elsewhere,[xxix] Austrian approaches to studying the firm commonly builds off of and incorporates several core concepts, theoretical devices and reasoning from mainstream (non-Austrian) theories of the firm. Rather than typical Austrian theorising, which commonly relies on a uniform, consistent and integrated theoretical framework constructed deductively, Austrian approaches to the firm incorporate mainstream conceptualisations in a ‘market process’ construct that hinges on a single or couple of Austrian concepts (such as knowledge, capital theory, entrepreneurship or uncertainty).[xxx] Consequently, we see Austrian theories that discuss how transaction costs, incomplete contracting, monitoring costs and so on relate to, can be combined through, are supported by or otherwise further explained by utilising an Austrian concept. By placing a ‘bridging’ Austrian concept at the core that supposedly adds an explanatory dimension to existent theories, an argument is formed for the value of incorporating core components of Austrian economics in mainstream theory development. The product is a theoretical amalgamation that is mainstream in many ways and builds on strengths perceived in already established theories, but is presented with a distinctly Austrian flavour through the use of Austrian constructs or terminology.

Whereas these approaches purport to take steps toward an integrated framework that would explain economic organisation, they predominantly attempt to achieve this goal by ‘combining’ Austrian with decidedly non-Austrian theoretical constructs. As these constructs have different histories, are from different bodies of theory and commonly are formulated using very distinct (and, at least to some extent, incommensurable) assumptions and reasoning, they risk appearing more as a jumble of concepts inspired or held together by an Austrian style market process argument than an integrated theory.[xxxi] Hence, I found that ‘the existing [Austrian] attempts fail to convincingly explain why there are firms because they are too narrowly focused on specific characteristics rather than on the firm in the market’.[xxxii] It should, in fact, be difficult to imagine an Austrian approach to explaining economic organisation that does not see the firm as having or supplying a distinct function in the integrated market system in which it is thoroughly embedded, and so is both affected by and effectuate change to the market process. In this sense, the firm may not be seen as ‘only’ a governance choice for certain types of transactions or in specific situations, but should – considering its relative omnipresence in the market – play a more substantial role in how the market process works. The firm, seen from an Austrian point of view, should provide a function that fits in the broader scheme of things.

If we for a moment assume that firms are more than ‘legal fictions’,[xxxiii] it should be clear that the empirical observation that firms are more or less ubiquitous in advanced markets cannot properly guide the development of Austrian theory. This is not to say that empirical observations are unimportant, but quite the opposite. The fact that business firms are practically ‘everywhere’ should to Austrian theorists indicate that there may be more to this phenomenon than, as claimed in mainstream transaction cost theory, the simple comparison of coordination costs for a given transaction. Cost minimisation through choosing the ‘cheaper’ means of coordination can of course be a benefit of the firm, but the full out adoption of the mainstream market/hierarchy duality as one’s theoretical point of departure does not follow from this statement.

Despite this, Austrian theories tend to adopt Ronald Coase’s transaction cost theory of the firm as starting point. While it is true that Coase introduced the comparative institutional analysis of economic organisation in a nice way, there is reason to think that Coase’s framework is incompatible with Austrian theory. His theory of the firm was intended primarily as a defence of economic planning,[xxxiv] and it was in support of planning in the market (that is, Coase’s conception of the firm) that he introduced the concept of transaction costs, which is a kind of cost that somehow exists outside of economic actors’ opportunity cost assessments and therefore do not affect resource allocation.[xxxv] Coase’s point was that the market is ‘costly’ because resources are heterogeneous and market coordination is not rationally planned, and it follows from this that rational planning (by definition unaffected by this cost) would tend to be less costly. Coase explains that this is the reason such a ‘large sphere’ of the Western market economies are not coordinated through market exchange but are instead planned within firms, and contrasts this ‘decentralised planning’ through firms in the market with the centralised economic planning in Soviet Russia (Vladimir Lenin had said the country would ‘be run as one big factory’).

Keeping the political connotations aside, Coase’s economic argument stands in stark contrast to how Austrian economists understand the market and how they conceive of capital heterogeneity and the implications thereof. To Austrians, it is ultimately the fact that resources in production are heterogeneous, produced and non-permanent that makes economic planning costly (if not impossible) and makes the market the unbeatable (though still, it must be emphasised, imperfect) coordination mechanism for advanced specialised production – not the other way around.[xxxvi] With this in mind, it seems Coase’s theory is based on a misunderstanding, the problematic implications of which are then augmented by his (at the time) limited knowledge of economics. It is this framework that allows Coase to conclude that ‘planning’ is superior to and therefore supersedes the market’s price mechanism.

Whereas Coase’s analytical approach of comparative institutionalism is rightly accepted and appreciated by Austrians, it is difficult to see why the rest of his argument should be. Rather than using a theoretically streamlined but otherwise realistic ‘imaginary construction’[xxxvii] (the common method in Austrian theorising) to isolate causal links and interdependencies in the real economy, Coase’s assumptions intentionally do away with any structural differences so that only the means of coordination remains to distinguish the firm from the market. The conclusion that the choice (which to Coase appears to be made by the economy rather than by an actual actor) of coordinating force (price mechanism or manager) is a matter of selecting the least costly alternative is neither interesting nor important – it follows directly from the assumptions. This is not necessarily a problem in the general sense, since the outcome of any deductive theory should follow logically from its established premises. But there is an important difference between Coase’s analysis and the deductive theoretical framework of Austrian economics. The former’s assumptions appear at best unfounded, haphazard or arbitrary, but also seem to be chosen for the purpose of arriving at a preselected (and desired) conclusion. This should make Austrians hesitant to accept Coase’s conclusions.

Coase’s theory quite obviously differs the main approach used in the literature on economic organisation in the 1920s and 1930s, but it was nevertheless heavily influenced by it. Lowell Jacobsen argues that Coase’s theory in many respects was theoretically inspired by Austin Robinson, an influential Cambridge economist who had written on the logic of industrial organisation.[xxxviii] [xxxix] But Coase’s approach deviated from Robinson’s in one important respect: he assumed that the firm’s internal organisation is practically a carbon copy of the market’s allocation of resources,[xl] which facilitated his marginal transaction analysis and allowed him to conclude that there is a strict cost rationale for the firm. Robinson’s starting point, which until then had been the generally accepted explanation in the economic study of organisations, was that the firm is defined contra the market by its more intensive division of labour. This difference means that the boundary of the firm, according to Coase’s theory, is the result of a simple cost comparison between different means for allocating resources, whereas ‘pre-Coaseans’ like Robinson derived organisational boundaries from real differences in productivity through resource heterogeneity.

The latter view was further developed in the works of Edith Penrose,[xli] who with mentoring assistance by Austrian economist Fritz Machlup,[xlii] authored an influential book on the evolution and growth of firms.[xliii] The modern resource-based view of the firm, which applies a strict strategic management perspective on the value creation and value capture problems that arise due to resource heterogeneity, is based on Penrose’s non-Coasean approach as derived from the work of Robinson. As will emerge through the discussion below, this legacy of Robinson – and the classical economics approach to the study of the firm that it was based on – should be a much more appropriate starting point for developing an Austrian theory of the firm. Not only is this particular approach evolutionary and dynamic in the sense that Austrian economics provides a framework for studying and understanding the market as a process, but it already includes several concepts that are compatible with the Austrian approach.

An Austrian Theory of Economic Organisation

While the Penrosean ‘leg’ of Robinsonian thought should make more sense from the perspective of an Austrian theory of economic organisation than the Coasean ditto, an Austrian theory of the firm should not assume it as a starting point. Considering the deductive and integrative nature of Austrian theory, it would be a mistake to do more than take inspiration from other schools of thought – especially if they are based on different (or even incommensurable) assumptions. Despite how it is commonly approached, the economic theory of the firm is not a specialisation, but an elaboration and extension of the existent body of economic theory aimed at providing an answer specifically to the question of economic organisation. This answer cannot, obviously, contradict the theoretical framework, but can suggest a potential theoretical challenge to existing emphases or applications. In order to be true, a deductive theoretical framework and all its parts need to constitute a consistent whole; what remains, therefore, for Austrian theory to properly provide an answer to the so-called Coasean questions[xliv] is to extend the theory by applying it on and emphasising the particular issues that pertain to organisation. Indeed, as Mises notes, ‘[t]here is no specialization [in economics], as all problems are linked with one another. In dealing with any part of the body of knowledge one deals actually with the whole’. The point of departure for producing an Austrian theory of economic organisation, therefore, must be the existent body of Austrian theory and consequently the Austrian understanding for what constitutes and drives the market process. It follows that an Austrian theory of the firm should be based on or, at a minimum, be related to core Austrian concepts such as knowledge, capital theory, entrepreneurship and uncertainty.

Our focus must first and foremost be on what specific problem the firm can solve in the market process, by which we mean that organising certain economic activity within the firm must have a value for those involved in the firm as well as the market process as a whole. The former is a question of how the firm attracts labour and capital factors, and the other addresses the overall value of the structure to the market as such. It is not sufficient to address either of these aspects without also addressing the other, since what then emerges as a potential solution may not fit with the overall theoretical framework. The theory of economic organisation must then be built on yet is ultimately delimited (if not restricted) by the Austrian theory of the market.

It should be noted that existing approaches to explaining the firm from an Austrian perspective usefully adopt a problem-focused methodology. From our perspective, however, they do so in a limited sense by phrasing the question in terms of a gap in the theoretical framework rather than a real problem for market actors in the market process. This allows for the approaches to focus primarily or even exclusively on a specific concept or sub-theoretical orientation (such as capital theory or Kirzner’s theory of entrepreneurial discovery) while purporting to – at least indirectly – inquire into the nature of relationships that exist in the market (or, if we wish, between firms and markets). We will here take a different approach, which may appear as more rigorous, by drafting a thick conception of the market process as it is understood by Austrian economic theory and then elaborate on a fundamentally important problem that, I will argue, is solved by entrepreneurs only through establishing ‘islands’ of specialised production.

 

[i] Ronald Coase notes that libraries hold “shelves of books written in the 1920’s and 1930’s dealing in detail with the organization of particular industries,” and there was “a good deal” of literature during that time “dealing with the problems of what was termed integration, both horizontal and vertical” R. H. Coase, ‘Industrial Organization: A Proposal for Research’, in Fuchs (ed) Industrial Organization: A Proposal for Research (New York: National Bureau of Economic Research, 1972), pp. 59-73, on p. 62.

[ii] This highly abstract concept was criticised by Lionel Robbins, to whom the concept of ‘a long-period average business unit, representative of the organisation of a given line of production’ is both ‘superfluous’ and ‘misleading’. This concept, which ‘lurks in the obscurer corners of Book V [of Marshall’s Principles] like some pale visitant from the world of the unborn waiting in vain for the comforts of complete tangibility’, had nevertheless garnered ‘discernible’ influence in ‘certain recent discussions of applied economics’. L. C. Robbins, ‘The Representative Firm’, The Economic Journal, 38:151 (1928), pp. 387-404, pp. 391, 399, 387.

[iii] See book IV, A. Marshall, Principles of Economics. 8th edition (1890) (New York: Macmillan, 1920).

[iv]R. H. Coase, ‘The Nature of the Firm’, Economica, 4:16 (1937), pp. 386-405.

[v] Coase’s contribution could appropriately be considered a challenge to, and also attempt to undermine, this literature. See P. L. Bylund, ‘Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning’, Journal of the History of Economic Thought, 36:3 (2014), pp. .

[vi]L. v. Mises, ‘Economic Calculation In The Socialist Commonwealth’, in Hayek (ed) Economic Calculation In The Socialist Commonwealth (London: George Routledge & Sons, 1935), pp. 87-13, L. v. Mises, Socialism: An Economic and Sociological Analysis (1936) (New Haven, CT: Yale University Press, 1951). For a connection between Mises’s and Coase’s arguments, see Bylund, ‘Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning’.

[vii]G. P. O’Driscoll and M. Rizzo, The Economics of Time and Ignorance (Oxford: Basil Blackwell, 1985), p. 123.

[viii] See N. J. Foss, ‘The theory of the firm: the Austrians as precursors and critics of contemporary theory’, The Review of Austrian Economics, 7:1 (1994), pp. 31-6, N. J. Foss, ‘Austrian Insights and the Theory of the Firm’, in Boettke and Horwitz (eds), Austrian Insights and the Theory of the Firm (Greenwich, CT: JAI Press, 1997), pp. 175-198, on p. 176.

[ix]N. J. Foss and P. G. Klein, ‘Austrian Economics and the Transaction Cost Approach to the Firm’, Libertarian Papers, 1:39 (2009), pp. 1-20, p. 2.

[x]P. L. Bylund, ‘Toward a Framework for Behavioral Strategy: What We Can Learn from Austrian Economics’, in Das (ed) Toward a Framework for Behavioral Strategy: What We Can Learn from Austrian Economics Information Age Publishing, 2014), P. G. Klein and P. L. Bylund, ‘The Place of Austrian Economics in Contemporary Entrepreneurship Research’, Review of Austrian Economics, forthcoming (2014), pp. .

[xi]R. Jacobson, ‘The “Austrian” School of Strategy’, The Academy of Management Review, 17:4 (1992), pp. 782-807.

[xii]Bylund, ‘Toward a Framework for Behavioral Strategy: What We Can Learn from Austrian Economics’.

[xiii]J. S. Bain, ‘Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936-1940’, The Quarterly Journal of Economics, 65:3 (1951), pp. 293-324.

[xiv]M. E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York, NY: Free Press, 1980, M. E. Porter, ‘The Contributions of Industrial Organization to Strategic Management’, The Academy of Management Review, 6:4 (1981), pp. 609-62, M. E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York, NY: Free Press, 1985).

[xv]Jacobson, ‘The “Austrian” School of Strategy’, p. 784.

[xvi]Jacobson, ‘The “Austrian” School of Strategy’, p. 802.

[xvii]L. v. Mises, Human Action: A Treatise on Economics (New Haven, CN: Yale University Press, 1949), p. 249.

[xviii]Daniel F. Spulber, The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets, and Organizations (Cambridge: Cambridge University Press, 2008).

[xix]W. J. Baumol, ‘Entrepreneurship in Economic Theory’, The American Economic Review, 58:2 (1968), pp. 64-71, p. 66.

[xx]R. Cantillon, Essai sur la nature du commerce en général (1755) (London: Macmillan & Co, 1931).

[xxi]M. N. Rothbard, An Austrian Perspective on the History of Economic Thought, Volume I: Economic Thought Before Adam Smith (Auburn AL: Ludwig von Mises Institute, 1995), p. 352.

[xxii]A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

[xxiii]J.-B. Say, A Treatise on Political Economy or the Production, Distribution and Consumption of Wealth (1821) (Auburn, Al.: Ludwig von Mises Institute, 2008), see also M. N. Rothbard, An Austrian Perspective on the History of Economic Thought, Volume II: Classical Economics (Auburn AL: Ludwig von Mises Institute, 1995), pp. 25-27.

[xxiv] See especially S. A. Shane and S. Venkataraman, ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, 25:1 (2000), pp. 217-226 and S. A. Shane, A General Theory of Entrepreneurship: The Individual-Opportunity Nexus (Cheltenham, UK: Edward Elgar, 2003).

[xxv]I. M. Kirzner, Competition and Entrepreneurship (Chicago, IL: University of Chicago Press, 1973, J. A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (1911) (Cambridge, MA.: Harvard University Press, 1934).

[xxvi]Klein, et al., ‘The Place of Austrian Economics in Contemporary Entrepreneurship Research’.

[xxvii]Bylund, ‘Toward a Framework for Behavioral Strategy: What We Can Learn from Austrian Economics’.

[xxviii]Jacobson, ‘The “Austrian” School of Strategy’, p. 803.

[xxix]P. L. Bylund, ‘Division of Labor and the Firm: An Austrian Attempt at Explaining the Firm in the Market’, Quarterly Journal of Austrian Economics, 14:2 (2011), pp. 188-215.

[xxx] While these approaches may lack the integrative depth we have come to expect from primarily Mises, this does not mean that they have no or little value. On the contrary, these approaches often contribute greatly to our understanding for the concepts and theories used both in mainstream and Austrian theorising. For examples of such interesting and important approaches to the firm using Austrian conceptualizations of knowledge and entrepreneurial discovery, capital theory and entrepreneurship and uncertainty, see R. N. Langlois, ‘The Austrian theory of the firm: Retrospect and prospect’, Review of Austrian Economics, 26 (2013), pp. 247-258 and F. E. Sautet, An entrepreneurial theory of the firm (Routledge, 2000), P. Lewin, Capital in Disequilibrium: The Role of Capital in a Changing World (Auburn, AL: Ludwig von Mises Institute, 2011) and P. Lewin and S. E. Phelan, ‘An Austrian Theory of the Firm’, Review of Austrian Economics, 13 (2000), pp. 59-79, and N. J. Foss and P. G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge, UK: Cambridge University Press, 2012), respectively.

[xxxi] They also risk, as Jacobson noted, introducing inconsistencies if they are not carefully structured alongside the concepts’ underlying assumptions.

[xxxii]Bylund, ‘Division of Labor and the Firm: An Austrian Attempt at Explaining the Firm in the Market’, p. 191

[xxxiii]M. C. Jensen and W. H. Meckling, ‘Theory of the Firm: Managerial Behavior, Agency Costs, and Capital Structure’, Journal of Financial Economics, 3:4 (1976), pp. 305-360.

[xxxiv]Bylund, ‘Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning’.

[xxxv]H. Demsetz, ‘R. H. Coase and the Neoclassical Model of the Economic System’, Journal of Law and Economics, 54:4 (2011), pp. S7-S13.

[xxxvi] See Mises, ‘Economic Calculation In The Socialist Commonwealth, L. v. Mises, Planned Chaos (Irvington-on-Hudson, NY: Foundation for Economic Education, 1947, Mises, Socialism: An Economic and Sociological Analysis. Compare market socialist Oskar Lange’s reaction to the Austrians’ challenge, saying it was Mises’s ‘powerful challenge that forced the socialists to recognize the importance of an adequate system of economic accounting to guide the allocation of resources in a socialist economy’ O. Lange, ‘On the Economic Theory of Socialism’, in Lippincott (ed) On the Economic Theory of Socialism (New York: McGraw Hill, 1964), pp. 55-143, on p. 57. Compare also Maurice Dobb’s statement that ‘[w]hat makes the practical problem of calculating … more complex than might at first appear is the heterogeneity of economic resources in the real world’ M. H. Dobb, On economic theory and socialism: collected papers (International publishers, 1955), p. 68.

[xxxvii]L. v. Mises, Human Action: A Treatise on Economics. The Scholar’s Edition (1949) (Auburn, AL: Ludwig von Mises Institute, 1998), pp. 237-238.

[xxxviii]L. R. Jacobsen, ‘On Robinson, Coase and “The Nature of the Firm”‘, Journal of the History of Economic Thought, 30:1 (2008), pp. 65-80.

[xxxix]E. A. G. Robinson, The Structure of Competitive Industry (London: Nisbet, 1931). See also E. A. G. Robinson, ‘The Problem of Management and the Size of Firms’, The Economic Journal, 44:174 (1934), pp. 242-257.

[xl] Indeed, Coase argued that the ‘object of the organization was to reproduce market conditions’, that is to say ‘to reproduce [its] distribution of factors … within the business unit’. R. H. Coase, ‘The Nature of the Firm: Origin’, Journal of Law, Economics & Organization, 4:1 (1988), pp. 3-17, p. 4.

[xli]L. R. Jacobsen, ‘On Robinson, Penrose, and the resource-based view’, European Journal of the History of Economic Thought, 20:1 (2011), pp. 125-147.

[xlii]C. M. Connell, ‘Fritz Machlup’s Methodology and The Theory of the Growth of the Firm’, Quarterly Journal of Austrian Economics, 10:4 (2007), pp. 300-312.

[xliii]E. T. Penrose, The Theory of the Growth of the Firm (New York: John Wiley and Sons, 1959).

[xliv] The Coasean questions – that is, Why are there firms? What are the firm’s boundaries? and How is the firm’s organizational structure determined? – were originally posed or implied in his 1937 article and are still core to the study of the firm. See e.g. Foss, ‘Austrian Insights and the Theory of the Firm’, on p. 175, P. Garrouste and S. Saussier, ‘The Theories of the Firm’, in Brousseau and Glachant (eds), The Theories of the Firm (Cambridge: Cambridge University Press, 2008), pp. 23-36, on p. 23.