Jim Devine writes: >> I don't think it suggests a critique of NC economics (except maybe for the fact >> that it >> took so long for NC economics to accept the idea of transactions costs). >> >> The significance for NC economics is that it means that there are many places where >> the pure market exchange relation -- the ideal that NC prefers -- doesn't prevail. >> If the >> transactions costs involved buying a widget exceed the benefits of (presumed) >> greater productive efficiency of countracting out vis-a-vis having it produced >> in-house, >> then using a hierarchy to organize in-house production will be preferred by >> profit-maximizers over using exchange and producing out-house. >> >> The key distinction is between production costs (actually making a widget) and >> transactions costs (costs of making deals, transferring property). (BTW, the latter >> corresponds to one kind of what Marx called "unproductive labor.") >> >> This stuff isn't radical. It was developed by Coase, who's very much part of the >> Chicago school of laissez-faire economics.
I guess I am asking a much more naive question. Why is this an issue at all to anybody? I mean, is there anybody who disputes that transaction costs matter? I am a commercial lawyer, and commercial lawyers only exist because of transaction costs, so the existence of transaction costs is pretty obvious to me. Is there somebody out there who denies this, or used to deny this, other than for some cetis paribus mind game? David Shemano
