Firm Storms

Right at the outset, as Coase sets up the seeming paradox: if prices can direct production, who needs a co-ordinator to direct the production process (someone he identifies as the entrepreneur, the essential part of the firm, as he conceives it).  My first thought is to notice how Coase's approach takes you from zero entrepreneurial participation (the pre-firm world) to some participation and to jump ahead to that final destination point, where all production is directed and co-ordinated by one class of actor, and in the limit, one actor.  That is, there are two possible post-markets end points to Coase's story - the first is the existence of a number of companies which purchase all their factors of production not from any market, there being none, but from each other, in bilateral (or indeed multi-lateral, for that matter) contracts.The second is that there is just a single co-ordinator - why bother calling it a firm, as that word surely at this level loses its common meaning.  That unitary co-ordinator is probably maximising something - the happiness of the proletariat, the utility of the citizens, depending on your politico-philosophical bent.  

A physical metaphor springs to mind.  The illusion of the institution-lite free markets are like a gas, the frozen centralised singular co-ordinator being like a solid singular object and the existence of companies being like the formation of droplets of liquid out of the gas.  This metaphor has its flaws, but the thing I like about it is visual image of the formation of a certain kind of structure out of the homogeneous, isolated particles of gas.

But Coase, for me, is not describing any state transition which has any resemblance to reality.  It is a story he's telling.  The creation myth of the firm.

Market places, and money, and the firm are clearly not as old as our species itself.  We had 70,000 years of homo sapiens spreading around the globe, making dramatic inventions and discoveries, all in the context of an agriculture-free, essentially nomadic lifestyle.  Then we invented farming about 15,000 years ago and, when that idea spread around the world also, rather like a gas, we reached a point where marketplaces, money, trade, the firm became possible, indeed, happened.  That it happened to an already geographically diverse set of populations of homo sapiens around the planet was to have significance in the story of money, currencies, economic and political borders.  That the need for a minimal-trust form of inter-regional money is embedded in our geographical diversity.  That our planet allows different kinds of farming in different regions.  That some plants and animals existed in some and not other regions.  That some farming techniques were better than others, that their implementation also varied. All of this formed the material basis for the possibility of trade, markets, and in time companies. Provided the variety upon which temporally stable rules of supply and demand could operate.  Rather as the process of condensation happens randomly here and there in a gas, droplets being formed at a multiplicity of 'places' in the gaseous space, and so too for the same 'reasons' (these temporally situated stable rules of supply and demand).