Abstract
This article discusses Coase’s theory on the firm in the market, which regards the firm as a special contract between human capital and non-human capital. One of the characteristics of the firm as a contract is that it does not or is not able to define ex ante all the rights and obligations of the participating factors and the owners thereof; and it always leaves some to be regulated during the contract execution process.
The article was originally published in Economic Research Journal, Issue No. 6-1996.
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- 1.
Coase (1937: 4).
- 2.
Coase (1937: 4).
- 3.
Zhang Weiying (1995: 13).
- 4.
Cheung (1991: 148).
- 5.
Coase (1937: 40).
- 6.
Coase (1937: 40).
- 7.
Classical economists such as Marx noted that human ability belongs solely to that person. In his envisioned socialist society, all non-human capital is publicly owned by the whole society, and the market will die, but even in such a case, the society “tacitly recognizes the unequal individual endowment, and thus the work capability of different people, as a natural privilege”. Therefore, it is necessary to maintain the “bourgeois legal power” to distribute the means of consumption according to the quantity and quality of labor actually provided by the workers. (Marx 1972: 12).
- 8.
Cheung mentioned his contribution to the concept of “full-fledged property” (Cheung 1984: 181).
- 9.
Fogel and Engerman (1972).
- 10.
For the role of knowledge and other human capital in economic development, see “A Brief Review and Reflection on the Theories of Economic Development in Recent Years” by WANG Dingding, published in Economic Research Journal (Dingding 1995: 49–91).
- 11.
Coase notices that when Lenin emphasizes on “strict measuring and monitoring” quite a few times when he proposes that socialism is going to turn the country state into a super factory (Coase 1988).
- 12.
The necessity for “measuring and monitoring” in team production and how the function should be distributed among the members are two different topics. Due to limited space, this paper will not discuss the latter.
- 13.
Braudel (1977: 35).
- 14.
In 1998 when Coase reviewed his paper on the firm written five decades before, he pointed out that one of the main weaknesses of the paper was the use of the employer-employee relationship as the model of the firm. “As a result of the emphasis on the employer-employee relationship, that the contracts can enable the organizers of the firm to direct the use of capital (equipment and cash) by acquiring, leasing or borrowing it was not examined (Coase 1988: 288–289).
- 15.
Zhang Jun (1994), Chapter 8.
- 16.
Cui Zhiyuan (1996) quoted that a total of 29 states in the U.S. have amended the Corporate Law since the 1980s, indicating that the Corporate Law in the U.S. has undergone profound de-privatization. According to Cui, the amendments require managers to serve the company’s “stakeholders” rather than just shareholders. However, the concept of “stakeholders” is a bit fuzzy. It seems to include both “shareholders” and “workers, creditors, and communities where the companies are located. If we study the background, it seems that the main reason for the amendment is the opposition against “hostile takeovers” (which only brings benefits to shareholders) from workers, senior managers, and the community where the company is located. So, can we also interpret the above changes in American Corporate Law as the rise of human capital in American companies? The cases cited by Cui seem to support the argument of this article. For example, Judge Frank H. Easterbrook’s rule in 1989 regarding the new Corporation Law in Wisconsin was in favor of “stakeholders.” He determined that “hostile takeovers,” although beneficial to shareholders, deprived the human capital of creditors, managers, and workers (Cui 1996: 38). Isn’t the human capital mentioned by the judge, part of the ownership in the corporate contract? If the human capital is, as understood in this article, a special capital that can only belong to the individual even if all the physical capital becomes public, how can we look at the amendments to the Corporate Law in 29 states and come up with the logic of de-privatization?.
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Zhou, Q. (2020). The Firm in the Market: A Special Contract Between Human Capital and Non-human Capital. In: Property Rights and Changes in China. Springer, Singapore. https://doi.org/10.1007/978-981-15-9885-2_6
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