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The Austrian theory of the firm: Retrospect and prospect

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Abstract

Using as a focusing device the famous arguments of Coase (Economica 4(16), 386–405 1937) and Hayek (The American Economic Review 35(4): 519–530 1945), I sketch in bold strokes what an Austrian theory of the firm would look like. Such a theory would pay serious attention to issues of knowledge, uncertainty, change, and complementarity. I describe a literature in which much of this theory has already been constructed; make connections to closely related literatures in economics and management; and suggest directions for future development.

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Notes

  1. Elsewhere (Langlois 2006) I have branded this phenomenon repertoire uncertainty, a manifestation of what I long ago called parametric (as against structural) uncertainty (Langlois 1984).

  2. As Nicolai Foss (1996) points out, Harald Malmgren (1961) was a precursor of this revival, whose approach had in addition many “Austrian” aspects to it.

  3. In his recent categorization of classes of “formalizable” theories, Gibbons (2005) includes one (of four) based on the idea of coordination. His examples? Some work by Williamson and Benjamin Klein—but not the likes of Coase or Knight.

  4. And let us not forget Loasby (1976).

  5. For a more fully elaborated discussion of what such a theory would look like, see Langlois (2007).

  6. Another way to buffer uncertainty in the context of the firm is to hold reserve assets (Lachmann 1978, p. 90).

  7. In another assignment, I have sometimes asked students to write about the implications of thinking in terms of complementary assets (Teece 1986) versus thinking in terms of complementary activities (Richardson 1972).

  8. Even if Sautet (2000, p. 94) thinks that, in the end, her notion of entrepreneurship is really “Robbinsian” rather than Kirznerian. From my point of view, the problem is not that Penrose isn’t Austrian but that she isn’t Coasean. Penrose assumes the existence of the firm, and analyzes learning within the firm; but she never asks about firm boundaries, and never considers whether entrepreneurs might be better off taking advantage of resources outside the firm rather than surplus ones within. As Loasby (2002, p. 52) points out, all that is missing in Penrose is “a significant treatment of external organisation and of the continuous restructuring of industries which was emphasised by Allyn Young, and these omissions may be attributed to a deliberate focus on the individual firm, and in particular on the relationship between its internal organisation and the process of internal learning, which may be regarded as one of the two most significant novel elements in her work.”

  9. Garud, Kumaraswamy, and Langlois (2002) collects many of the important papers in this literature.

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    Richard N. Langlois

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Langlois, R.N. The Austrian theory of the firm: Retrospect and prospect. Rev Austrian Econ 26, 247–258 (2013). https://doi.org/10.1007/s11138-012-0171-y

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