Capitalism in Evolution

Capitalism in Evolution

Global Contentions – East and West

Edited by Geoffrey M. Hodgson, Makoto Itoh and Nobuharu Yokokawa

Contributors to this volume argue that to understand capitalism in evolution, this diversity of systems and approaches must be taken into account and their individual evolutions analysed. This book represents a major understanding of the evolution of capitalism in the twenty first century and brings together a distinguished group of experts with perspectives from America, Europe and Japan.

Chapter 6: Information technology and the 'Biodiversity' of capitalism

Ugo Pagano

Subjects: economics and finance, institutional economics


6. Information technology and the ‘biodiversity’ of capitalism Ugo Pagano* INTRODUCTION: TECHNOLOGICAL AND INSTITUTIONAL CHANGE IN COASE AND MARX Ronald Coase, in his 1937 theory of transaction costs, considered the consequences of one of the first massive introductions of modern information technology: telephone lines allowing the transmission of voice among distant sites. He predicted that: ‘Changes like the telephone and the telegraph, which tend to reduce the cost of organising spatially, will tend to increase the size of the firm’ (Coase, 1937, p. 46). However in a footnote he also observed that: It should be noted that most inventions will change both the cost of organising and the costs of using the price system. In such cases, whether the invention tends to make firms larger or smaller will depend on the relative effect of these two sets of costs. For instance, if the telephone reduces the costs of using the price mechanism more than it reduces the costs of organising, then it will have the effect of reducing the size of the firm. (p. 46, n. 31) While in this Coasian framework the existence of the firm was explained by referring to market transaction costs, in other writings Coase seemed to believe that competitive market economies were able to produce the optimal institutional mix between markets and firms. In another footnote of the same article he exclaimed that, unlike a centrally planned economy: ‘In a competitive market there is an optimum amount of planning!’ (p. 37). Coase meant that...

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