Competition, Coordination and Diversity

Competition, Coordination and Diversity

From the Firm to Economic Integration

New Thinking in Political Economy series

Pascal Salin

Competition, or the freedom to enter into a market, contributes greatly to the differentiation of human activities and therefore to economic progress. This fascinating book highlights the similarities between human systems at both the micro and macro level, and demonstrates how competition can positively affect the economic workings of firms and countries.

Chapter 2: Firm or market: where are the limits?

Pascal Salin

Subjects: economics and finance, austrian economics

Extract

The aim of the present chapter consists in evaluating to what extent the use of the main principles of economic theory can help in understanding the working of social organizations – more precisely enterprises – and the working of markets, namely these abstract places on which economic agents meet. In fact, one is too often tempted to use mechanistic approaches which are assumed to describe the working of entities which are artificially endowed with reason and will, although one can understand their working only by taking into consideration the behavior of individuals who are concerned by their working. From this point of view, one ought, for instance, to avoid doing statements such as “the firm is deciding” or “the firm is innovating,” but also “the firm is paying taxes,” and so on. It is true that one uses such statements for obvious language facilities, but in so doing, one runs the risk of using what Ayn Rand called “floating abstractions” – terms not clearly related to reality – and thus forgetting the human reality which is hidden behind this linguistic fiction. As a consequence, one uses the same term to mention the capitalist firm – which we will analyze later on – and a Soviet-type firm, which ought rather to be called a “productive organization.”

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