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Edited by Peter G. Klein and Michael E. Sykuta
27 Austrian economics and the theory of the firm Nicolai J. Foss and Peter G. Klein As the transaction cost theory of the firm was taking shape in the 1970s, another important movement in economics was emerging: a revival of the ‘Austrian’ tradition in economic theory associated with such economists as Ludwig von Mises and F.A. Hayek (Dolan, 1976; Spadaro, 1978). As Oliver Williamson has pointed out, Austrian economics is among the diverse sources for transaction cost economics (TCE) (Klein, 2010, pp. 187–193). In particular, Williamson frequently cites Hayek (for example, Williamson, 1985, p. 8; 1991, p. 162), particularly Hayek’s emphasis on adaptation as a key problem of economic organization (Hayek, 1945). Following Williamson’s lead, a reference to Hayek’s ‘The Use of Knowledge in Society’ (Hayek, 1945) has become almost mandatory in discussions of economic organization (for example, Ricketts, 1987, p. 59; Milgrom and Roberts, 1992, p. 56; Douma and Schreuder, 1991, p. 9). However, there are many other potential links between Austrian economics and TCE that have not been explored closely and exploited. This chapter argues that characteristically Austrian ideas about property, entrepreneurship, economic calculation, tacit knowledge, and the temporal structure of capital have important implications for theories of economic organization, TCE in particular. Austrian economists have not, however, devoted substantial attention to the theory of the firm, preferring to focus on business-cycle theory, welfare economics, political economy, comparative economic systems, and other areas. Until the 1990s the theory of the firm was an almost completely neglected area...
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