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Who Rules: Politicians or Wall Street?

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Jobs, Jobs, Jobs and Ronald Coase

by Christopher Chantrill
September 17, 2013 at 12:00 am


WHILE PRESIDENT Obama is floundering in Syria, Americans are thinking about jobs, writes Salena Zito from a farmers market in rural Pennsylvania. People are learning about canning vegetables while they worry about jobs and the economy.

“We keep waiting for the White House to talk about jobs in a meaningful, constructive way so that our families, communities and schools stop crumbling,” said one young woman as she contemplated buying fresh honey.

Yeah, let’s do that. And there’s no better time to do that than right now with the death of economist Ronald Coase. He’s famous for his theory about “The Nature of the Firm” and his theory about “The Problem of Social Cost.”

His idea about the firm was that people work at corporations because it reduces their transaction costs. A wage laborer doesn’t have to market and buy and sell and all that hard stuff. He just has to show up and do his job.

His idea about social costs was that well-defined property rights are probably better than government administrative regulation.

But David P. Goldman, otherwise “Spengler,” begs to differ. Says he:

I have an alternate theory of the firm, namely that large firms exist to protect mediocrity - from the lunatics and conmen on one hand, and disruptive innovators on the other...

Most people don’t like disruption. They want to acquire a skill, work reasonable hours, secure reasonable pay, watch television in the evening and play golf or whatever on the weekends. They don’t look deeply into the matters that concern them and are content to do what other people in their position do. If they are diligent, reliable, well-mannered and polite, they are just the sort of folk that the human relations types at corporations prefer. Without a way to socialize, train and employ such people the world would come to a halt, because they make up the vast majority. And that is the great contribution of corporations to social welfare: they find ways to make mediocre people useful.


If we allow that this is “settled science” then it stands to reason that government would be doing everything it could to make things easy for corporations to create jobs for mediocrities like you and me, and doing everything possible to limit externalities with property rights.

Yet President Obama came into office with a corps of acolytes five years ago promising fundamental transformation.

Today, five years later, it is evident to ordinary people that something is wrong. With all that fundamental transformation it seems that things are worse than before.

Back to the Theory of the Firm. For 200 years activists and politicians have been campaigning non-stop against the bourgeoisie, against capital, against the limited liability corporations, against corporate personhood, against monopolies, against trusts, against robber barons, against conglomerates, against banks, against insurance companies, against mergers, against CEO compensation, against stock markets, against usury, against derivatives. Against everything. That’s how we got to Obama and fundamental transformation.

But when you look at the work of a quiet man like Ronald Coase, you are inspired to step back and take a look at the economic inventions of the last 200 years with a little more respect. You might even be tempted to think, as you gaze in awe, about how the different parts of the modern economy fit together in astonishing harmony, like the architraves, friezes, and cornices of a Greek temple. You might remember that the Parthenon is not a good place to store gunpowder.

And you might think, knowing how income in the West has gone from $3 to $120 per person per day in 200 years, that we ought to be really careful about sending in the activists to blow things up with their fundamental transformation.

Now let’s look at the Obama administration. It sets all quiet ideas at naught. It wants to harass and pillage corporations with taxes and regulations and mandates. It wants to manipulate property rights with subsidies and crony capitalism to advance its fashionable ideas on inequality and green energy.

Yet the net result of Obamanomics has been to help the 1% and hurt the young, women and minorities that trust in the liberals’ tribal identity politics.

So what about the good people at the farmers market? They want their jobs and a growing economy -- and reasonable hours, reasonable pay and television in the evening precisely what corporations offer.

And what will the young heads full of mush at a rural “farmers market” do next? They will decide, soon enough, that it is Time for a Change.

Here’s an idea. How about it’s time for a change to a politics that understands the corporation and the Firm in the way that Ronald Coase did?

Christopher Chantrill blogs at www.roadtothemiddleclass.com.

Buy his Road to the Middle Class.

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Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings, and that a refusal to use the means appointed was a damning sin.”
Finke, Stark, The Churching of America, 1776-1990

Mutual Aid

In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society


“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

Living Under Law

Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures

German Philosophy

The primary thing to keep in mind about German and Russian thought since 1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and philosophical conception of man and nature... has been shown by indisputable evidence to be inadequate. 
F.S.C. Northrop, The Meeting of East and West


Inquiry does not start unless there is a problem... It is the problem and its characteristics revealed by analysis which guides one first to the relevant facts and then, once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities


“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.”  —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism


The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action


[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm


“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Living Law

The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital

presented by Christopher Chantrill

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