Economists From England

"What I have done is to show the importance for the working of the economic system of what may be termed the institutional structure of production."

"The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. This determines what the firm buys, produces, and sells. As the concept of transaction costs is not usually used by economists, it is not surprising that an approach which incorporates it will find some difficulty in getting itself accepted. We can best understand this attitude if we consider not the firm but the market."

"Economists have uncovered the conditions necessary if Adam Smith’s results are to be achieved and where, in the real world, such conditions do not appear to be found, they have proposed changes which are designed to bring them about. It is what one finds in the textbooks. Harold Demsetz has said rightly that what this theory analyses is a system of extreme decentralisation. It has been a great intellectual achievement and it throws light on many aspects of the economic system. But it has not been by any means all gain."

"But a theory is not like an airline or bus timetable. We are not interested simply in the accuracy of its predictions. A theory also serves as a base for thinking. It helps us to understand what is going on by enabling us to organize our thoughts. Faced with a choice between a theory which predicts well but gives us little insight into how the system works and one which gives us this insight but predicts badly, I would choose the latter, and I am inclined to think that most economists would do the same."

"If you torture the data enough, nature will always confess."

"What is studied is a system which lives in the minds of economists but not on earth. I have called the result “blackboard economics.” The firm and the market appear by name but they lack any substance. The firm in mainstream economic theory has often been described as a “black box.” And so it is."

"In mainstream economic theory, the firm and the market are, for the most part, assumed to exist and are not themselves the subject of investigation. One result has been that the crucial role of the law in determining the activities carried out by the firm and in the market has been largely ignored."

"Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?"

"A firm consist of the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur."

"If economists wished to study the horse, they wouldn't go and look at horses. They'd sit in their studies and say to themselves, "what would I do if I were a horse?""

"Why... are there any market transactions at all? Why not all production carried on by one big firm?... First, as a firm gets larger, there may be decreasing returns to the entrepreneur function, that is, the costs of organizing additional transactions within the firm may rise... Second, it may be that as the transactions which are organized increase, the entrepreneur fails to place the factors of production in the uses where their value is greatest, that is, fails to make the best use of the factors of production... Finally, the supply price of one or more of the factors of production may rise, because the "other advantages" of a small firm are greater than those of a large firm."

"The question always is, will it pay to bring an extra exchange transaction under the organizing authority? At the margin, the costs of organizing within the firm will be equal either to the costs of organizing in another firm or to the costs involved in leaving the transaction to be “organised” by the price mechanism. Business men will be constantly experimenting, controlling more or less, and in this way equilibrium will be maintained. This gives the position of equilibrium for static analysis."

"Writers after Coase have referred to the authority structure of the firm as a "visible hand" that works in combination with Smith's invisible hand. The everyday fact that employers exercise power over their employees — not news to most employees — had been a central theme in Marx's economics, but it was (and generally continues to be) overlooked by most neoclassical economists. Early in his studies Coase noted the similarity between the hierarchical organization of capitalist firms, with their reliance on command relations, and the then-existing system of centralized economic planning in the Communist countries, where production was carried out in accordance with orders from higher authorities and where market competition played little role."

"The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?"

"In my view, what is wanted in industrial organization is a direct approach to the problem. This would concentrate on what activities firms undertake, and would endeavor to discover the characteristics of the groupings of activities within firms. Which activities tend to be associated and which do not? The answer may well differ for different kinds of firm."

"American institutionalists were not theoretical but anti-theoretical.... Without a theory they had nothing to pass on except a mass of descriptive material waiting for a theory, or a fire."

"Transaction costs were used in the one case to show that if they are not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose."

"In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics."

"I can't remember [of a good regulation]. Regulation of transport, regulation of agriculture—agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad."

"When common words are appropriated as technical terms, their meaning may be modified, and must be rigorously fixed."

"When common words are appropriated as technical terms, this must be done so that they are not ambiguous in their application."

"When common words are appropriated as technical terms, their meaning and relations in common use should be retained as far as can conveniently be done."

"It is better to form new words as technical terms, than to employ old ones in which the last three Aphorisms cannot be complied with."

"In the 'Induction of Causes' the principal maxim is, that we must be careful to possess, and to apply, with perfect clearness, the Fundamental Idea on which the Induction depends. The Induction of Substance, of Force, of Polarity, go beyond mere laws of phenomena, and may be considered as the Induction cf Causes. The Cause of certain phenomena being inferred, we are led to inquire into the Cause of this Cause, which inquiry must be conducted in the same manner as the previous one; and thus we have the Induction of Ulterior Causes."

"In the Ancient Period of Science, Technical Terms were formed in three different ways:—by appropriating common words and fixing their meaning;—by constructing terms containing a description;—by constructing terms containing reference to a theory."

"Terms must be constructed and appropriated so as to be fitted to enunciate simply and clearly true general propositions."

"In framing scientific terms, the appropriation of old words is preferable to the invention of new ones."

"'Natural History' ought to form a part of intellectual education, in order to correct certain prejudices which arise from cultivating the intellect by means of mathematics alone and in order to lead the student to see that the division of things into kinds, and the attribution and use of names, are processes susceptible of great precision."

"The Process of Induction may be resolved into three steps ; the 'Selection of the Idea', the 'Construction of the Conception', and the 'Determination of the Magnitudes'. These three steps correspond to the determination of the 'Independent Variable', the 'formula', and the 'coefficients', in mathematical investigations; or to the 'Argument', the 'Law', and the 'Numerical Data', in a Table of an Inequality. The conceptions involved in scientific truths have attained the requisite degree of clearness by means of the Discussions respecting ideas which have taken place among discoverers and their followers. Such discussions are very far from being unprofitable"

"The Methods of Observation of Quantity in general, are 'Numeration', which is precise by the nature of Number; the 'Measurement of Space' and 'of Time', which are easily made precise; the 'Conversion of Space and Time', by which each aids the measurement of the other. The Idea of Space becomes more clear by studying 'Geometry'; the Idea of Force, by studying 'Mechanics'; the Ideas of Likeness, of Kind, of subordination of Classes, by studying 'Natural History'."

"The Construction of the Conception very often includes, in a great measure, the Determination of the Magnitudes. The true construction of the conception is frequently suggested by some hypothesis; and in these cases, the hypothesis may be useful, though containing superfluous parts."

"The Logic of Induction is the 'Criterion of Truth' inferred from Facts, as the Logic of Deduction is the 'Criterion of Truth' deduced from necessary Principle. In Art, Truth is a means to an end; in Science, it is the only end."

"'The Law of Continuity' is this:—that a quantity cannot pass from one amount to another by any change of conditions, without passing through all intermediate magnitudes according to the intermediate conditions. It may often be employed to disprove distinctions which have no real foundation. 'The Method of Gradation' consists in taking a number of stages of a property in question, intermediate between two extreme cases which appear to be different. It is employed to determine whether the extreme cases are really distinct or not. 'The Method of Gradation', applied to decide the question, whether the existing phenomena arise from existing causes, leads to this result:—That the phenomena do appear to arise from existing causes, but that the action of existing causes have transgressed their recorded Limits of Intensity. 'The Method of Natural Classification' consists in classing cases, not according to any assumed definition, but according to the connexion of the facts themselves."

"New terms and changes of terms, which are not needed in order to express truth, are to be avoided."

"The distinction of Fact and Theory is only relative. Brute animals have a practical knowledge of relations of space and force; but they have no knowledge of Geometry or Mechanicks."

"Facts are the materials of science, but all Facts involve Ideas. Since, in observing Facts, we cannot exclude Ideas, we must, for the purposes of science, take care that the Ideas are clear and rigorously applied."

"The resolution of complex Facts into precise and measured partial Facts, we call the 'Decomposition of Facts'. This process is requisite for the progress of science, but does not necessarily lead to progress. The Conceptions by which Facts are bound together, are suggested by the sagacity of discoverers. But a supply of appropriate hypotheses cannot be constructed by rule, nor without inventive talent. The truth of tentative hypotheses must be tested by their application to facts. The discoverer must be ready, carefully to try his hypotheses in this manner, and to reject them if they will not bear the test, in spite of indolence and vanity."

"Discovery depends upon the previous cultivation or natural clearness of the appropriate Idea, and therefore no discovery is the work of accident."

"When a series of progressive numbers is given as the result of observation, it may generally be reduced to law by combinations of arithmetical and geometrical progressions. A true formula for a progressive series of numbers cannot commonly be obtained from a narrow range of observations."

"And so no force however great can stretch a cord however fine into an horizontal line which is accurately straight."

"We cannot observe external things without some degree of Thought; nor can we reflect upon our Thoughts, without being influenced in the course of our reflection by the Things which we have observed."

"'Induction' is a term applied to describe the 'process' of a true Colligation of Facts by means of an exact and appropriate Conception. 'An Induction' is also employed to denote the 'proposition' which results from this process. An Induction is not the mere sum of the Facts which are colligated. The Facts are not only brought together, but seen in a new point of view. 'The Consilience of Inductions' takes place when an Induction, obtained from one class of facts, coincides with an Induction, obtained from another different class."

"The two processes by which Science is constructed are the 'Explication of Conceptions' and the 'Colligation of Facts'."

"The 'Logic of Induction' consists in stating the Facts and the Inference in such a manner, that the evidence of the Inference is manifest; just as the Logic of Deduction consists in stating the Premises and the Conclusion in such a manner that the Evidence of the Conclusion is manifest."

"Terms which imply theoretical views are admissible, as far as the theory is proved."

"If terms are systematically good, they are not to be rejected because they are etymologically inaccurate."

"Many glaring errors of the Greeks will have to be noticed ... few of them can be referred to the cause assigned by Dr. Whewell."

"When alterations in technical terms become necessary, it is desirable that the new term should contain in its form some memorial of the old one."

"The fundamental terms of a system of Nomenclature may "be conveniently borrowed from casual or arbitrary circumstances."

"In forming a Terminology, words may be invented when necessary, but they cannot be conveniently borrowed from casual or arbitrary circumstances."