Fazit – das Wirtschaftsblog

Fazit - das Wirtschaftsblog

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Markets, the Theory of the Firm, and Paul Krugman

Is the existence of companies a problem for free-market believers? Paul Krugman says so. But why should it?

Mark Thoma points to Paul Krugman’s latest thoughts about free markets and companies:

We may live in a market sea, but that sea is dotted with many islands that we call firms, some of them quite large, within which decisions are made not via markets but via hierarchy — even, you might say, via central planning. Clearly, there are some things you don’t want to leave up to the market — the market itself is telling us that, by creating those islands of planning and hierarchy. (…)

The thing is, however, that for a free-market true believer the recognition that some things are best not left up to markets should be a disturbing notion.

Why should it? Nobody ever doubted that there are benefits to stable work relations, to “command-and-control” and to having co-workers instead of ever-changing trading partners.

The important question is: Who is to say when markets are better and when companies are better? It might be best to leave this decision to the people whom it concernes. A.k.a. “the market”.


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