Coase on Contracts

February 4, 2010

From a speech he made last year, when he was 98 years old:

“So I got these contracts, and I looked at them, and what I discovered was that they were altogether too imprecise, too vague. They wouldn’t say when the goods were to be produced, where they were to be delivered, and so on. And this had an important effect on my thinking. It was quite clear that firms dealing with one another did not depend solely on the contract, but had understandings about what should be done, had trust in one another’s actions. And the economic system obviously operated in a way different from the way it would if it was all based on contract, which was of course one’s first assumption. But it’s wrong”

Capitalism depends on personal relationships.

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2 Responses to “Coase on Contracts”

  1. Rrrobert! Says:

    Case in point: the group we’ve put together to invest in Zach’s company, which is based both on trust in both Zach and in Michael Dodd not to screw us over, as they could probably find a way to do if they so desired.

    Who is contending otherwise, by the way?


  2. I don’t know. Marxists? Earlier incarnations of Thomas Phillips?

    Even less extreme people harbor, I think, some doubts or feelings of guilt about the way modern economic society is organized. Like Freud’s psychology, Marx has become a part of the way we think about capitalism, whether we think we agree with him or not.

    Even if we might not state it explicitly, I think that many people have a sort of romantic sense of loss when they think about modern capitalism, and its role in destroying small communities, “mom and pop” stores, etc. My sister-in-law, educated at Princeton, believes that it is very important to “buy local.” I’m not saying being Princeton-educated is the standard for intelligent thought, but I’m just pointing out that this kind of regret about capitalism is still manifested in various ways in our economy.


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