New Theories

1
New Theories

• Berle and Means Modern Corporation and Private
  Property
• Notice changed nature of property
• Separation of Ownership from Management
• Means -- Administered Prices
• Concentrated Markets un-concentrated markets
• Robinson-Chamberlain
• Imperfect Competition
• Monopolistic Competition
• Keynes -- Macro demand management fallacy of
  composition
• Schumpeter -- Dynamic Competition
• Nature of the Firm as change agent
  entrepreneurial
• Creative Destruction
• Galbraith --
• Countervailing Power
• Market Sector Planning Sector
• The above theories dealing with changed nature of
  relationship of Producers and Markets

2
New Theories

• Simon
• Not firms that are explained by markets
• Rather Markets are explained by firms
• Organizational Capitalism
• Penrose -- a Veblenian Update
• Everything can not happen at once
• A person can not do everything alone
• The Learning firm
• Can not buy inputs the way the firms uses them
  labor
• Objective Knowledge -- transferable via books,
  manuals
• Experiential Knowledge
• embedded in habits skills, routines can not be
  transmitted via books or manuals only through
  working together
• People must learn to work together
• Planning firm requires cooperation of many
  individuals
• Trust can not be bought from market

3
New Macro Theories-Policies

• Keynes Theory of Employment Money
• Fluctuations in economy due to Aggregates not
  individuals
• Under investment underconsumption theory of
  the trade cycle
• Long term involuntary unemployment
• Macro -- Demand Management increase purchasing
  power
• Altered Environment for investment Keynes
  lesson requires government
• Economy fails due to failure to invest spend
• Solution
• Government Borrow and Spend
• Military Keynesianism
• Tax Code stimulation and repression of economy
• Federal Reserve and Central Banking
• Consequences
• Deficit finance functional finance
• Balanced budget becomes part of mythology
• Saving is function of income not interest rate
• Capital (physical) accumulation theory of
  classical theory obsolete

4
Path Analysis

• Veblen
• British Rail System in 1914
• The mud hole metaphor more on this later
• David
• Clio and the Economics of QWERTY 1985
• Keyboard configuration
• Technological Lock-in
• Why the nature of a path
• Ergodic
• Non-ergodic
• Small events early in a technology

5
Path continued

• Arthur
• Non-linear probability 1991
• Example of rings in an urn
• Draw a sample and replace with color bias
• What happens
• no stable equilibrium
• No necessity to pick better technology
• VHS Beta
• Increasing returns problem
• Possible solution Positive feedback
• Standard approach is negative feedback system
• Firm and industry location
• Carpet firms in Georgia why there?
• Third Italy history of institutions and
  institutional adjustment

6
Path Dependence A Story and a Metaphor

• The Reivers
• Roads, Cars Mud holes
• Evolution of Roads, Cars
• And the Economy becomes dependent on single
  source variable route individual transportation
  system
• GM plan
• Economies are both path dependant and path
  created
• Depends on structure, function and flexibility
• Flexibility is inversely related to strength of
  tradition
• Myth, legend and invidious differential advantage
• Strength of status quo
• Flexibility is directly related to strength of
  learning and growth of community shared knowledge
• Technology
• Education
• Objective and Experiential knowledge (the
  interaction of knowing doing)