Economics and Utopia by Geoffrey M Hodgson

Author:Geoffrey M Hodgson
Language: eng
Format: epub, pdf
Tags: ebook
Publisher: Taylor and Francis
Published: 2011-09-04T16:00:00+00:00

The juridical relation, whose form is the contract, whether as part of a developed legal system or not, is a relation between two wills which mirrors the economic relation. The content of this juridical relation (or relation of two wills) is itself determined by the economic relation.

Accordingly, the legal form of the contract gives us clues about the underlying economic relation, even if the mirror to which Marx alludes is always in fact a distorting one.

We all tend to take the existence of the capitalist system for granted. Hence it is important to realise the possibility of modern socio-economic systems that are neither capitalist nor socialist, even if some of these systems may still resemble capitalism in many respects. Assume that the workers are self-employed but do not own all the means of production. In this case there still may be powerful owners of factories, offices and machines. Even in a competitive equilibrium the owners of the means of production would still receive an income, emanating from that ownership. In bargaining with these owners, the workers would be required to concede the claim of these owners to an income, as they would be unable to produce without making use of the means of production owned by others. Hence the workers would still be deprived of what Marx described as ‘surplus value’. Profits would still derive from ownership of the means of production. The differences with capitalism would be less to do with questions of income distribution, and more to do with matters of control over the work process.11

Hence we retain the employment relationship as central to the definition of capitalism, and maintain the important distinction between employment and self-employment. This conceptual demarcation is important not only in Marxian economics. For example, the famous discussion of ‘the nature of the firm’ by Ronald Coase (1937) relied importantly on what could be described as a ‘thought experiment’ involving, in part, a variety of self-employment. He compared two (real or hypothetical) ways in which production could be organised:

To organise production like a ‘market’, with a number of self-employed producers individually trading half-finished products and components with each other – or via some intermediary – during the production process. Even if they worked in close proximity, there would be no overall supervision by a manager or employer. Instead, production would be co-ordinated informally by a whole series of independent contracts and exchanges between self-employed individuals.

For an employer to set up a corporation, enter into an employment contract with each worker, and arrange for the supervision of the production process. For Coase (1937, p. 389) the key feature of the firm is its internal ‘supersession of the price mechanism’ and the allocation of resources by command rather than through price. Coase argued that this latter option emerges when an overall net reduction in the cost of contracting is involved.12

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