How simple a great idea can be. Once a great thinker explains it simply. A thinker like Ronald Coase, the economist, teacher and sage who has just died at the remarkable age of 102.
The man could explain how and why today's American economy is so different in structure from the one I grew up with from the 1950s well into the 1970s, which was dominated by Fortune 500 companies and household names like Ford, GM, GE, DuPont, and Boeing.
Why were all those behemoths created? Ronald Coase explained it simply in his classic paper, "The Nature of the Firm," which may be the best known and most frequently cited treatise on economics since Adam Smith was writing.
Those corporations were formed, to use Coase's phrase, to save "transaction costs." Or how much it costs -- in money, time and general hassle -- to conduct a business. Or create an industry. Or just turn out a product. Especially one with a lot of moving parts.
Suppose a Henry Ford or Thomas Edison or Andrew Carnegie -- name your own favorite captain of industry -- had had to hire somebody different to provide every part of a Model T or a steel empire. It's so much more efficient to combine all those operations in one company. It saves, yes, transaction costs. That's the nature of the beast, or rather "The Nature of the Firm." So these companies formed -- and grew and grew.
Visiting an insurance company's headquarters in the 1950s, or a newspaper's for that matter, was to be greeted by a sea of desks, complete with one each clerical worker -- little cogs in the great corporate machine.
It was assumed that many of us would spend a lifetime with one company, rising (or falling) through the ranks. It was the age of the Company Man, and there was a distinct IBM man as surely as there was a Coca-Cola or New York Times or J. Walter Thompson man. Or (tailored) woman.
"Mad Men's" Don Draper of Sterling Cooper Draper Pryce didn't come from nowhere but out of that buttoned-down era and world. The world of "The Man in the Gray Flannel Suit" and "The Lonely Crowd," to recall a couple of popular book titles at the time.
What ever happened to all those corporate giants? Many are still around, if diminished in size and influence, but a great sea change has occurred. By the 1990s, those Fortune 500 companies, pillars of the American economy for decades, had cast off 3 million jobs over a decade of downsizing. Change is stress, and that was a big change, not just in the American economy but the American psyche.
A later book Ronald Coase helped write, "The Dynamic American Firm," would offer some needed perspective on that big change:
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