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Comment by yummyfajitas | Hacker News Reader

Companies only exist to minimize transaction costs.

I think this is a bit of an overstatement. Another purpose of companies is to provide the benefits of a command economy (e.g., the ability of a great leader to jump from a local to global maxima) with less of the dangers of a command economy (great leader robs/kills you, poor planning screws everyone over).

E.g., central planning in the food supply can work reasonably well, but this is hardly guaranteed. Market discipline gives us the benefits of McDonald's 5 year plan, but a McBankruptcy rather than Soviet Union style food shortages if the 5 year plan fails.

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That is a bizarre argument though, you are saying that capitalism works fine so long as companies are run as soviet states? The Soviet Union showed basically no benefits to the command economy... And the great leaders of large businesses look rather more like command economy leaders than products of a free market.

I think you need a better argument than that that large corporations are here to stay, not a passing fad due to factors like transaction costs... There have been few great leaders running large corporates, although not none, and many people just enriching themselves for doing little.

That is a bizarre argument though, you are saying that capitalism works fine so long as companies are run as soviet states?

No, I'm saying that embedding command economies (structured as companies) in a capitalist economy allows us to gain the benefits of a well run command economy while mitigating their harms.

Yeah thats what I meant. First prove there is such a thing as a well run command economy then, and then that the company system will generate such a thing...

Walmart serves as an existence proof for both your propositions.

The Soviet economy was in practice run as if it was one huge company, with each industry being one division of the company, all the revenue flowing up to HQ then being allocated in budgets for each division, targets for each set, and so on.

This is "efficient" as it reduces friction - but when HQ makes mistakes in budgets or targets, the entire economy fails, whereas in the West, the failure is isolated to one company, and over the long term, that redundancy is massively more productive. In fact in the West, the assets of the failing company would most likely be bought by a rival, and no productive capacity would be lost. In the Soviet system, you might end up with a million tractors but no crops to harvest!

The command economy argument is a subset of the transaction cost argument. Lots of people have long-term plans, and some of those plans involve extensive cooperation from third parties. Companies are a smart abstraction for coordinating this behavior, but that's not all they do.

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