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1、[NOVEMBERTheNatureoftheFirmByR.H.COASEECONOMICtheoryhassufferedinthepastfromafailuretostateclearlyitsassumptions.Economistsinbuildingupatheoryhaveoftenomittedtoexaminethefoundationsonwhichitwaserected.Thisexaminationis,however,essentialnotonlytopreventthemisunderstandingandneedlesscontroversywhi
2、charisefromalackofknowledgeoftheassumptionsonwhichatheoryisbased,butalsobecauseoftheextremeimportanceforeconomicsofgoodjudgmentinchoosingbetweenrivalsetsofassumptions.Forinstance,itissuggestedthattheuseoftheword“firm”ineconomicsmaybedifferentfromtheuseofthetermbythe“plainman.”lSincethereisappare
3、ntlyatrendineconomictheorytowardsstartinganalysiswiththeindividualfirmandnotwiththeindustry,2itisallthemorenecessarynotonlythatacleardefinitionoftheword“firm”shouldbegivenbutthatitsdifferencefromafirminthe“realworld,”ifitexists,shouldbemadeclear.Mrs.Robinsonhassaidthat“thetwoquestionstobeaskedof
4、asetofassumptionsineconomicsare:Aretheytractable?and:Dotheycorrespondwiththerealworld?”3Though,asMrs.Robinsonpointsout,“moreoftenonesetwillbemanageableandtheotherrealistic,”yettheremaywellbebranchesoftheorywhereassumptionsmaybebothmanageableandrealistic.Itishopedtoshowinthefollowingpaperthatadef
5、initionofafirmmaybeobtainedwhichisnotonlyrealisticinthatitcorrespondstowhatismeantbyafirmintherealworld,butistractablebytwoofthemostpowerfulinstrumentsofeconomicanalysisdevelopedbyMarshall,theideaofthemarginandthatofsubstitution,togethergivingtheideaofsubstitutionat1JoanRobinson,I~corro~rrzcsasa
6、SeriousSubjecr,p.12.2SeeN.Kaldor,“TheEquilibriuinoftheFinn,”hcommzcJourml,March,19343Op.cit.,p.6.38619371THENATUREOFTHEFIRM387themargin.’Ourdefinitionmust,ofcourse,“relatetoformalrelationswhicharecapableofbeingconceivedexactly.”2IItisconvenientif,insearchingforadefinitionofafirm,wefirstconsidert
7、heeconomicsystemasitisnormallytreatedbytheeconomist.LetusconsiderthedescriptionoftheeconomicsystemgivenbySirArthurSalter.3“Thenormaleconomicsystemworksitself.Foritscurrentoperationitisundernocentralcontrol,itneedsnocentralsu
