In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.
Pointer from Jason Collins.
As a counter-example, I offer Information Rules, by Varian and Shapiro. And note that Varian was hired by Google and has played a significant role there. Coase later writes,
Today, a modern market economy with its ever-finer division of labor depends on a constantly expanding network of trade. It requires an intricate web of social institutions to coordinate the working of markets and firms across various boundaries. At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.
I really like the phrase “increasingly institutions-intensive.”
I think more economists would get the role of institutions if they thought about how our own marketplace of ideas really works…the quality of the knowledge we produce depends more on how (and with whom) we interact than the money we take in. Good book recommendation!