The Institutional Structure of Production

In my long life I have known some great economists, but I have never counted myself among their number nor walked in their company. I have made no innovations in high theory. My contribution to economics has been to urge the inclusion in our analysis of features of the economic system so obvious that, like the postman in G. K. Chesterton’s Father Brown tale, “The Invisible Man,” they have tended to be overlooked. Nonetheless, once included in the analysis, they will, as I believe, bring about a complete change in the structure of economic theory, at least in what is called price theory or microeconomics. What I have done is to show the importance for the working of the economic system of what may be termed the institutional structure of production. In this lecture I shall explain why, in my view, these features of the economic system were ignored and why their recognition will lead to a change in the way we analyze the working of the economic system and in the way we think about economic policy, changes which are already beginning to occur. I will also speak about the empirical work that needs to be done if this transformation in our approach is to increase our understanding. In speaking about this transformation, I do not wish to suggest that it is the result of my work alone. OliverWilliamson, Harold Demsetz, and Steven Cheung, among others, have made outstanding contributions to the subject, and without their work and that of many others, I doubt whether the significance of my writings would have been recognized. While it has been a great advantage of the creation of the Prize in Economic Sciences in Memory of Alfred Nobel that, by drawing attention to the significance of particular fields of economics, it encourages further research in them, the highlighting of the work of a few scholars, or, in my case, one scholar, tends to obscure the importance of the contributions of other able scholars whose researches have been crucial to the development of the field.