Entrepreneurs As Surrogate Forward Traders of Goods and Services
Abstract: Most futures markets for consumer goods fail - a defect that appears to be better bridged by a mix of markets and competing (privately owned) hierarchies (firms) than by state ownership of firms. It is assumed firms would be headed by entrepreneurs (in the sense of Knight and Schumpeter) who are also future traders and market makers. Given positive transaction costs, incomplete foresight and bounded individual rationality (the conditions of the NIE), intertemporal coordination of supply and demand for consumer goods is assumed to be largely controlled by five elementary institutions: relational contracts, (industrial and financial) firms, market organizations, claims for money, financial markets. Relational contracts and their governance structures (among them firms) are central to our consideration. They compensate the failures of financial markets, leave room for the adoption to the unforeseen, and serve as shock absorbers. Financial markets, the centerpiece of capitalism, facilitate intertemporal economic planning. However, it would be a gross mistake to equate transaction costs with information costs and to conclude that the advances in information technology and the resulting reduction of information costs would, so to speak, draw reality nearer to prevailing finance theory. The paper is interspersed with a few blatant examples from antecedents of the present state of global finance.