Maximilian Carl Emil Weber (21 April 1864 14 June 1920) was a

German political economist and sociologist who was considered one of the
founders of the modern study of sociology and public administration. He began
his career at the University of Berlin, and later worked at the universities of
Freiburg, Heidelberg, and Munich.
Weber's major works deal with rationalization in sociology of religion and
government. His most famous work is his essay The Protestant Ethic and the Spirit of
Capitalism, which began his work in the sociology of religion. In this work, Weber
argued that religion was one of the non-exclusive reasons for the different ways the
cultures of the Occident and the Orient have developed, and stressed that particular
characteristics of ascetic Protestantism influenced the development of capitalism,
bureaucracy and the rational-legal state in the West. In another major work, Politics as a Vocation, Weber defined
the state as an entity which claims a monopoly on the legitimate use of physical force, a definition that became
pivotal to the study of modern Western political science. His analysis of bureaucracy in his Economy and Society is
still central to the modern study of organizations. His most known contributions are often referred to as the ' Weber
Thesis'.
Achievements
Along with Karl Marx and mile Durkheim, Weber is regarded as one of the founders of modern sociology,
although in his times he was viewed primarily as a historian and an economist. Whereas Durkheim, following
Comte, worked in the positivist tradition, Weber created and worked like Werner Sombart, his friend and then the
most famous representative of German sociology in the antipositivist, hermeneutic, tradition. Those works started
the antipositivistic revolution in social sciences, which stressed the difference between the social sciences and
natural sciences, especially due to human social actions (which Weber differentiated into traditional, affectional,
value-rational and instrumental). Weber's early work was related to industrial sociology, but he is most famous for
his later work on the sociology of religion and sociology of government.
Weber began his studies of rationalisation in The Protestant Ethic and the Spirit of Capitalism, in which he shows
how the aims of certain ascetic Protestant denominations, particularly Calvinism, shifted towards the rational
means of economic gain as a way of expressing that they had been blessed. The rational roots of this doctrine, he
argued, soon grew incompatible with and larger than the religious, and so the latter were eventually discarded.
Weber continues his investigation into this matter in later works, notably in his studies on bureaucracy and on the
classifications of authority. In these works he alludes to an inevitable move towards rationalization.
It should be noted that many of his works famous today were collected, revised, and published posthumously.
Significant interpretations of Weber's writings were produced by such sociological luminaries as Talcott Parsons
and C. Wright Mills.
Sociology of religion
Weber's work on the sociology of religion started with the essay The Protestant Ethic and the Spirit of Capitalism
and continued with the analysis of The Religion of China: Confucianism and Taoism, The Religion of India: The
Sociology of Hinduism and Buddhism, and Ancient Judaism. His work on other religions was interrupted by his
sudden death in 1920, which prevented him from following Ancient Judaism with studies of Psalms, Book of
Jacob, Talmudic Jewry, early Christianity and Islam. His three main themes were the effect of religious ideas on
economic activities, the relation between social stratification and religious ideas, and the distinguishable
characteristics of Western civilization.
His goal was to find reasons for the different development paths of the cultures of the Occident and the Orient,
although without judging or valuing them, like some of the contemporary thinkers who followed the social
Darwinist paradigm; Weber wanted primarily to explain the distinctive elements of the Western civilization. In the
analysis of his findings, Weber maintained that Calvinist (and more widely, Protestant) religious ideas had had a
major impact on the social innovation and development of the economic system of Europe and the United States,
but noted that they were not the only factors in this development. Other notable factors mentioned by Weber
included the rationalism of scientific pursuit, merging observation with mathematics, science of scholarship and
jurisprudence, rational systematisation of government administration, and economic enterprise. In the end, the

study of the sociology of religion, according to Weber, merely explored one phase of the freedom from magic, that
"disenchantment of the world" that he regarded as an important distinguishing aspect of Western culture.
The Protestant Ethic and the Spirit of Capitalism
Weber's essay The Protestant Ethic and the Spirit of Capitalism (Die protestantische Ethik und der Geist des
Kapitalismus) is his most famous work. It is argued that this work should not be viewed as a detailed study of
Protestantism, but rather as an introduction into Weber's later works, especially his studies of interaction between
various religious ideas and economic behaviour. In The Protestant Ethic and the Spirit of Capitalism, Weber puts
forward the thesis that Calvinist ethic and ideas influenced the development of capitalism. It relies on a great deal
of statistics from the era, which indicate the predominance of Protestants among the wealthy, industrial, and
technical classes relative to Catholics. This theory is often viewed as a reversal of Marx's thesis that the economic
"base" of society determines all other aspects of it. Religious devotion has usually been accompanied by rejection
of mundane affairs, including economic pursuit. Why was that not the case with Protestantism? Weber addresses
that paradox in his essay.
According to Weber, one of the universal tendencies that those individuals had to fight was the desire to profit.
After defining the spirit of capitalism, Weber argues that there are many reasons to look for its origins in the
religious ideas of the Reformation. Many observers like William Petty, Montesquieu, Henry Thomas Buckle, John
Keats, and others have commented on the affinity between Protestantism and the development of the commercial
spirit.
Weber showed that certain types of Protestantism notably Calvinism favoured rational pursuit of economic gain
and worldly activities which had been given positive spiritual and moral meaning. It was not the goal of those
religious ideas, but rather a byproduct the inherent logic of those doctrines and the advice based upon them both
directly and indirectly encouraged planning and self-denial in the pursuit of economic gain. A common illustration
is in the cobbler, hunched over his work, who devotes his entire effort to the praise of God. In addition, the
Reformation view "calling" dignified even the mundanest professions as being those that added to the common
good and were blessed by God, as much as any "sacred" calling could. This Reformation view, that all the spheres
of life were sacred when dedicated to God and His purposes of nurturing and furthering life, profoundly affected
the view of work.
To illustrate and provide an example, Weber quotes the ethical writings of Benjamin Franklin:
Remember, that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one
half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only
expense; he has really spent, or rather thrown away, five shillings besides. ... Remember, that money is the prolific,
generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is
six, turned again is seven and threepence, and so on, till it becomes a hundred pounds. The more there is of it, the
more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding sow, destroys all
her offspring to the thousandth generation. He that murders a crown, destroys all that it might have produced, even
scores of pounds.(Italics in the original)
Weber notes that this is not a philosophy of mere greed, but a statement laden with moral language. Indeed,
Franklin claims that God revealed to him the usefulness of virtue.
To emphasize the work ethic in Protestantism relative to Catholics, he notes a common problem that industrialists
face when employing precapitalist laborers: Agricultural entrepreneurs will try to encourage time spent harvesting
by offering a higher wage, with the expectation that laborers will see time spent working as more valuable and so
engage it longer. However, in precapitalist societies this often results in laborers spending less time harvesting.
Laborers judge that they can earn the same, while spending less time working and having more leisure. He also
notes that societies having more Protestants are those that have a more developed capitalist economy.
It is particularly advantageous in technical occupations for workers to be extremely devoted to their craft. To view
the craft as an end in itself, or as a "calling" would serve this need well. This attitude is well-noted in certain classes
which have endured religious education, especially of a Pietist background.
Weber stated that he abandoned research into Protestantism because his colleague Ernst Troeltsch, a professional
theologian, had initiated work on the book The Social Teachings of the Christian Churches and Sects. Another

reason for Weber's decision was that the essay has provided the perspective for a broad comparison of religion and
society, which he continued in his later works. The phrase "work ethic" used in modern commentary is a derivative
of the "Protestant ethic" discussed by Weber. It was adopted when the idea of the Protestant ethic was generalised
to apply to Japanese people, Jews and other non-Christians.
The Religion of China: Confucianism and Taoism
The Religion of China: Confucianism and Taoism was Weber's second major work on the sociology of religion.
Weber focused on those aspects of Chinese society that were different from those of Western Europe and especially
contrasted with Puritanism, and posed a question why capitalism did not develop in China. In Hundred Schools of
Thought Warring States Period, he concentrated on the early period of Chinese history, during which the major
Chinese schools of thoughts (Confucianism and Taoism) came to the fore.
By 200 BC, the Chinese state had developed from a loose federation of feudal states into a unified empire with
patrimonial rule, as described in the Warring States Period. As in Europe, Chinese cities had been founded as forts
or leaders' residences, and were the centres of trade and crafts. However, they never received political autonomy
and its citizens had no special political rights or privileges. This is due to the strength of kinship ties, which stems
from religious beliefs in ancestral spirits. Also, the guilds competed against each other for the favour of the
Emperor, never uniting in order to fight for more rights. Therefore, the residents of Chinese cities never constitute a
separate status class like the residents of European cities.
Early unification of the state and the establishment of central officialdom meant that the focus of the power struggle
changed from the distribution of land to the distribution of offices, which with their fees and taxes were the most
prominent source of income for the holder, who often pocketed up to 50% of the revenue. The imperial government
depended on the services of those officials, not on the service of the military (knights) as in Europe.
Weber emphasised that Confucianism tolerated a great number of popular cults without any effort to systematise
them into a religious doctrine. Instead of metaphysical conjectures, it taught adjustment to the world. The
"superior" man (literati) should stay away from the pursuit of wealth (though not from wealth itself). Therefore,
becoming a civil servant was preferred to becoming a businessman and granted a much higher status.
Chinese civilisation had no religious prophecy nor a powerful priestly class. The emperor was the high priest of the
state religion and the supreme ruler, but popular cults were also tolerated (however the political ambitions of their
priests were curtailed). This forms a sharp contrast with medieval Europe, where the Church curbed the power of
secular rulers and the same faith was professed by rulers and common folk alike.
According to Confucianism, the worship of great deities is the affair of the state, while ancestral worship is
required of all, and the multitude of popular cults is tolerated. Confucianism tolerated magic and mysticism as long
as they were useful tools for controlling the masses; it denounced them as heresy and suppressed them when they
threatened the established order (hence the opposition to Buddhism). Note that in this context, Confucianism can be
referred to as the state cult, and Taoism as the popular religion.
Weber argued that while several factors favoured the development of a capitalist economy (long periods of peace,
improved control of rivers, population growth, freedom to acquire land and move outside of native community, free
choice of occupation) they were outweighed by others (mostly stemming from religion):

technical inventions were opposed on the basis of religion, in the sense that the disturbance of ancestral
spirits was argued to lead to bad luck, and adjusting oneself to the world was preferred to changing it.
sale of land was often prohibited or made very difficult.
extended kinship groups (based on the religious importance of family ties and ancestry) protected its
members against economic adversities, therefore discouraging payment of debts, work discipline, and
rationalisation of work processes.
those kinship groups prevented the development of an urban status class and hindered developments
towards legal institutions, codification of laws, and the rise of a lawyer class.

According to Weber, Confucianism and Puritanism represent two comprehensive but mutually exclusive types of
rationalisation, each attempting to order human life according to certain ultimate religious beliefs. Both encouraged
sobriety and self-control and were compatible with the accumulation of wealth. However, Confucianism aimed at
attaining and preserving "a cultured status position" and used as means adjustment to the world, education, self-

perfection, politeness and familial piety. Puritanism used those means in order to create a "tool of God", creating a
person that would serve the God and master the world. Such intensity of belief and enthusiasm for action were
alien to the aesthetic values of Confucianism. Therefore, Weber states that it was the difference in prevailing
mentality that contributed to the development of capitalism in the West and the absence of it in China.
The Religion of India: The Sociology of Hinduism and Buddhism
The Religion of India: The Sociology of Hinduism and Buddhism was Weber's third major work on the sociology of
religion. In this work he deals with the structure of Indian society, with the orthodox doctrines of Hinduism and the
heterodox doctrines of Buddhism, with modifications brought by the influence of popular religiosity, and finally
with the impact of religious beliefs on the secular ethic of Indian society.
The ancient Indian social system was shaped by the concept of caste. It directly linked religious belief and the
segregation of society into status groups. Weber describes the caste system, consisting of the Brahmins (priests), the
Kshatriyas (warriors), the Vaisyas (merchants) and the Shudras (labourers). Then he describes the spread of the
caste system in India due to conquests, the marginalisation of certain tribes and the subdivision of castes.
Weber pays special attention to Brahmins and analyses why they occupied the highest place in Indian society for
many centuries. With regard to the concept of dharma he concludes that the Indian ethical pluralism is very
different both from the universal ethic of Confucianism and Christianity. He notes that the caste system prevented
the development of urban status groups.
Next, Weber analyses the Hindu religious beliefs, including asceticism and the Hindu world view, the Brahman
orthodox doctrines, the rise and fall of Buddhism in India, the Hindu restoration, and the evolution of the guru.
Weber asks the question whether religion had any influence upon the daily round of mundane activities, and if so,
how it impacted economic conduct. He notes the idea of an immutable world order consisting of the eternal cycles
of rebirth and the deprecation of the mundane world, and finds that the traditional caste system, supported by the
religion, slowed economic development; in other words, the "spirit" of the caste system militated against an
indigenous development of capitalism.
Weber concludes his study of society and religion in India by combining his findings with his previous work on
China. He notes that the beliefs tended to interpret the meaning of life as otherworldly or mystical experience, that
the intellectuals tended to be apolitical in their orientation, and that the social world was fundamentally divided
between the educated, whose lives were oriented toward the exemplary conduct of a prophet or wise man, and the
uneducated masses who remained caught in their daily rounds and believed in magic. In Asia, no Messianic
prophecy appeared that could have given "plan and meaning to the everyday life of educated and uneducated
alike." He argues that it was the Messianic prophecies in the countries of the Near East, as distinguished from the
prophecy of the Asiatic mainland, that prevented Western countries from following the paths of China and India,
and his next work, Ancient Judaism was an attempt to prove this theory.
Ancient Judaism
In Ancient Judaism, his fourth major work on the sociology of religion, Weber attempted to explain the
"combination of circumstances" which resulted in the early differences between Oriental and Occidental religiosity.
It is especially visible when the interworldly asceticism developed by Western Christianity is contrasted with
mystical contemplation of the kind developed in India. Weber noted that some aspects of Christianity sought to
conquer and change the world, rather than withdraw from its imperfections. This fundamental characteristic of
Christianity (when compared to Far Eastern religions) stems originally from ancient Jewish prophecy. Stating his
reasons for investigating ancient Judaism, Weber wrote that
Anyone who is heir to the traditions of modern European civilisation will approach the problems of universal
history with a set of questions, which to him appear both inevitable and legitimate. These questions will turn on the
combination of circumstances which has brought about the cultural phenomena that are uniquely Western and that
have at the same time () a universal cultural significance.
Further on he adds:
"For the Jew () the social order of the world was conceived to have been turned into the opposite of that
promised for the future, but in the future it was to be overturned so that Jewry could be once again dominant. The

world was conceived as neither eternal nor unchangeable, but rather as being created. Its present structure was a
product of man's actions, above all those of the Jews, and God's reaction to them. Hence the world was a historical
product designed to give way to the truly God-ordained order (). There existed in addition a highly rational
religious ethic of social conduct; it was free of magic and all forms of irrational quest for salvation; it was inwardly
worlds apart from the path of salvation offered by Asiatic religions. To a large extent this ethic still underlies
contemporary Middle Eastern and European ethic. World-historical interest in Jewry rests upon this fact. () Thus,
in considering the conditions of Jewry's evolution, we stand at a turning point of the whole cultural development of
the West and the Middle East".
Weber analyses the interaction between the Bedouins, the cities, the herdsmen and the peasants, including the
conflicts between them and the rise and fall of the United Monarchy. The time of the United Monarchy appears as a
mere episode, dividing the period of confederacy since the Exodus and the settlement of the Israelites in Canaan
from the period of political decline following the Division of the Monarchy. This division into periods has major
implications for religious history. Since the basic tenets of Judaism were formulated during the time of Israelite
confederacy and after the fall of the United Monarchy, they became the basis of the prophetic movement that left a
lasting impression on the Western civilisation.
Weber discusses the organisation of the early confederacy, the unique qualities of the Israelites' relations to
Yahweh, the influence of foreign cults, types of religious ecstasy, and the struggle of the priests against ecstasy and
idol worship. He goes on to describe the times of the Division of the Monarchy, social aspects of Biblical prophecy,
the social orientation of the prophets, demagogues and pamphleteers, ecstasy and politics, and the ethic and
theodicity of the prophets. Weber notes that Judaism not only fathered Christianity and Islam, but was crucial to the
rise of modern Occident state, as its influence were as important to those of Hellenistic and Roman cultures.
Reinhard Bendix, summarising Ancient Judaism, writes that
free of magic and esoteric speculations, devoted to the study of law, vigilant in the effort to do what was right in the
eyes of the Lord in the hope of a better future, the prophets established a religion of faith that subjected man's daily
life to the imperatives of a divinely ordained moral law. In this way, ancient Judaism helped create the moral
rationalism of Western civilisation.[43]
Sociology of politics and government
In the sociology of politics and government, one of Weber's most significant contribution is his Politics as a
Vocation essay. Therein, Weber unveils the definition of the state that has become so pivotal to Western social
thought: that the state is that entity which possesses a monopoly on the legitimate use of physical force, which it
may nonetheless elect to delegate as it sees fit. In this essay, Weber wrote that politics is to be understood as any
activity in which the state might engage itself in order to influence the relative distribution of force. Politics thus
comes to be understood as deriving from power. A politician must not be a man of the "true Christian ethic",
understood by Weber as being the ethic of the Sermon on the Mount, that is to say, the injunction to turn the other
cheek. An adherent of such an ethic ought rather to be understood to be a saint, for it is only saints, according to
Weber, that can appropriately follow it. The political realm is no realm for saints. A politician ought to marry the
ethic of ultimate ends and the ethic of responsibility, and must possess both a passion for his avocation and the
capacity to distance himself from the subject of his exertions (the governed).
Weber distinguished three pure types of political leadership, domination and authority:
1. charismatic domination (familial and religious),
2. traditional domination (patriarchs, patrimonalism, feudalism), and
3. legal domination (modern law and state, bureaucracy).
In his view, every historical relation between rulers and ruled contained such elements and they can be analysed on
the basis of this tripartite distinction. He also notes that the instability of charismatic authority inevitably forces it to
"routinize" into a more structured form of authority. Likewise he notes that in a pure type of traditional rule,
sufficient resistance to a master can lead to a "traditional revolution". Thus he alludes to an inevitable move
towards a rational-legal structure of authority, utilising a bureaucratic structure. Thus this theory can be sometimes
viewed as part of the social evolutionism theory. This ties to his broader concept of rationalisation by suggesting
the inevitability of a move in this direction.

Weber is also well-known for his critical study of the bureaucratisation of society, the rational ways in which
formal social organizations apply the ideal type characteristics of a bureaucracy. It was Weber who began the
studies of bureaucracy and whose works led to the popularization of this term. Many aspects of modern public
administration go back to him, and a classic, hierarchically organised civil service of the Continental type is called
"Weberian civil service", although this is only one ideal type of public administration and government described in
his magnum opus Economy and Society (1922), and one that he did not particularly like himself he only thought it
particularly efficient and successful. In this work, Weber outlines a description, which has become famous, of
rationalization (of which bureaucratization is a part) as a shift from a value-oriented organisation and action
(traditional authority and charismatic authority) to a goal-oriented organization and action (legal-rational authority).
The result, according to Weber, is a "polar night of icy darkness", in which increasing rationalization of human life
traps individuals in an "iron cage" of rule-based, rational control. Weber's bureaucracy studies also led him to his
analysis correct, as it would turn out, after Stalin's takeover that socialism in Russia would lead to overbureaucratization rather than to the "withering away of the state" (as Karl Marx had predicted would happen in
communist society).[51]
Weber's Definition of Bureaucracies
His criteria for defining bureaucracy included the following:

Administrative offices are organized hierarchically.

Each offices has its own area of competence.
Civil servants are appointed, not elected, on the basis of technical qualifications as determined by diplomas
or examinations
Civil servants received fixed salaries according to rank
The job is a career and the sole employment of the civil servant
The official does not own his or her office.
The official is subject to control and discipline
Promotion is based on superiors' judgement.

He felt that he was studying a relatively new phenomenon. Some of the aforementioned characteristics could be
found in classic China, but not all. Like the nation-state, bureaucracies started in Western Europe around the
sixteenth century but were reaching their full powers, which Weber distrusted, only in the twentieth century.
(Roskin, Cord, Medeiros, Jones, Political Science: An Introduction (10th Edition), 2008; ISBN 0-13-242576)
Economics
While Weber is best known and recognised today as one of the leading scholars and founders of modern sociology,
he also accomplished much in other fields, notably economics, although this is largely forgotten today among
orthodox economists, who pay very little attention to his works. The view that Weber is at all influential to modern
economists comes largely from non-economists and economic critics with sociology backgrounds. During his life
distinctions between the social sciences were less clear than they are now, and Weber considered himself a historian
and an economist first, sociologist distant second.
From the point of view of the economists, he is a representative of the "Youngest" German historical school of
economics. His most valued contributions to the field of economics is his famous work, The Protestant Ethic and
the Spirit of Capitalism. This is a seminal essay on the differences between religions and the relative wealth of their
followers. Weber's work is parallel to Sombart's treatise of the same phenomenon, which however located the rise
of Capitalism in Judaism. Weber's other main contribution to economics (as well as to social sciences in general) is
his work on methodology: his theories of "Verstehen" (known as understanding or Interpretative Sociology) and of
antipositivism (known as humanistic sociology).
The doctrine of Interpretative Sociology is one of the main sociological paradigms, with many supporters as well as
critics. This thesis states that social, economic and historical research can never be fully inductive or descriptive as
one must always approach it with a conceptual apparatus, which Weber termed "Ideal Type".[52] The idea can be
summarised as follows: an ideal type is formed from characteristics and elements of the given phenomena but it is
not meant to correspond to all of the characteristics of any one particular case. Weber's Ideal Type became one of
the most important concepts in social sciences, and led to the creation of such concepts as Ferdinand Tnnies'
"Normal Type".

Weber conceded that employing "Ideal Types" was an abstraction but claimed that it was nonetheless essential if
one were to understand any particular social phenomena because, unlike physical phenomena, they involve human
behaviour which must be interpreted by ideal types. This, together with his antipositivistic argumentation can be
viewed as the methodological justification for the assumption of the "rational economic man" (homo economicus).
Weber formulated a three-component theory of stratification, with Social class, Social status and party (or
politicals) as conceptually distinct elements.

Social class is based on economically determined relationship to the market (owner, renter, employee etc.).
Status is based on non-economical qualities like honour, prestige and religion.
Party refers to affiliations in the political domain.

All three dimensions have consequences for what Weber called "life chances".
Weber's other contributions to economics were several: these include a (seriously researched) economic history of
Roman agrarian society, his work on the dual roles of idealism and materialism in the history of capitalism in his
Economy and Society (1914) which present Weber's criticisms (or according to some, revisions) of some aspects of
Marxism. Finally, his thoroughly researched General Economic History (1923) can be considered the Historical
School at its empirical best.

Thorstein Bunde Veblen (born Tosten Bunde Veblen July 30, 1857
August 3, 1929) was a Norwegian-American sociologist and economist and a
founder, along with John R. Commons, of the Institutional economics movement. He
was an impassioned critic of the performance of the American economy, and is most
famous for his book The Theory of the Leisure Class (1899).
Veblens writing
Veblen developed a 20th century evolutionary economics based upon the new ideas
emerging from anthropology, sociology, and psychology. Unlike the neoclassical
economics that was emerging at the same time, Veblen described economic behavior
as socially rather than individually determined and saw economic organization as a
process of ongoing evolution. This evolution was driven by the human instincts of
emulation, predation, workmanship, parental bent, and idle curiosity. Veblen wanted
economists to grasp the effects of social and cultural change on economic changes. In The Theory of the Leisure
Class, which is probably his best-known work, because of its satiric look at American society, the instincts of
emulation and predation play a major role. People, rich and poor alike, attempt to impress others and seek to gain
advantage through what Veblen coined "conspicuous consumption" and the ability to engage in conspicuous
leisure. In this work Veblen argued that consumption is used as a way to gain and signal status. Through
"conspicuous consumption" often came "conspicuous waste," which Veblen detested. Much of modern advertising
is built upon a Veblenian notion of consumption.
In The Theory of Business Enterprise, which was published in 1904, at the height of American concern with the
growth of business combinations and trusts, Veblen employed his evolutionary analysis to explain these new forms.
He saw them as a consequence of the growth of industrial processes in a context of small business firms that had
evolved earlier to organize craft production. The new industrial processes impelled integration and provided
lucrative opportunities for those who managed it. What resulted was, as Veblen saw it, a conflict between
businessmen and engineers, with businessmen representing the older order and engineers as the innovators of new
ways of doing things. In combination with the tendencies described in The Theory of the Leisure Class, this conflict
resulted in waste and predation that served to enhance the social status of those who could benefit from predatory
claims to goods and services.
Veblen generalized the conflict between businessmen and engineers by saying that human society would always
involve conflict between existing norms with vested interests and new norms developed out of an innate human
tendency to manipulate and learn about the physical world in which we exist. He also generalized his model to
include his theory of instincts, processes of evolution as absorbed from Sumner, as enhanced by his own reading of
evolutionary science, and Pragmatic philosophy first learned from Peirce. The instinct of idle curiosity led humans
to manipulate nature in new ways and this led to changes in what he called the material means of life. Because, as

per the Pragmatists, our ideas about the world are a human construct rather than mirrors of reality, changing ways
of manipulating nature lead to changing constructs and to changing notions of truth and authority as well as
patterns of behavior (institutions). Societies and economies evolve as a consequence, but do so via a process of
conflict between vested interests and older forms and the new. Veblen never wrote with any confidence that the new
ways were better ways, but he was sure in the last three decades of his life that the American economy could have,
in the absence of vested interests, produced more for more people. In the years just after World War I he looked to
engineers to make the American economy more efficient.
In addition to The Theory of the Leisure Class and The Theory of Business Enterprise, Veblens monograph
"Imperial Germany and the Industrial Revolution", and his many essays, including Is Economics Not an
Evolutionary Science, and The Place of Science in Modern Civilization, remain influential.
Veblens intellectual legacy
In spite of difficulties of sometimes archaic language, caused in large part by Veblens struggles with the
terminology of unilinear evolution and of biological determination of social variation that still dominated social
thought when he began to write, Veblens work remains relevant, and not simply for the phrase conspicuous
consumption. His evolutionary approach to the study of economic systems is once again in vogue and his model
of recurring conflict between the existing order and new ways can be of great value in understanding the new
global economy.
The handicap principle of evolutionary sexual selection is often compared to Veblen's "conspicuous consumption".
Veblen, as noted, is regarded as one of the co-founders (with John R. Commons, Wesley C. Mitchell, and others) of
the American school of Institutional economics. Present-day practitioners who adhere to this school organise
themselves in The Association for Evolutionary Economics (AFEE) and the Association for Institutional
Economics (AFIT). AFEE gives an annual Veblen-Commons (see John R. Commons) award for work in
Institutional Economics and publishes the Journal of Economic Issues. Some unaligned practitioners include
theorists of the concept of "differential accumulation". Veblens legacy has also been claimed by those involved
with technocracy and his work is often cited in treatments of American literature.
The Theory of the Leisure Class
The Theory of the Leisure Class is a book, first published in 1899, by the Norwegian-American economist
Thorstein Veblen while he was a professor at the University of Chicago.
Veblen claimed he wrote the book as a perceptive personal essay criticizing contemporary culture, rather than as an
economics textbook. Critics claim this was an excuse for his failure to cite sources. Nonetheless, Theory of the
Leisure Class is considered one of the great works of economics as well as the first detailed critique of
consumerism.
Thesis
In the book, Veblen argues that economic life is driven not by notions of utility, but by social vestiges from prehistoric times. Drawing examples from his time (turn-of-the-century America) and anthropology, he held that much
of today's society is a variation on early tribal life.
According to Veblen, beginning with primitive tribes, people began to adopt a division of labor along certain lines.
The "higher-status" group monopolized war and hunting while farming and cooking were considered inferior work.
He argued this was due to barbarism and conquest of some tribes over others. Once conquerors took control, they
relegated the more menial and labor-intensive jobs to the subjugated people, while retaining the more warlike and
violent work for themselves. It did not matter that these "menial" jobs did more to support society (in Veblen's
view) than the "higher" ones. Even within tribes that were initially free of conquerors or violence, Veblen argued
that certain individuals, upon watching this labor division take place in other groups, began to mimic (or, in
Veblen's term, "emulate") the higher-status groups.
Veblen referred to the emerging ruling class as the "leisure class." He argued that while this class did perform some
work and contributed to the tribe's well-being, it did so in only a minor, peripheral, and largely symbolic manner.

For example, although hunting could provide the tribe with food, it was not as productive or reliable as farming or
animal domestication, and compared with the latter types of work, was relatively easier to perform. Likewise, while
tribes occasionally required warriors if a conflict broke out, Veblen argued that militaristic members of the leisure
class retained their position - and, with it, exemption from menial work - even during the extremely long stretches
of time when there was no war, even though they were perfectly capable of contributing to the tribe's "menial"
work during times of peace.
At the same time, Veblen claimed that the leisure class managed to retain its position through both direct and
indirect coercion. For example, the leisure class reserved for itself the "honor" of warfare, and often prevented
members of the lower classes from owning weapons or learning how to fight. At the same time, it made the rest of
the tribe feel dependent on the leisure class's continued existence due to the fear of hostilities from other tribes or,
as religions began to form, the hostility of imagined deities (Veblen argued that the first priests and religious
leaders were members of the leisure class).
To Veblen, society never grew out of this stage; it simply adapted into different forms and expressions. For
example, he noted that during the Middle Ages, only the nobility was allowed to hunt and fight wars. Likewise, in
modern times, he noted that manual laborers usually make less money than white-collar workers.
Conspicuous consumption and leisure
Veblen, in this book, coined the now-common concepts of conspicuous consumption and conspicuous leisure.
He defined conspicuous consumption as the waste of money and/or resources by people to display a higher status
than others. One famous example he used was the use of silver utensils at meals, even though utensils made of
cheaper material worked just as well or, in some cases, better.
He defined conspicuous leisure as the waste of time by people to give themselves higher status. As examples, he
noted that to be a "gentleman," a man must study such things as philosophy and the fine arts, which have no
economic value in themselves.
Economic drive
Whereas neoclassical economics defines humans as rational, utility-seeking people who try to maximize their
pleasure, Veblen recast them as completely irrational creatures who chase after social status without much regard to
their own happiness.
He used the term "emulation" to describe these actions. For example, people attempt to mimic the more respected
members of their group in order to gain more status for themselves.
As an example from modern-day life, certain brands and stores are considered more "high-class" than others, and
people may shop at them, despite the fact that they cannot afford to do so, and even though cheaper alternatives
would ease their financial situation and the goods available may be of equal utility.
Following this line of reasoning, Veblen also concluded that businessmen were simply the latest manifestation of
the leisure class. He noted that businessmen do not produce goods and services, but simply shift them around
whilst taking a profit. He thus argued that the modern businessman is no different from a barbarian, in that he uses
prowess and competitive skills to make money from others, and then lives off the spoils of conquests rather than
producing things himself.
Implications to society
Veblen outlined a number of consequences of this social order. To name a few:
The subjugation of women. As women were once used as "trophies of war" by barbarians, in modern times,
the housewife also served as a trophy to show off a man's success. By not allowing their wives to take
outside professions, a man could show off her conspicuous leisure as proof of his status and spend money
on his wife through conspicuous consumption.
The growth of sports such as football. Veblen argued that, while sports could be advantageous to the
community (The physical vigor acquired in the training for athletic games - so far as the training may be
said to have this effect - is of advantage both to the individual and to the collectivity), it was merely a side
effect (relation of football to physical culture is much the same as that of the bull-fight to agriculture), and

that the true reason for the popularity of sports were their usefulness as means of displaying conspicuous
leisure. Moreover, when Veblen spoke of the social "advantage" of sports, he claimed that it was only
advantageous from a leisure-class (or barbaric) viewpoint.
Religion was a group expression of both conspicuous leisure and consumption. A church, to Veblen, was
simply a waste of building space, and the clergy a group paid to do nothing useful. Veblen himself, rather
enjoyed his Sunday afternoons spending time with his non-"anthropomorphic" friends in the woods.
Such things as manners and etiquette were nothing but practices of conspicuous leisure with no practical
value.

Many of these views reflected (and excused) Veblen's own personal habits. To wit: Veblen's house was often a
mess, with unmade beds and dirty dishes; his clothes were often in disarray; he was an agnostic; and he tended to
be extremely blunt and rude while dealing with other people. (John Kenneth Galbraith, "Introduction" to the
Houghton-Mifflin edition, 1973).
Intellectual significance
While Veblen was an economist and published this book as a treatise on economics, most modern economists
ignore him. The primary reason for this appears to be his attack on the rational expectations theories that continue
to dominate the discipline. Only in recent years, with the rise of such theories as butterfly economics, is Veblen
being given serious consideration by economists.
Within the field of sociology, in contrast, Veblen was quickly picked up and integrated into their work. The classic
Middletown studies made much use of Veblen's theories. More to the point, these and many other sociological
studies supplied empirical evidence that confirmed Veblen's theories. In the Middletown studies, for example,
researchers learned that lower-class families were willing to go without basic necessities such as food or new
clothes to maintain a certain level of conspicuous consumption.
The concept of conspicuous consumption has been carried forward to this day, and is often used to criticize
advertising and to explain why poorer classes have been unable to advance economically. His views on the
uselessness of "businessmen," while usually discarded, have been adopted in modified form by none other than
Warren Buffett, who has harshly criticized the growth of practices such as day trading or arbitrage, which makes
money solely through abstract means. However, the technocratic society predicted by Veblen in later books has not
come to pass.
which he may become merely recipient of the wages of capital... [Such owners] have surrendered the right that the
corporation should be operated in their sole interest...
Berle and Means researched the consequences of ownership and control being separate. As businesses grow and
shareholders increase in number, any shareholdings that directors have will be a proportionally smaller capital
stake. Directors' income will derive mostly from return on their labor as directors, not from their capital investment.
If their motivation is purely pecuniary
the owners most emphatically will not be served by a profit seeking controlling group.
Although self interest has long been regarded as the best guarantee of economic efficiency by offering to the
owner the full fruits of his or her propertys use, the effect of separating control from ownership, of property
utilization from profit, is that the incentive for propertys efficient use comes no longer from property.
The implications of their work was clear. Berle and Means advocated embedded voting rights for all shareholders,
greater transparency, and accountability. However, with the release of the revised edition, Berle and Means also
pointed to the disparity that existed between those who did have shareholdings and those that did not. They wrote
in the preface,
Stockholders toil not, neither do they spin, to earn [dividends and share price increases]. They are beneficiaries by
position only. Justification for their inheritance... can be founded only upon social grounds... that justification turns
on the distribution as well as the existence of wealth. Its force exists only in direct ratio to the number of
individuals who hold such wealth. Justification for the stockholder's existence thus depends on increasing
distribution within the American population. Ideally the stockholder's position will be impregnable only when

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every American family has its fragment of that position and of the wealth by which the opportunity to develop
individuality becomes fully actualized.

John Kenneth Galbraith,

OC (October 15, 1908April 29, 2006)

was an Canadian-American economist. He was a Keynesian and an
institutionalist, a leading proponent of 20th-century American liberalism
and progressivism. His books on economic topics were bestsellers in the
1950s and the 1960s.

Galbraith was a prolific author who produced four dozen books and over a
thousand articles on various subjects. Among his most famous works was a popular
trilogy on economics, American Capitalism (1952), The Affluent Society (1958),
and The New Industrial State (1967). He taught at Harvard University for many
years. Galbraith was active in politics, serving in the administrations of Franklin D.
Roosevelt, Harry S. Truman, John F. Kennedy and Lyndon B. Johnson; and among
other roles served as United States Ambassador to India under Kennedy.
He was one of a few two-time recipients of the Presidential Medal of Freedom. He received one from President
Truman in 1946 and another from President Bill Clinton in 2000. He was also awarded the Order of Canada in
1997 and, in 2001, the Padma Vibhushan, India's second highest civilian award, for his contributions to
strengthening ties between India and the United States.
Works
Although he was a president of the American Economic Association, Galbraith was considered an iconoclast by
many economists. This is because he rejected the technical analyses and mathematical models of neoclassical
economics as being divorced from reality. Rather, following Thorstein Veblen, he believed that economic activity
could not be distilled into inviolable laws, but rather was a complex product of the cultural and political milieu in
which it occurs. In particular, he believed that important factors such as advertising, the separation between
corporate ownership and management, oligopoly, and the influence of government and military spending had been
largely neglected by most economists because they are not amenable to axiomatic descriptions. In this sense, he
worked as much in political economy as in classical economics.
His work included several best selling works throughout the fifties and sixties. After his retirement, he remained in
the public consciousness by continuing to write new books and revise his old works as well as presenting a major
series on economics for BBC television in 1977.[9] However, from the Nixon presidency onwards, he was regarded
as something of an anachronism, as the public discourse centered more and more around the pro-market, smallgovernment, anti-regulation and low-tax orthodoxies which came to prominence in the 1980s. In addition to his
books, he wrote hundreds of essays and a number of novels. Among his novels, A Tenured Professor in particular
achieved critical acclaim.
Economics books
In American Capitalism: The Concept of Countervailing Power, published in 1952, Galbraith outlined how the
American economy in the future would be managed by a triumvirate of big business, big labor, and an activist
government. Galbraith termed the reaction of lobby groups and unions "countervailing power." He contrasted this
arrangement with the previous pre-depression era where big business had relatively free rein over the economy.
His 1954 bestseller The Great Crash, 1929 describes the famous Wall Street melt down of stock prices and how
markets progressively become decoupled from reality in a speculative boom. The book is also a platform for
Galbraith's keen insights, and humour, into human behaviour when wealth is threatened. It has never been out of
print.
In his most famous work, The Affluent Society (1958), which also became a bestseller, Galbraith outlined his view
that to become successful, post-World War II America should make large investments in items such as highways
and education using funds from general taxation. Galbraith also critiqued the assumption that continually
increasing material production is a sign of economic and societal health. Because of this Galbraith is sometimes

11

considered one of the first post-materialists. In this book, he popularized the phrase "conventional wisdom".
(Galbraith, 1958 The Affluent Society: Chapter 2 "The Concept of Conventional Wisdom")
Galbraith worked on the book while in Switzerland, and had originally titled it Why The Poor Are Poor but
changed it to The Affluent Society at his wife's suggestion.
The Affluent Society contributed (likely to a significant degree, given that Galbraith had the ear of President
Kennedy) to the "war on poverty," the government spending policy first brought on by the administrations of
Kennedy and Johnson.
In The New Industrial State (1967), Galbraith argues that very few industries in the United States fit the model of
perfect competition. A third related work was Economics and the Public Purpose (1973), in which he expanded on
these themes by discussing, among other issues, the subservient role of women in the unrewarded management of
ever-greater consumption, and the role of the technostructure in the large firm in influencing perceptions of sound
economic policy aims.
In A Short History of Financial Euphoria (1990), He traces speculative bubbles through several centuries, and
argues that they are inherent in the economic system because of "mass psychology" and the "vested interest in error
that accompanies speculative euphoria." Also, financial memory is "notoriously short": what currently seems to be
a "new financial instrument" is inevitably nothing of the sort. Galbraith cautions: "The world of finance hails the
invention of the wheel over and over again, often in a slightly more unstable version." Crucial to his analysis is the
assertion that the common factor in boom and bust is the creation of debt to finance speculation, which "becomes
dangerously out of scale in relation to the underlying means of payment".
Galbraith was a fine writer, and was widely regarded as an influential and serious economist. Many of Galbraith's
best known works raised controversies, particularly with his antagonism toward libertarians and those of the
Austrian schools (see Criticism).
He was an important figure in 20th century institutional economics, and provides perhaps the exemplar
institutionalist perspective on Economic Power.
Galbraith cherished The New Industrial State and The Affluent Society as his two best. Economist and friend of
Galbraith Michael Sharpe visited Galbraith in 2004, on which occasion Galbraith gifted him with a copy of what
would be Galbraith's last book, The Economics of Innocent Fraud. Galbraith confided in Sharpe that "[t]his is my
best book", an assertion Galbraith delivered "a little mischievously."
Some of Galbraith's Ideas
In The Affluent Society Galbraith asserts that classical economic theory was true for the eras before the present,
which were times of "poverty"; now, however, we have moved from an age of poverty to an age of "affluence," and
for such an age, a completely new economic theory is needed. Galbraith's main argument is that as society becomes
relatively more affluent, so private business must "create" consumer wants through advertising, and while this
generates artificial affluence through the production of commercial goods and services, the public sector becomes
neglected as a result. He points out that while many Americans were able to purchase luxury items, their parks were
polluted and their children attended poorly maintained schools. He argues that markets alone will underprovide (or
fail to provide at all) for many public goods, whereas private goods are typically 'overprovided' due to the process
of advertising creating an artificial demand above the individual's basic needs.
Galbraith proposed curbing the consumption of certain products through greater use of consumption taxes, arguing
that this could be more efficient than other forms of taxation, such as labour or land taxes. Galbraith's major
proposal was a program he called "investment in men" a large-scale publicly-funded education program aimed
at empowering ordinary citizens. Galbraith wished to entrust citizens with the future of the American republic.

Ronald Harry Coase (born December 29, 1910) is

a British economist and the Clifton R. Musser Professor
Emeritus of Economics at the University of Chicago Law
School. After studying with the University of London

12

External Programme in 1927-29, Coase entered the London School of Economics where he took courses with
Arnold Plant.
Ronald Coase (left) and Douglass North at Washington University, 1994
Coase is best known for two articles in particular: "The Nature of the Firm" (1937), which introduces the concept
of transaction costs to explain the nature and limits of firms, and "The Problem of Social Cost" (1960), which
suggests that well-defined property rights could overcome the problems of externalities (see Coase Theorem).
Coase is also often referred to as the "father" of reform in the policy for allocation of the electromagnetic spectrum,
based on his article "The Federal Communications Commission" (1959) where he criticizes spectrum licensing,
suggesting property rights as a more efficient method of allocating spectrum to users. Additionally, Coase's
transaction costs approach is currently influential in modern organizational theory, where it was reintroduced by
Oliver E. Williamson.
Robert Coase was born in the Wilesden, England, a suburb of London on December 29th, 1910. His father was a
telegraphist for the post office, as was his mother before marriage. As a child, Coase had a weakness in his legs, for
which he was required to wear leg-irons. Due to this problem, he attended the school for physical defects. At the
age of 12, he was able to enter the Kilburn Grammar School on scholarship. At Kilburn, Coase completed the first
year of his B.Comm degree and then passed on to the University of London.
Coase graduated from the London School of Economics with a B.Comm. (Econ) in 1931, and earned his doctorate
from the University of London in 1951. He emigrated to the United States that same year and started work at the
University of Buffalo. In 1958 he moved to the University of Virginia. Coase settled at the University of Chicago in
1964 and became the editor of the Journal of Law and Economics. He received the Nobel Prize in Economics in
1991.
The Nature of the Firm
The Nature of the Firm was a brief but highly influential essay in which Coase tries to explain why the economy is
populated by a number of business firms, instead of consisting exclusively of a multitude of independent, selfemployed people who contract with one another. Given that "production could be carried on without any
organization [that is, firms] at all", Coase asks, why and under what conditions should we expect firms to emerge?
Since modern firms can only emerge when an entrepreneur of some sort begins to hire people, Coase's analysis
proceeds by considering the conditions under which it makes sense for an entrepreneur to seek hired help instead of
contracting out for some particular task.
The traditional economic theory of the time suggested that, because the market is "efficient" (that is, those who are
best at providing each good or service most cheaply are already doing so), it should always be cheaper to contract
out than to hire.
Coase noted, however, that there are a number of transaction costs to using the market; the cost of obtaining a good
or service via the market is actually more than just the price of the good. Other costs, including search and
information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially
add to the cost of procuring something with a firm. This suggests that firms will arise when they can arrange to
produce what they need internally and somehow avoid these costs.
There is a natural limit to what can be produced internally, however. Coase notices a "decreasing returns to the
entrepreneur function", including increasing overhead costs and increasing propensity for an overwhelmed manager
to make mistakes in resource allocation. This is a countervailing cost to the use of the firm.
Coase argues that the size of a firm (as measured by how many contractual relations are "internal" to the firm and
how many "external") is a result of finding an optimal balance between the competing tendencies of the costs
outlined above. In general, making the firm larger will initially be advantageous, but the decreasing returns
indicated above will eventually kick in, preventing the firm from growing indefinitely.
Other things being equal, therefore, a firm will tend to be larger:

13

the less the costs of organizing and the slower these costs rise with an increase in the transactions
organized.
the less likely the entrepreneur is to make mistakes and the smaller the increase in mistakes with an
increase in the transactions organized.
the greater the lowering (or the less the rise) in the supply price of factors of production to firms of larger
size.

The first two costs will increase with the spatial distribution of the transactions organized and the dissimilarity of
the transactions. This explains why firms tend to either be in different geographic locations or to perform different
functions. Additionally, technology changes that mitigate the cost of organizing transactions across space will cause
firms to be larger--the advent of the telephone and cheap air travel, for example, would be expected to increase the
size of firms.
Coase does not consider non-contractual relationships, as between friends or family.
The Problem of Social Cost
Published in the Journal of Law and Economics in 1960, while Coase was a member of the Economics department
at the University of Virginia, "The Problem of Social Cost" provided the key insight that it is unclear where the
blame for externalities lies. The example he gave was of a rancher whose cattle stray onto the cropland of his
neighbour. If the rancher is made to restrict his cattle, he is harmed just as the farmer is if the cattle remain
unrestrained.
Coase argued that without transaction costs it is economically irrelevant who is assigned initial property rights; the
rancher and farmer will work out an agreement about whether to restrict the cattle or not based on the economic
efficiency of doing so. Property rights allocation will hence matter only in determining distribution.
With sufficient transactions costs however, initial property rights will have a non-trivial effect. From the point of
view of economic efficiency, property rights should be assigned such that the owner of the rights wants to take the
economically efficient action. To elaborate, if it is efficient not to restrict the cattle, the rancher should be given the
rights (so that cattle can move about freely), whereas if it is inefficient to do so, the farmer should be given the
rights over the movement of the cattle (so the cattle are restricted).
This seminal argument forms the basis of the famous Coase Theorem as labeled by George Stigler.
Coase theorem
In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an
economic allocation or outcome in the presence of externalities. The theorem states that when trade in an
externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of
the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can
prevent Coasian bargaining.
This theorem, along with his 1937 paper on the nature of the firm (which also emphasizes the role of transaction
costs), earned Coase the 1991 Nobel Prize in Economics. The Coase theorem is an important basis for most modern
economic analyses of government regulation, especially in the case of externalities. George Stigler summarized the
resolution of the externality problem in the absence of transaction costs in a 1966 economics textbook in terms of
private and social cost, and for the first time called it a "theorem". Since the 1960s, a voluminous literature on the
Coase theorem and its various interpretations, proofs, and criticism has developed and continues to grow.
The theory
Coase developed his theory when considering the regulation of radio frequencies. Competing radio stations could
use the same frequencies and would therefore interfere with each others' broadcasts. The problem faced by
regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase
proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not
matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band.
Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to
reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere.

14

In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter
whether one or the other station had the initial right to broadcast; eventually, the right to broadcast would end up
with the party that was able to put it to the most highly valued use. Of course, the parties themselves would care
who was granted the rights initially because this allocation would impact their wealth, but the end result of who
broadcasts would not change because the parties would trade to the outcome that was overall most efficient. This
counterintuitive insight that the initial imposition of legal entitlement is irrelevant because the parties will
eventually reach the same result is Coases invariance thesis.
Coase's main point, clarified in his article 'The Problem of Social Cost', published in 1960 and cited when he was
awarded the Nobel Prize in 1991, was that transaction costs, however, could not be neglected, and therefore, the
initial allocation of property rights often mattered. As a result, one normative conclusion sometimes drawn from the
Coase theorem is that property rights should initially be assigned to the actors gaining the most utility from them.
The problem in real life is that nobody knows ex ante the most valued use of a resource and also, that there exist
costs involving the reallocation of resources by government. Another, more refined normative conclusion also often
discussed in law and economics is that government should create institutions which minimize transaction costs, so
as to allow misallocations of resources to be corrected as cheaply as possible.
A way of stating the Coase's theorem is: there must be a balance between the costs of the transactions that a
company must pay and the opportunity to make everything in house. This is one of the reasons why, in the past,
companies used to grow more and more: it was better to make something in house since the cost of the transaction
to buy it was high. In the internet era, Coase's theorem became even more up to date, but under a slightly different
version. The concept is the same, but the way of reading it is the opposite. We could say: "the size of a company
will decrease until the cost of doing something inside the company will be lower than doing it outside". In other
words, since in the internet era the cost of the transactions became very small, as a consequence, the size of the
companies is decreasing. An example of this phenomenon is the increasing pace of the outsourcing and off-shoring
businesses.

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