Review of Austrian Economics, 11: 77–97 (1999)
1999 Kluwer Academic Publishers
Towards an Austrian Perspective on the Firm
ne of the distinguishing characteristics of Austrian economics has always been
its concern with the role of institutions in economic activity. To this day,
however, Austrian ideas have remained largely marginal relative to the rising
school of New Institutional Economics.
More speciﬁcally, as Loasby (1989),
Langlois (1992) and Foss (1994, 1996) have noted, Austrian economists have never at-
tempted to produce an Austrian theory of the ﬁrm. The purpose of the paper is to explore
what such an Austrian perspective on the ﬁrm would have to look like, in order to be
acceptable both as “Austrian” and as a “theory of the ﬁrm”.
First of all, such an Austrian perspective must be capable of describing the ﬁrm as
an institution that is created through the entrepreneurial action of individuals; an action
which is subjectively motivated and carried out in conditions of radical uncertainty and
ignorance. Taking Israel Kirzner’s theory of entrepreneurship as the starting point of our
analysis, we will attempt to develop a theory of the ﬁrm on the basis of Kirzner’s notion
of entrepreneurial behavior. Secondly, to count as a “theory of the ﬁrm,” the Austrian
perspective must be capable of addressing at least the same set of questions that established
theories do. According to Holmstr¨om and Tirole (1989), there are three such questions: (1)
the existence, (2) boundaries and (3) internal organisation of ﬁrms. Although our analysis
will mainly address the issue of existence, we will show that it can provide interesting
insights for tackling the remaining two questions.
The purpose of the paper is at the same time constructive and comparative. It is construc-
tive to the extent that it attempts to develop a perspective on the ﬁrm out of the concept of
But it is also comparative because a novel perspective must be compared
with existing theories so that its relative merits can be assessed. In the literature we ﬁnd
a classiﬁcation of existing theories into two alternative perspectives. The ﬁrst, which in
many respects represents what is today perceived as the mainstream, stems from the work
A ﬁrst draft of this paper was presented at the Conference of the European Association for Evolutionary Political
Economy, which was held at PANTEION University, Athens, in November 1997. The author wishes to thank
Fikret Adaman, George Bitros, Pierre Garrouste, John Groenewegen and two anonymous referees for helpful
comments. The usual disclaimer applies.
However, one should note Langlois (1986b, 1992) as well as Schotter (1981) as attempts to build bridges
between the two paradigms.
The importance of the task is noted by Foss (1997), who claims that “The Austrian concept that is most conspi-
cuously neglected in the contemporary theory of the ﬁrm is probably that of the entrepreneur”. Some very recent
work attempts to address the problem directly. Dulbecco and Garrouste (1997) attempt to construct a theory of the
ﬁrm combining insights from Lachmann and Kirzner, and Sautet (1998) is engaged in constructing a speciﬁcally
“entrepreneurial” theory of the ﬁrm.