A Coasian Theory of the Family

In The Market Revolution, historian John Lauritz Larson quips that no farm wife lost her job because she stopped spinning her own thread or yarn and instead bought it on the market. While true enough, it is nonetheless also true that the implicit economic value of a farm wife changed as a result of the changing cost of spinning yarn at home relative to purchasing it on the market. The changing relative costs of the “make or buy” decision across numerous goods and services over the next century and a half almost certainly played a crucial role in disrupting previously traditional relations within the family and between the sexes, a shock from which families, and society, still reels today.

Economist Ronald Coase won the Nobel Memorial Prize in Economics in part for his work on the “make or buy” decision of the firm. (He also received the award for his work on “social cost.”) The puzzle motivating his work was this: Why the firm at all? By “firm” Coase meant a business organization with some form of internal, hierarchically managed production. The puzzle pertained why a business would ever produce, or make, needed inputs internally (via a hierarchical command structure) rather than buy (or contract for) those inputs on the market? The answer, which is deceptively simple, is that using the market is costly. (The costs of contracting, monitoring quality, etc.) The “make or buy” decisions of firms varies in relation to the cost of internal production relative to purchasing the same good on the market.

It’s not just business that faces the “make or buy” decision. Every organization, indeed, every individual, in modern society constantly makes implicit decisions along the seam of the make or buy comparison. Tonight will I make my own dinner or will I buy my dinner on the market? Say I plan to serve fish. Will I “make” the fish by knocking off work early to go fishing, or will I buy the fish on, and at, the market?

Changes in the make or buy decision obviously structures the internal organization of business. But Coase applies elsewhere as well. Family “make or buy” decisions reflect the relative costs of making something in the household or buying it on the market. Because household chores were (and still often are) divided by gender, change in relative costs along the seam of the family’s make or buy decision can affect, even transform, relations among family members and, in so doing, affect the self-identity of family members as well.

While the spiritual heart of marriage and the family is a society or community (“it is not good for man to be alone”), the family also clearly serves economic and other functions. At different times and in different families, these other functions can rival or even supplant the essential center of the family as an elemental society. The role these other functions play need not be negative; they can also buttress family structures.

Changes in the (implicit) economic value of different family roles can stress relations (or strengthen them) within an existing family. Then can change the implicit ex ante attraction of forming a family in the first place.

Lauritz correctly observes that no woman lost her “job” in the transition from making yarn herself to buying yarn on the market in the transition of the 1830s and 1840s. Nonetheless, as a result of the shifting relative cost of home-spun relative to market-bought fiber, the economic value of some women decreased (as a result of the market supplanting their home production), and the economic value of other women increased (because they now-produced for sale on the market). Early on women could produce for the market at home. Later, however, to take advantage of economies of scale and specialization, most women producing fiber materials would need to relocate outside the household to produce. (Changes in production also induced men to locate their production further away from the household as well.)

The rise of the textile industry did not of course single-handedly transform traditional family life. But as the seam of the make or buy decision moved consistently (although not uniformly) away from “make” and toward “buy” during the 19th and 20th centuries, it could not help but disrupt and disorient traditional gender roles going forward. In so doing it disrupted traditional patters of marriage and family. Many of these roles and functions had remain unchanged for centuries, if not millennia. In my next post I muse on consequences of this shift in the seam of the make or buy decision for marriage and the internal organization of family in the 20th and 21st centuries.

Reader Discussion

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on October 03, 2018 at 16:28:10 pm

Cool topic. Now let’s try to steal Rogers’ thunder by pondering how shifts in the make-or-buy decision have changed family structures! Here's one:

1. Recreational sex, and the social regulation of exrtra-marital sex: Traditionally, one impetuous for marriage was recreational sex. This was reinforced by a cartel dynamic: Many women (and many men) would limit the supply of sex outside of marriage. But with the breakdown of this cartel, the demand for marriage may also have declined.

(Admittedly, there has always been a supply of recreational sex outside of marriage. The SuperFreaconomics guys note that prostitution used to be a much bigger industry than it is today, when pre-marital sex was more closely regulated and the risk of unwanted pregnancy was harder to control. Large percentages of men reported having had their first sexual experience with a prostitute. The decline of stigma around pre-marital sex, and the rise of birth control methods, has undermined that industry.)

In any event, it seems as if more people are declining to have a fixed domestic source of recreational sex and are willing to rely on an outside service provider.

2. Procreational sex: People also have sex to have kids--but they do so at a lower rate than in the past. The reasons are many.

Historically, kids were useful as labor. Today, not so much. (I speak from experience.) We have reduced demand for many traditional kinds of domestic labor. Appliances do lots of our domestic work; building materials reduce many kinds of maintenance needs; and now that few of use work on farms, most labor is performed far from the homes where we store our kids. Today's kids are just expensive Labrador retrievers: Conceptually useful, but mostly just around to be cuddled and make messes.

Another form of labor demand on the part of parents is having someone to care for us in our old age. With the rise of Social Security, organized retirement planning, and senior housing, this demand has declined; I rarely hear my childless friends despairing that they will be isolated and bereft in their dotage. (And I often hear my own parents and in-laws complaining about how we never come ‘round anymore….) Generally, today we expect seniors to live independently of their kids as they age.

Each of these dynamics depresses the relative demand for procreational sex. In addition, if people still WANT kids, they have alternative means to obtain them without marriage--sperm donation, surrogate mothers, and adoption (although I don't know whether adoption rates have grown or shrunk over the years).

In short, in addition to people outsourcing their recreational sex supply, they no longer have the same need to generate a domestic labor supply. These changes have altered households in the sense that fewer couples feel the need to form households. That is, folks are staying single longer--and many stay single indefinitely.

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on October 04, 2018 at 09:00:40 am

"That is, folks are staying single longer–and many stay single indefinitely."

I would add:

1) And MANY of them probably should remain single as they seem incapable of relating to anything other than a video game, cell phone and believe that a life partner is an intrsuion into their "safe spaces."
2) with the (impending?) rise of robot brothels, recreational sex has reached its final "outsourcing destination." Goodness, What would Spock think?

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on October 05, 2018 at 05:47:07 am

[…] mused in Wednesday’s post about movement in the seam of family make-or-buy decisions over the last 200 […]

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Economic Factors That Shook Modern Marriage

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