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.