John Nye feels that one of my two brief specific references to his work “leaves the impression that my work downplays the problems of individual differences in taste or social institutions by dismissing them out of hand”. Let me assure him that he is unduly alarmed, since virtually all readers will read into the passage that he quotes only what I intended and, indeed, what Nye himself intended - that if he or anyone else had found evidence that firm size (...) mattered for productivity, this would be taken as evidence of inefficiency. This is especially clear because in the previous paragraph I took note of Nye's own review of the extensive literature that argues that “less productive and, therefore, ‘inefficient’ family firms led to French ‘backwardness’ in production”. (shrink)

In a recent article, Edward Saraydar takes economists and economic historians to task for equating productivity and efficiency in comparative economic analysis. Although I found his thesis interesting, I was a bit surprised to see selected remarks from my article on firm size in nineteenth-century France used to frame his criticism of productivity comparisons as a means of making prescriptive statements. The passages selected may mislead the reader as to the nature of my arguments. Let me quote Saraydar on this: (...) … I argue that … the problem with equating productivity with efficiency is that from the neoclassical standpoint this strongly suggests a prescriptive view - a view that things should be or should have been different - and thereby frees the analyst from the need to justify the utility costs that might be or might have been required to make things different. Thus, in the French industrialization debate, for example, Nye points out that evidence that smaller family firms were less productive would support the conclusion “that nineteenth-century French firms were too small and that consequently French industry suffered from inefficiency”. Suppose the evidence to which Nye refers to existed. [My emphasis] Distributive considerations aside, in neoclassical economics a more Pareto-efficient state by its very nature is to be preferred to a less efficient one. Therefore, the implication is that family firms should have been larger and more productive. However, suppose also that the plethora of small family firms in nineteenth-century France, in fact, constituted a longstanding, widely accepted, socially imbedded institution. Clearly, the traditionalist thought-experiment and conclusion would ignore the potential costs in utility or satisfaction to owners of factors of production, a utility loss that may well have been required to make the “more efficient.” transformation to a relatively few large-scale industrial firms. That potential utility loss cannot be ignored and should be part of the analysis. (shrink)