Firms, Strategies, and Resources: Contributions from Austrian Economics

Recently, scholars working in the field of modern Austrian economics have wondered about what this literature might offer for an understanding of the nature of modern business organizations (for example, Foss 1994, 1997b; Sautet 1998; Mathews 1998). In this article, we examine the received literature on firms and strategies and find that Austrian economics has important contributions to make in two particular areas—to the theory of rent and to an understanding of the meaning of equilibrium. The legacy of perfect competition casts a long shadow, inhibiting an adequate understanding of the dynamic market process in which rent is earned in disequilibrium. Rent features as a key concept in the modern Resource-Based Theory of Strategy. This concept is borrowed from neoclassical economics but derives ultimately from Ricardo. It is used in the Resource-Based literature in a confused and inconsistent way. We examine this theory with a view to providing a more satisfactory foundation for the theory of rent, that provided by Frank Fetter, and a more satisfactory foundation for the theory of competition, that provided by Market-Process economics. The theory of the firm that emerges is, indeed, a “strategic” theory of the firm, one that depends crucially on the entrepreneur and one that is built on a thoroughly “Mengerian” (subjectivist) theory of rent. The new Resource-Based theory (RBT) of the firm, like the Coasian literature, takes as its point of departure the neoclassical microeconomic model of perfect competition. In perfect competition there are no “profits” and all firms are identical. The RBT explains why firms differ; that is, what aspects of the perfectcompetition model most plausibly do not apply. Different firms possess different (heterogeneous) resources and are (somehow) able to maintain those valuable differences (for example, Barney 1991; Foss 1997ab). As a result, according to the RBT, successful firms are able to earn “rents.” This concept of rents is also derived