Billionaire Facebook investor, former PayPal CEO, and Palantir cofounder Peter Thiel taught a class at Stanford this Spring.We’re going through student Blake Masters’s notes today and posting the most interesting things we learn.
Here’s the latest.
Peter Thiel believes that – outside the PC – progress has decelerated since the 1960s. The reasons are manifold. One of them is that humanity has focused on spreading already invented technology instead of creating new tech.
The solution, believes Thiel, is startup companies.
If we want technological development, why look to companies to do it? It’s possible, after all, to imagine a society in which everyone works for the government. Or, conversely, one in which everyone is an independent contractor. Why have some intermediate version consisting of at least two people but less than everyone on the planet?
The answer is straightforward application of the Coase Theorem. Companies exist because they optimally address internal and external coordination costs. In general, as an entity grows, so do its internal coordination costs. But its external coordination costs fall. Totalitarian government is entity writ large; external coordination is easy, since those costs are zero. But internal coordination, as Hayek and the Austrians showed, is hard and costly; central planning doesn’t work.
The flipside is that internal coordination costs for independent contractors are zero, but external coordination costs (uniquely contracting with absolutely everybody one deals with) are very high, possibly paralyzingly so. Optimality—firm size—is a matter of finding the right combination.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.