We had the pleasure of speaking with Marc Rubinstein, author of Net Interest, a financial sector newsletter, about his essay, Coasian Finance.
Marc writes:
To understand the financial services industry at the time of the financial crisis, you were well placed if you’d read Hyman Minsky. Minsky himself was ten years in his grave by then but his theories linking financial markets and the broader economy served a useful model of what was going on.
Today, that economist is Ronald Coase. If you want to know what’s going on in financial services today, he’s the man to study.
Coase was active from the 1930s all the way up to his death, aged 102, in 2013. Like Minsky, he had a practical streak – both men challenged the idea of efficient markets (enhancing their credibility among investors). Through his macroeconomic lens, Minsky attacked the notion that markets tend towards equilibrium. From a different perspective, Coase wondered why, if markets and prices are so efficient, corporate entities exist. In 1937, Coase wrote an essay, The Nature of the Firm, where he attempts to explain why some business activities sit within the control of corporate management while others are exchanged through arm’s length transactions in the marketplace.
Coase’s insight, which may seem obvious but has far-reaching implications, is that transacting is not a costless activity. In his essay he showed that the size and structure of firms, and the location of the border between internal exchange within the firm and external exchange through markets, stem from the costs of transactions. In short, firms will expand or shrink until the cost of “making” equals the cost of “buying”.
This insight explains a lot of the trends underpinning fintech.
Read on or listen to our conversation (recorded on May 25, 2021):
This conversation is available as an episode of Gain Industry Insights, a member podcast of MOI Global. (Learn how to access member podcasts.)
About This Audio Series:
MOI Global is delighted to engage in illuminating conversations on the financial sector with Marc Rubinstein, whose Net Interest newsletter we have found to be truly exceptional. Our goal is to bring you Marc’s insights into financial services businesses and trends on a regular basis, with Marc’s weekly essays serving as inspiration for our discussions.
About Marc Rubinstein:
Marc is a fellow MOI Global member, managing partner of Fordington Advisors, and author of Net Interest. He is a former analyst and hedge fund manager, most recently at Lansdowne Partners, with more than 25 years of experience in the financial sector. Marc is based in London.
About Net Interest:
Net Interest, authored by Marc Rubinstein, is a newsletter of insight and analysis from the world of finance. Enjoyed by the most senior executives and smartest investors in the industry, it casts light on this important sector in an easy-to-read style. Each post explores a theme trending in the sector. Between fintech, economics and investment cycles—there’s always something to talk about!
Members, log in below to access the restricted content.
Not a member?
Thank you for your interest. Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:
About The Author: MOI Global Editorial Team
The MOI Global Editorial Team, led by John Mihaljevic, CFA, includes community builders, event organizers, writers, editors, research associates, security analysts, and fanatical member support advocates. Our sole purpose is to serve the members of MOI Global as well as we possibly can in order to help them learn, invest intelligently, and build lifelong friendships with like-minded people.
Who is MOI Global? In recent years, The Manual of Ideas has expanded to become more than simply “the very best investing newsletter on the planet” (Mohnish Pabrai). We are now a thriving global community of intelligent investors, connected through great ideas, thought-provoking interviews, online conferences, live member events, and much more.
Members of MOI Global enjoy complimentary access to a growing array of resources and content related to the art of intelligent investing. Members also enjoy preferential access to selected offline events as well as exclusive access to other events hosted by MOI Global, including the Zurich Project Summit, the Latticework Conference, and Ideaweek.
More posts by MOI Global Editorial Team