937] THE NATURE OF THE FIRM 39r concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account.Again,in certain markets,e.g.,produce exchanges, a technique is devised for minimising these contract costs but they are not eliminated.It is true that contracts are not eliminated when there is a firm but they are greatly reduced.A factor of production (or the owner thereof) does not have to make a series of contracts with the factors with whom he is co-operating within the firm,as would be necessary,of course,if this co-operation were as a direct result of the working of the price mechanism.For this series of contracts is substituted one.At this stage,it is important to note the character of the contract into which a factor enters that is employed within a firm.The contract is one whereby the factor,for a certain remuneration (which may be fixed or fluctuating),agrees to obey the directions of an entrepreneur within cerlain limits.:The essence of the contract is that it should only state the limits to the powers of the entrepreneur.Within these limits,he can therefore direct the other factors of production. There are,however,other disadvantages-or costs- of using the price mechanism.It may be desired to make a long-term contract for the supply of some article or service. This may be due to the fact that if one contract is made for a longer period,instead of several shorter ones,then certain costs of making each contract will be avoided. Or,owing to the risk attitude of the people concerned, they may prefer to make a.long rather than a short-term contract. Now,owing to the difficulty of forecasting,the longer the period of the contract is for the supply of the commodity or service,the less possible,and indeed,the less desirable it is for the person purchasing to specify what the other contracting party is expected to do.It may well be a matter of indifference to the person supplying the service or commodity which of several courses of action is taken,but not to the purchaser of that service or com- modity.But the purchaser will not know which of these several courses he will want the supplier to take.Therefore, 1 This induenee was noted by Professor Usher when diecusing the development of capitalism. He "The tucceive buying and elling of partly finished produets werc sheer waste of cuetgy."(Introdetion to tbe Industrial History of EnglandB )But he does nat develop the idea nor consider why it is that buying and selling aperations still exist. Ie would be posible or n limits tothe power of the entrepreneur tobe fixed.This wauld be voluntary slavery.According to Profeisor Batt,The Lote of Mdasrer awd Soruant p.t such a contract would be void and unepforceable