Abstract
Serious discussion of the history of the theory of the firm has to start with Alfred Marshall. There is no doubt that he inherited relevant material from Classical economics; but an attempt to construct a pre-Marshallian theory from the materials available is likely to be unsuccessful.[1]
An economist’s involvement with price theory runs the course of true love — delight, disillusion, dependence.
(Harry Townsend, 1947)
If we include in our account nearly all the conditions of real life, the problem is too heavy to be handled; if we select a few, then long-drawn-out and subtle reasonings with regard to them become scientific toys rather than engines for practical work.
(Alfred Marshall)
I am most grateful to J. Creedy, P.S. Johnson and L.C. Skerratt for helpful comments on an initial draft of this paper, and to M. Blaug, C.C. Gallagher, A. Gee, B. Loasby, S. Moss, F.H. Stephen, O.E. Williamson and other participants in the York Conference for helpful observations. I am particularly indebted to Scott Moss who emphasized to me the importance of Pigou’s 1928 article cited below.
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Notes
Marshall (1920) p.280. As Brian Loasby has put it, ‘Marshallian competition is a Hayekian discovery process’ (Loasby, 1982).
Sraffa (1926) p.543. ‘Everyday experience shows that a very large number of undertakings — and the majority of those which produce manufactured consumers’ goods — work under conditions of individual diminishing costs.’ (Emphasis added.)
Chamberlin (1937) p.558. This may reflect Chamberlin’s interest in the very real problem of railway rates.
Of course if one accepts Joan Robinson’s assertion that Pigou’s work led many to expect a world of full capacity working even in the midst of depression (Robinson, J.V., 1969, p.vi) then the ‘excess capacity’ element in Imperfect Competition can be seen as involving ‘excess empirical content’. But it seems to me that this 1969 view cannot be taken seriously against the background of world disequilibrium forty years earlier (see also Loasby, 1971, p.875). Alternatively one could cite Arthur Burns’ The Decline of Competition (Burns, 1936, p.v) in support of the view that the new approaches at least promised to have greater relevance to a world of non-perfect competition. (I am indebted to Mark Blaug for this point.) My own view would be, firstly, that Burns’ view was based on a misunderstanding of the import of the new approaches and, secondly, that a perfectly competitive view of the world was not firmly established, and thus the new theories did not offer an advance over the theoretical approaches of the great majority of economists.
SeeA Boulding (1948) pp.92–3. ‘The marginal analysis has been under considerable fire recently and there is a fairly widespread feeling that the existing theory of the firm is inadequate to serve as a foundation for a “general theory”.’ Boulding (1942) had also exhibited reservations and stressed the need for more empiricism.
Thus Schumpeter, in an otherwise sympathetic article: ‘I confess that few things are so irritating to me as is the preaching of mid-Victorian morality, seasoned by Benthamism, the preaching from a schema of middle-class values that knows no glamour and no passion’ (Schumpeter, 1952, p.104); cf.
Joan Robinson (1969) p.vii: ‘Marshall, with his usual instinctive cunning…’.
See Chandler (1962), (1977). Despite possible doubts about regarding this work as providing a theory of the firm, there can be no question about its importance.
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© 1984 Frank H. Stephen
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O’Brien, D.P. (1984). The Evolution of the Theory of the Firm. In: Stephen, F.H. (eds) Firms, Organization and Labour. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06663-6_2
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