Abstract
The idea of business firm was not strange to the Classics of Political Economy despite the fact that the concept of the firm was officially introduced by Ronald Coase in 1937. It is the object of this chapter to challenge the commonly received view about the lack of a classical theory of the firm and to suggest further information about the nature of the firm in the work of Adam Smith and John Stuart Mill. It will be revealed that under various names—such as ‘private and public companies’, ‘joint-stock companies’, ‘little firms’ etc.—the idea of business firm as an institution was already discussed and thoroughly developed. Smith and Mill have provided two distinct explanations for the existence of firms, related to the advantages of the division of labor and the needs for larger capital accumulation respectively.
An earlier version of this paper was presented at the 2007 ICABE at the University of Piraeus and the 13th Annual ESHET conference at the University of Macedonia in 2009. I am grateful to the attendants of both sessions as well to Prof. T. Lianos and G. Bitros for their useful remarks and comments.
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Beraud (1992, 318) traces the influence of Diderot and makes full account of the effects of the division of labour according to Smith. As known, Plato and Xenophon have already analyzed both ideas of the social and technical division of labor. See Schumpeter (1954, 56) and Karayiannis (1990a). Smith has also recognised the alienating effects of the over-extended division of labour on workers’ character and intellectual ability (1776 II, 302–3). Cf. West (1996).
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Pitelis (1998, 1012) explains the emergence of firms as “the result of the merchants’ desire to further their interests by effecting a more efficient division of labor”, without mentioning Smith.
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Mill speaks about the legal forms of firms when he discusses the “ordinary functions of Government” in the last Book of the Principles (Chaps VIII & IX), in order to suggest the need for modernizing business law regulations.
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Zouboulakis, M.S. (2015). Elements of a Theory of the Firm in Adam Smith and John Stuart Mill. In: Bitros, G., Kyriazis, N. (eds) Essays in Contemporary Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-10043-2_4
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