Friday, 21 January 2022

Friday, 5 November 2021

The theory of the firm and economic thought

To me, it appears there is a lack of engagement with the theory of the firm by historians of economic thought. Evidence for this lack of interest can be found in books on the history of economic thought. Students would meet little, if anything, on the theory of the firm in introductory texts. For example, Sandmo (2011) devotes none of its almost 500 pages to the theory of the firm, while Heibroner (1999), throughout its seven editions, discusses firms but does not discuss the theory of the firm. Backhouse (2002), another well-regarded introduction to the history of economic thought, does better in terms of coverage of the theory of the firm than either Sandmo (2011) or Heilbroner (1999) insofar as Backhouse devotes, roughly one page out of 369 to the history of the post-1970 developments in the theory of the firm.

The lack of coverage could just be a level thing since some graduate-level texts do better in terms of the discussion of the theory of the firm, see, for example, Blaug (1997: 355-7; 373-5; 395-6; 435-9.) Or is it a time thing, from an earlier era, Whittaker (1940) has a 40-page chapter on production.

But these are exceptions that prove the rule. Lack of enthusiasm for the firm or production does appear to be a problem of long-standing. In 1893 when Edwin Cannan published the first of three editions of his A History of the Theories of Production and Distributions from 1776 to 1848 he commented that “I have been able to obtain surprisingly little assistance from previous writers” (Cannan 1893: v).

Since then, sadly, little appears to have changed. There is still little assistance from the literature for those who are interested in the history of thought to do with production or the firm. In fact, in the more than one hundred years since Cannan wrote, there seems to have been only three additional books (in English at least) published that directly deal with the topic of the history of thought to do with either the theory of production or the theory of the firm: George Stigler published a revised version of his PhD thesis as Production and Distribution Theories: The Formative Period in 1941; in 1978 Philip L. Williams published his PhD thesis as The Emergence of the Theory of the Firm: From Adam Smith to Alfred Marshall and Paul Walker published A Brief Prehistory of the Theory of the Firm in 2018.

So why so little interest? Do historians of economic thought really think that production is so uninteresting and worthless a topic that they just ignore it? Or do they (and economists more generally) just think that the production in the economy is so unimportant that it need not be studied?

Refs.:
  • Backhouse, Roger E. (2002. The Ordinary Business of Life: A History of Economics from the Ancient World to the Twenty-First Century, Princeton: Princeton University Press.
  • Blaug, Mark (1997). Economic Theory in Retrospect, 5th edn., Cambridge: Cambridge University Press.
  • Cannan, Edwin (1917). A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848, 3rd edn., London: P. S. King & Son.
  • Heilbroner, Robert L. (1999). The Worldly Philosophers—The Lives, Times, and Ideas of the Great Economic Thinkers, 7th edn., New York: Simon & Schuster.
  • Sandmo, Agnar (2011). Economics Evolving-A History of Economic Thought, Princeton: Princeton University Press.
  • Stigler, George J. (1941). Production and Distribution Theories: The Formative Period, New York: The Macmillan Company.
  • Walker, Paul (2018). A Brief Prehistory of the Theory of the Firm, London: Routledge.
  • Whittaker, Edmund (1940). A History of Economic Ideas, New York: Longmans, Green and Co.
  • Williams, Philip L. (1978). The Emergence of the Theory of the Firm: From Adam Smith to Alfred Marshall, London: The Macmillan Press.;

Tuesday, 2 November 2021

Derivation of the word "firm".

An interesting detail. Spulber (2008: 5, footnote 8) gives the origin of the word 'firm' as "[t]he word "firm" derives from the Latin word "firmare" referring to a signature that confirmed an agreement by designating the name of the business". According to Cresswell (2021), "[f]irm meaning 'not yielding to pressure' comes from the Latin firmus, also the root of farm [ME], which originally meant a tax or rent. Firm meaning 'a company or business' has the same root, but the immediate origin is different. The Latin word has also given rise to Italian firma 'confirmed by signature', and in the late 16th century this was adopted into English to mean the name under which business was transacted by an organization [M18th], as in 'trading under the firm of "Grant & Co"'. Finally, in the 18th century, firm became the term for a company''. 

Refs.:
  • Cresswell, Julia (ed.) (2021). Oxford Dictionary of Word Origins, 3rd edn., Oxford: Oxford University Press.
  • Spulber, Daniel F. (2009). The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets, and Organizations, Cambridge: Cambridge University Press.