Chapter 5: A Post Keynsian approach to the theory of the firm
5. A Post Keynesian approach to the theory of the ﬁrm Stephen P. Dunn1 I INTRODUCTION Its [the ﬁrm’s] existence in the world is a direct result of the fact of uncertainty. (Knight, 1921: 271) With uncertainty entirely absent, every individual being in possession of perfect knowledge of the situation, there would be no occasion for anything of the nature of responsible management or control of productive activity. (Knight, 1921: 267) When uncertainty is present and the task of deciding what to do and how to do it takes ascendancy over that of execution, the internal organisation of the productive group is no longer a matter of indiﬀerence or mechanical detail. (Knight, 1921: 268) A ﬁrm is likely therefore to emerge in those cases where a very short-term contract would be unsatisfactory . . . It seems improbable that a ﬁrm would emerge without the existence of uncertainty. (Coase, 1937: 337–8) Uncertainty is inherent in production. (Shackle, 1955: 82) There is a second economic role with which we are concerned, distinct from the bearing of uncertainty about the outcome of a course of action once that course has been embarked on; this second role is the actual deciding upon one course of action out of many that are open and whose respective consequences are, in strictness, unknown. (Shackle, 1955: 82) In the ﬁrst half of the twentieth century both Knight and Coase suggested that without uncertainty there would be little need for the ﬁrm or for that matter the strategic control...
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