The Entrepreneur

The Entrepreneur

An Economic Theory, Second Edition

Mark Casson

This thoroughly revised and updated new edition of Mark Casson’s modern classic The Entrepreneur presents a novel synthesis of the ideas of Joseph Schumpeter, Frank Knight and Friedrich Hayek, according to which the defining characteristic of the entrepreneur is the exercise of judgement in business decisions.

Chapter 11: Growth and Dynamics of the Firm

Mark Casson

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship


11. Growth and dynamics of the firm 11.1 NATURE OF THE FIRM The firm is a unit of control. As such it is not very different from a household. Households control the uses of the goods they own in much the same way as do firms, albeit on a smaller scale. Why, then, are the activities of a firm not performed simply as an extension of the activities of a household? Why create a separate legal entity which can enter into contracts in its own right, quite apart from any contracts which have been entered into by the individuals who own the firm? One obvious reason is that firms enjoy certain legal privileges which households do not. A person who buys in order to resell may register (or incorporate) himself as a firm and thereby become entitled to set expenditures against tax, limit his personal liability for commitments entered into in the course of trade, and so on. The actual privileges acquired depend upon the form of incorporation that is chosen. A firm does not need to buy exactly the same things that it sells in order to qualify for these privileges – it is sufficient that the expenditures are on inputs which are necessary in order to produce the output. It is worth noting, though, that members of a household must purchase inputs of food, shelter and so on, to maintain themselves in good health so that they can sell their labour services. However, the need for subsistence in...

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