Elgar original reference
Edited by John B. Davis and Wilfred Dolfsma
Helena Lopes and José Castro Caldas 1. Introduction Firms have always been a source of embarrassment to mainstream economics. In the past the problem was that an explanation for their existence was missing. In fact, Adam Smith had identiﬁed the division of labour as the key to the wealth of nations, and noted that it could be achieved either in the market or within the pin factory. But while he elaborated extensively on why the division of labour was dependent on markets, he did not feel the need to explain why specialization, rather than market mediated, was sometimes eﬀected within the pin factory. Two centuries later Coase (1937) identiﬁed this blind spot in Smith’s legacy. He perceptively noted that for a theoretical account that depicted the ‘normal economic system’ as one that ‘works itself’ in the absence of any type of central control, ﬁrms would remain abnormal facts unless an explanation were provided for their very existence. Coase did indeed advance such an explanation. However, instead of just ﬁlling a gap in Smith’s legacy, thus helping economics to move forward, he opened a Pandora’s box. In fact, what came after Coase was not just the elaboration of his approach, but multiple and conﬂictive theories. For mainstream economics, today, what is perceived as a deﬁciency is not the lack of a theory of the ﬁrm but the absence of a uniﬁed approach (Garrouste and Saussier, 2005). In this chapter we recall and brieﬂy analyse...