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Chapter 8: John Kenneth Galbraith and the Theory of the Firm
Stephen P. Dunn 8.1 INTRODUCTION A large part of John Kenneth Galbraith’s professional career was devoted to examining modern industrial society and the large firms that dominate it. The modern corporation occupies a pivotal role in Galbraith’s theorizing in general, and The New Industrial State ( 1972) in particular. It is thus perhaps surprising that Galbraith’s contribution to the theory of the firm has almost disappeared from view. While theorists like Coase (1937), Penrose (1955, 1959), Marris (1964) and Richardson (1959, 1960, 1964, 1972) have seen a resurgence of interest in their respective theories of the firm, Galbraith’s contribution is hardly mentioned. Galbraith is without a doubt a neglected theorist of the firm, ignored by economists of all schools. There are several possible interrelated reasons for this oversight. Perhaps the main reason for this neglect of Galbraith lies in the fact that he has generally been associated with the managerialist theories of the firm that grew out of the recognition by Berle and Means ( 1991) that large firms were no longer controlled and dominated by their owners, but instead run by their managers (see Chandler, 1962, 1977, 1990). A second reason for this neglect of Galbraith is his caustic wit and irreverent populist rhetorical style (Solow, 1967; Gordon, 1968, 1969). Since he eschewed the mathematical presentation of more orthodox treatments by Baumol, Williamson, and Marris, theorists of the firm generally view Galbraith’s contribution as a less rigorous, literary expression of the managerialist approach and thus tended to ignore it...
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