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Keynes, Uncertainty and the Global Economy

Beyond Keynes, Volume Two

Edited by Shelia C. Dow

The revival of interest in Keynesian economics since the late 1980s reinstates the importance of Keynes’s contribution to economic theory and policy. This is the second of two volumes in which authoritative contributions are presented by an outstanding group of international experts to celebrate Keynesian economics, and to review and further the developments of post Keynesian economics of recent years.
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Chapter 5: A Post Keynsian approach to the theory of the firm

Stephen P. Dunn


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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