Handbook on the Economics and Theory of the Firm
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Handbook on the Economics and Theory of the Firm

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.
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Chapter 7: Berle and Means

Cécile Cézanne


Cécile Cézanne 7.1 INTRODUCTION Law professor Adolf Augustus Berle, Jr (1895–1971) and economist Gardiner Coit Means (1896–1988) coauthored a single and famous book, The Modern Corporation and Private Property, which represents a landmark in the American institutionalist tradition. Published in 1932, in the context of the American New Deal following the 1929 crisis, this book describes the mutations of industrial capitalism during the 1920s and early 1930s. It shows how the traditional personal capitalism regime building on competitive interactions among small firms within industries was challenged by managerial capitalism, which remained dominant until the 1980s. Berle and Means observed that ‘big industry’ was born in most occidental economies as a response to firm restructuring. Firms tended to integrate both upstream and downstream, which resulted in markets dominated by powerful enterprises. Big industry coincided with the emergence of the public corporation. The authors emphasize the ubiquity of these types of large companies in the modern productive process: ‘These great companies form the very framework of American industry’ (Berle and Means, 1932, p. 19). The hierarchical structure and organization of giant companies whose productive activity was based on a large stock of specific physical capital are examined in depth. Thus, Berle and Means’s book can be viewed as a first step toward an analysis of firm boundaries legally delimited by property rights over tangible assets. It also studies the effects of the way modern business corporations are owned and controlled, on inter-individual contractual relationships within the firm. In...

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