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 8: John Kenneth Galbraith and the Theory of the Firm

Stephen P. Dunn


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 ([1967] 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 ([1932] 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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