Theories of the Capitalist Firm

Abstract

Early, static theories of the capitalist industrial enterprise assumed ex ante profit maximisation by a single owner-entrepreneur, but subsequent revisions have had to deal with theoretical objections as well as increasing organisational complexity, including the divorce of ownership, control and other corporate functions. This chapter outlines these developments. It begins with the early neoclassical model (Section 2.1) and other developments within the neoclassical paradigm (Section 2.2), i.e. developments which continue to assume that stationarity and equilibrium between marginal quantities are possible. There follows an account of the behavioural theory of the firm (Section 2.3) which stands outside the neoclassical paradigm together with ‘capitalist dynamics’ (Section 2.4), which denies the possibility of static equilibrium and offers only qualitative predictions. These developments are here seen as progress towards making the theory of the capitalist firm more realistic, and the intention is, for reasons described in Chapter 1, to compare the efficiency properties of industrial systems consisting of firms under these more realistic assumptions with the ‘perfect’ alternative.