The Theory of Growth in a Corporate Economy Book contents
- Frontmatter
- Contents
- Preface
- List of variables
- Introduction
- Part I Microeconomics
- 1 Modern corporations and the management
- 2 Takeovers and managerial choice
- 3 The value and growth of the firm
- Part II Macroeconomics
- Part III Why a new theory?
- Part IV Fiscal and monetary policy
- Part V Toward a dynamic theory of a multisector economy
- Bibliography
- Index
1 - Modern corporations and the management
Published online by Cambridge University Press: 05 November 2011
- Frontmatter
- Contents
- Preface
- List of variables
- Introduction
- Part I Microeconomics
- 1 Modern corporations and the management
- 2 Takeovers and managerial choice
- 3 The value and growth of the firm
- Part II Macroeconomics
- Part III Why a new theory?
- Part IV Fiscal and monetary policy
- Part V Toward a dynamic theory of a multisector economy
- Bibliography
- Index
Summary
Introduction
Perhaps the first economist to recognize potential conflict of interest between owners and corporate managers was Adam Smith. In The Wealth of Nations, 1776, he wrote
The directors of [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigiliance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it.
In spite of this insight by the “father of economics,” the astonishing fact is that the mainstream economic theory as discussed in most current textbooks in microeconomics has been regarding the firm as a single unit, as if there were a single person – an owner-manager – who makes all the decisions relevant to economists. This is all the more astonishing if one recalls the fact that since Adam Smith's time, corporations (joint-stock companies) have spread enormously – slowly admittedly in the first hundred years after 1776, but explosively in the next hundred – and many of them have now evolved to cause giant corporations. The hypothesis of profit maximization, or market value maximization in the context of dynamic analyses, is a necessary consequence of such a mainstream or traditional view of the firm.
- Type
- Chapter
- Information
- The Theory of Growth in a Corporate EconomyManagement, Preference, Research and Development, and Economic Growth, pp. 15 - 42Publisher: Cambridge University PressPrint publication year: 1981