This introduction presents the main challenges raised by the economic analysis of the long period, as well as the most recent economic approach called Unified Growth Theory. The introduction also presents the goal of this textbook - to allow all students from economics and the social sciences to have access to Unified Growth Theory, as well as the different parts and chapters of the textbook.

This chapter brings together the neglected pre-1980 “behavioral theory of the firm” and the Marshallian resource-based or capabilities-based evolutionary approach to the firm to analyze the drivers of efficiency and productivity in organizations. It begins with Leibenstein’s X-efficiency view of why firms differ in their costs and then adds a dynamic perspective by considering the growth of knowledge view of the firm offered by Marshal and Penrose, which emphasizes the role of managerial learning, before introducing the learning curve concept. The focus then moves to the consequences of employment contracts being loosely specified and managers having to earn their authority by how they operate. This leads in turn to the behavioral view of organizations as shifting coalitions of stakeholders who are trying to pursue diverse subgoals, which may result in firms earning smaller profits that would have been possible and in the accumulation of “organizational slack.” Finally, the chapter discusses the impact of (sometimes highly dysfunctional) corporate cultures – i.e., the operating systems of formal and informal rules that firms use – in shaping their productivity and ability to change.

The chapter discusses Pasinetti’s arguments for a theory which is ‘firmly placed on an objective foundational framework’ rather than on the fictional reality of the ‘purely imaginary world of rationally behaving individuals’. This approach – Pasinetti argues – was typical of the ‘Cambridge Keynesians’, which following a path traced by Marshall, placed at centre of the analysis not abstract entities, but flesh-and-blood economic agents acting in various specific markets. The vision of economic behaviour guided by customs and habits, setting limits to the crude maximisation through marginal analysis, was shared by Kahn and Keynes, who accepted it in its modified form, namely, not as exact calculation but as the outcome of a trial and error method. Although they did not endorse Sraffa’s rejection of its validity for price determination and income distribution, they shared the common objective of placing reality at the centre of their analysis, rather than abstract rationality, as the principle guiding behaviour. In other words, what characterises the approach is a vision of individuals less stereotyped than mere maximising machines. This means that in the Cambridge approach there is room for rationality in depicting political and economic decisions, as long as we interpret it as constrained by limited knowledge and uncertainty.

In the framework of a critical illustration of the contemporary history of economics, this chapter provides an illustration of Sraffa’s thought, from his first writings on money and banking to his book on “Production of commodities by means of commodities”. His friendship with and cultural relations with Gramsci, Wittgenstein, Keynes are considered, as well as his critique of Marshall’s theory of the firm and the notion of the representative firm. His proposal of a theory of imperfect competition and the reasons for its abandonment are illustrated. The role of the critical edition of Ricardo’s writings for the reconstruction of the Classical approach is stressed. An interpretation is provided for Sraffa’s contribution to the Classical theory of prices and distribution and for his critique to the marginalist approach.