The Theory of the Firm and the Spectre of Marx

The ‘theory of the firm’ designates a number of economic and managerial theories that emerged in the beginning of the 20th century and was later fully developed by the Chicago School of economy in the post-war decades. For its practitioners, the theory of the firm explain the nature, structure, and behaviour of modern corporations in technical, economic, and non-political terms. The intellectual groundwork for the theory of the firm is developed by the economists Frank Knight and Ronald Coase in the 1920s and 1930s. Although both ardent free market liberals and early members of the Mont Pelerin Society, Knight and Coase recognize that the laissez-faire account of capitalism inherited from 19th century liberals fails to understand the relations of hierarchy, authority, command, and obedience which do exist within the modern business corporation. In fact, for Knight and Coase, the business corporation is only an effective organizational form of coordination vis-à-vis the markets’ price mechanism due to its internal relations of hierarchy and authority. Drawing on Marx’ insights on the difference between ‘free’ market exchange and exploitative production as well as on Elizabeth Anderson’s notion of corporations as ‘private governments’, the paper reconstructs these early 20th century theories of firm, and explores how the discipline of economics seek to depoliticize and legitimize workplace domination and authoritarian relations of power within the economy.