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The correspondence between Baumol and Galbraith (1957–1958) - An unsuspected source of managerial theories of the firm

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  • Alexandre Chirat

    (CRESE, Univ. Bourgogne Franche-Comté)

Abstract

Baumol’s impact on the development of managerial theories of the firm is investigated here through material found in Galbraith’s archives. In 1957 Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic). This publication prompted Baumol (1958b) to send Galbraith a manuscript dealing extensively with a crucial question of managerial theories of the firm, namely, the “trade-off” between sales and profits. I argue that Baumol’s critiques and Galbraith’s answers largely explain the way Baumol (1958a, 1959) framed his alternative model of the behavior of big corporations. He reasoned in terms of maximization of sales with a profit constraint as their main objective. In return, Business Behavior, Value and Growth fostered the development of Marris’s (1964) and Galbraith’s (1967) theories of the corporation. Contrary to the narrative by Tullock (1978) in which the sales maximization hypothesis has two main branches – Baumol for the one and Galbraith-Marris for the other – I argue here that these branches are at least partially connected.

Suggested Citation

  • Alexandre Chirat, 2020. "The correspondence between Baumol and Galbraith (1957–1958) - An unsuspected source of managerial theories of the firm," Working Papers 2020-07, CRESE.
    • Handle: RePEc:crb:wpaper:2020-07
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    References listed on IDEAS

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    1. James K. Galbraith, 1984. "Galbraith and the Theory of the Corporation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 7(1), pages 43-60, September.
    2. Tullock, Gordon, 1978. "Welfare Effects of Sales Maximization," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 113-118, January.
    3. J. K. Galbraith, 1936. "Monopoly Power and Price Rigidities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 50(3), pages 456-475.
    4. Demsetz, Harold, 1974. "Where is the New Industrial State?," Economic Inquiry, Western Economic Association International, vol. 12(1), pages 1-12, March.
    5. E. H. Chamberlin, 1929. "Duopoly: Value Where Sellers Are Few," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 44(1), pages 63-100.
    6. R. Joseph Monsen & Jr. & Anthony Downs, 1965. "A Theory of Large Managerial Firms," Journal of Political Economy, University of Chicago Press, vol. 73(3), pages 221-221.
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    Cited by:

    1. Alexandre Chirat, 2021. "When Berle and Galbraith brought political economy back to life : Study of a cross-fertilization (1933-1967)," EconomiX Working Papers 2021-27, University of Paris Nanterre, EconomiX.

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    More about this item

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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