G. B. Richardson
I was once in the habit of telling pupils that firms might be envisaged as islands of planned co-ordination in a sea of market relations. This now seems to me a highly misleading account of the way in which industry is in fact organized. The underlying idea, of course, was of the existence of two ways in which economic activity could be co-ordinated, the one, conscious planning, holding sway within firms, the other, the price mechanism, operating spontaneously on the relations between firms and between firms and their customers. The theory of the firm, I argued, had as its central core an elaboration of the logic of this conscious planning; the theory of markets analysed the working of the price mechanism under a variety of alternative structural arrangements.
I imagine that this account of things might be acceptable, as a harmless first approximation, to a large number of economists. And yet there are two aspects of it that should trouble us. In the first place it raise a question, properly central to any theory of economic organization, which it does not answer; and secondly, it ignores the existence of a whole species of industrial activity which, on the face of it, is relevant to the manner in which co- ordination is achieved. Let us deal with each of these matters in turn.
Our simple picture of the capitalist economy was in terms of a division of labour between the firm and the market, between co-ordination that is planned and co-ordination that is spontaneous. But what then is the principle____________________