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Conceptualizing CapitalismInstitutions, Evolution, Future$
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Geoffrey M. Hodgson

Print publication date: 2015

Print ISBN-13: 9780226168005

Published to Chicago Scholarship Online: January 2016

DOI: 10.7208/chicago/9780226168142.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 25 September 2021

Firms and Corporations

Firms and Corporations

(p.204) Chapter Eight Firms and Corporations
Conceptualizing Capitalism

Geoffrey M. Hodgson

University of Chicago Press

This chapter considers the nature of the firm and the corporation. A firm is defined as a legal unit, set up to produce goods or services for sale. A corporation is a special type of firm, involving legal incorporation and registration. The accounts of the firm in the transaction cost economics of Ronald Coase and Oliver Williamson are outlined. Both authors paid insufficient attention to the singular legal personality of the firm, including its capacity to sue and be sued. Consequently they were unable to explain what held the firm together. They shifted from the idea of a firm-market dichotomy to a firm-market continuum. Ill-grounded notions such as “firm-market hybrids” and “internal markets” became conspicuous in both economics and sociology. Other prominent writers on the theory of the firm failed to explain its cohesiveness and integrity. The chapter includes a brief history of firms and incorporation, showing the roles of both the state and business lobbying in the creation of legal forms for business activity. The rise of the corporation in the late nineteenth century is noted. Arguably it would have been difficult for features such as limited corporate liability to have emerged spontaneously.

Keywords:   firms, corporations, transaction costs, cohesiveness of the firm, legal personality, hybrid forms, Ronald H. Coase, Oliver E. Williamson, Michael C. Jensen, William H. Meckling

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