Elements of a theory of the firm in Adam Smith and John Stuart Mill

Abstract

The idea of business firm was not strange to the Classics of Political Economy despite the fact that the concept of the firm was officially introduced by Ronald Coase in 1937. It is the object of this chapter to challenge the commonly received view about the lack of a classical theory of the firm and to suggest further information about the nature of the firm in the work of Adam Smith and John Stuart Mill. It will be revealed that under various names–such as ‘private and public companies’, ‘joint–stock companies’, ‘little firms’ etc.–the idea of business firm as an institution was already discussed and thoroughly developed. Smith and Mill have provided two distinct explanations for the existence of firms, related to the advantages of the division of labor and the needs for larger capital accumulation respectively. © Springer International Publishing Switzerland 2015.