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The Correspondence Between Baumol and Galbraith (1957–1958): An Unsuspected Source of Managerial Theories of the Firm

In: Research in the History of Economic Thought and Methodology: Including a Symposium on the Work of William J. Baumol: Heterodox Inspirations and Neoclassical Models

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  • Alexandre Chirat

Abstract

Baumol’s impact on the development of managerial theories of the firm is investigated here through the material found inGalbraith’s archives. In 1957, Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic). That publication promptedBaumol (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 wayBaumol (1958a,1959) framed his alternative model of the behavior of corporations. He reasoned in terms of maximization of sales with a profit constraint as their main objective. In return,Business Behavior, Value and Growthfostered the development ofMarris’ (1964) andGalbraith’s (1967) theories of the corporation. WhileTullock (1978) provides a narrative in which the sales maximization hypothesis has two main branches – Baumol for the one and Galbraith–Marris for the other – the paper demonstrates that these branches are intimately connected.

Suggested Citation

  • Alexandre Chirat, 2022. "The Correspondence Between Baumol and Galbraith (1957–1958): An Unsuspected Source of Managerial Theories of the Firm," Research in the History of Economic Thought and Methodology, in: Research in the History of Economic Thought and Methodology: Including a Symposium on the Work of William J. Baumol: Heterodox Inspirations and Neocla, volume 40, pages 49-65, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rhetzz:s0743-41542022000040b005
    DOI: 10.1108/S0743-41542022000040B005
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    Keywords

    Baumol; Galbraith; theory of the firm; managerialism; sales maximization hypothesis; B21; B22; D21; D43;
    All these keywords.

    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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