Is There A Crisis In The Theory Of The Firm?

The Booth School Of Business at the the University Of Chicago hosted a conference that debated the theory of the firm.  The prevailing theory of the firm,  attributed to Milton Friedman, is that the sole purpose of the firm is maximize profits without violating the law.  George Stigler, another famous professor who taught at Chicago, held the view that firms would attempt to capture government regulators and write the "rules of the game" in order to maximize profits.  In other words, democracy and the narrow version of the firm postulated by Friedman are in conflict.  The government and large corporations necessarily interact in a social environment.  The question is how the system works to maximize social welfare.  Friedman's hypothesis assumes that the goal of profit maximization is consistent with the goal of social welfare maximization.

A number of interesting points of view were discussed in this article but the theory of the firm is so firmly embedded in Neoclassical assumptions about how the world works that Friedman's theory of the firm has prevailed, and it will continue to prevail.