Although Taken for Granted, the Business Firm as an Economic Phenomenon Is One of the Most Complicated to Explain

 It may not be much of an exaggeration to claim that many of science’s great achievements have been of one of two kinds: it has shown that what was believed to be impossibly complex is in fact the result of a rather simple mechanism or process; and it has shown that what was thought of as simple or taken for granted was in fact quite complicated or even beyond our ability to explain. In line with the latter, it indeed seems often to be the case that what appears to be most glaringly obvious may sometimes be the very hardest to explain. The business firm as an economic phenomenon clearly falls in this category. 

To the non-academic, the firm presents little problem. Perhaps this is the reason why it was taken for granted for so long also in the study of economics. While the firm has often been present in different forms of analyses and theorising, it has far less often been subject to scrutiny. Adam Smith famously discusses the division of labour exemplified by work with a pin factory and Karl Marx similarly discusses the use and exploitation of labour within factories, to mention only two noteworthy examples. Yet neither of them ask the fundamental question of why there are firms. This, in fact, is almost exclusively the case for economists and social theorists for all but the last century. If the modern account of the recent history of economics is to be trusted, this question remained unasked until a very young Ronald H. Coase posed it in his Nobel-winning article ‘The Nature of the Firm’ published in 1937. Coase’s article was not the first to study firms, but it is generally regarded as the beginning of the modern theory of the firm literature — the tradition that asks why there are firms.

—Per L. Bylund, introduction to The Problem of Production: A New Theory of the Firm, Routledge Advances in Heterodox Economics 27 (London: Routledge Taylor and Francis Group, 2016), 1.