Business History from the Microeconomic Perspective

In recent years, economists have displayed growing interest in what goes on inside firms. Once they regarded firms as undifferentiated atoms without any internal structure worthy of study. Now, however, they have begun to develop a microeconomic analysis of firms’ internal organization — the particles that make them up, the forces that hold their components together, and the way their internal composition affects their relationship to other atoms. This development is of great potential importance to historians of business, who in recent years have also come to treat the firm in increasingly sophisticated ways. Gains from trade between the two disciplines are now really possible, and our aim in this chapter is to encourage scholars to exchange ideas. We begin by summarizing briefly developments in each field and then devote the bulk of our essay to examples that illustrate how economic theory can illuminate problems in business history and vice versa.