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Journal cover: Journal of Economic Studies

Journal of Economic Studies

ISSN: 0144-3585

Online from: 1974

Subject Area: Economics

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The classical theory of production and the capabilities view of the firm

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Title:The classical theory of production and the capabilities view of the firm
Author(s):Nicolai J. Foss, (Institute of Industrial Economics and Strategy, Copenhagen Business School, Copenhagen, Denmark)
Citation:Nicolai J. Foss, (1997) "The classical theory of production and the capabilities view of the firm", Journal of Economic Studies, Vol. 24 Iss: 5, pp.307 - 323
Keywords:Economic theory, Economics, Economists
Article type:Research Paper
DOI:10.1108/01443589710175825 (Permanent URL)
Publisher:MCB UP Ltd
Abstract:Makes the case that the classical theory of production, as developed primarily by Adam Smith, should be seen as a precursor of the modern capabilities view of the firm (Penrose, Richardson, Nelson and Winter, Teece, Langlois and others). Furthermore, based on an empiricist epistemology, Smith developed ideas that are close to modern notions such as routines and bounded rationality. Shows that his emphasis on knowledge, specialization and learning is characteristic of the capabilities view, but not of the contractual view. Discusses the intellectual link from Smith to other classicals, such as Babbage and Marx, to Marshall and such post-Marshallians as McGregor, Andrews, Downie, Penrose, and Richardson. Argues that the classical-capabilities view of the firm can be seen as a theory of firm boundaries. States that the make-or-buy decision may in fact hinge on production-cost considerations, contrary to the spirit of standard transaction-cost economics.

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