The Economist's Description of Business Behaviour

The subject of this paper is the idea that the business man fixes his output at that level at which the surplus of his total revenue over his total cost is maximised, and, accordingly, at which his marginal cost and marginal revenue have been brought nearly2 to equality. It is (sometimes) admitted or asserted that this description is only a first approximation to a description of actual behaviour. I shall accordingly, and for brevity's sake, refer to it as the first approximation . I propose to discuss its limitations, and what we have to do with it before we have something which really comes anywhere near to being a description of a business man's and a business organisation's behaviour. At each step, I shall first examine the shortcomings of the first approximation as a description of the behaviour of the business man who has no human associates in the business, and then proceed to discuss their significance for the situation in which the business consists of more than one man, that is to say, where the business consists of an organisation of human beings. Economists-I am speaking rather of economists operating in the realm of pure theory, and using this marginal cost/marginal revenue technique -do sometimes speak of a , but rarely does the firm become anything really different from the man combining factors. It is true that one of these factors is labour , but labour is thought of as if it were a substance of which the owner sells a quantity to the man ( entrepreneur ) or . After this moment of sale, the previous owner of the labour (the labourer) appears to be decisionless with respect to the use of the labour that he has sold: there is