September 7th, 2017

Essay: life cycle of a corporation that has gone through the full set of stages that has gone
through the growing, peaking and dying. What you're looking at is businesses that have run the
gambit and ultimately died – talk about the business decisions that were made in that life cycle
and the good and bad business decisions that were made – not talking about their stock market
prices. Talk about the business practice and experience that they went through.

 Some of the oldest written records are basically business records – mankind has always
had the tendency to trade and exchange and you need some kind of organization – the
way you organize activity and production which is remarkably ancient. A lot of the
modern business structure is older that people think.
 Corporation is well suited to certain kinds of business activity and not well suited to other
kinds of activity.
 The corporation is not the pinnacle of the evolution of business
 A lot of people think the corporate structure came into play in the 1950’s which is
understandable because railways are a type of business activity to which the corporation
is extremely well suited but that doesn’t mean corporations came in to play in the 1950’s
 There were modern corporations in medieval Europe with detail of water mills in France
 The term corporation is relatively new term
 The only thing new in modern business is the technology used in the financial
instruments today – the financial instruments are still the same
 You had banks in Athens that were indistinguishable from today’s banks – however there
is no evidence of cheques mainly because they didn’t gave paper because they wrote on
stone and papyrus which is terrific in desserts but not suitable for the Greek climate.
o During the era of Socrates
o Defined banking as taking risks with other peoples money which is similar to how
many would describe it today
 Banking and businesses are around because they help people get around obstacles
 Basic law of economics: people are and have been at all times and in all places. If they
act differently they are subject to a different set of constraints but the underlying human
nature is the same.
 In terms of organization of business which will emerge more throughout the course – the
structure ranges from the sole proprietorship and then partnerships and a whole jumble of
other partnerships all the way up to corporations. They have appeared during different
times in history
 Ronald Coase: Chicago economist who died recently and won a noble prize in
economics. He won it for two papers. One of the papers is the better known one today –
the problem of social cost. The paper that is important for us is “The Nature of The
Firm”. Coase was not just asking why firm’s exist but rather why large multidivisional
firms exist. Economists say that the market is the most efficient way of organizing
businesses. Why do we have vertically integrated firms then where all of the various
stages of production are organized within one firm.
o Henry Ford: late 19th, early 20th century when he was getting into the car business.
The guy you bought the car from generally didn’t make a lot of money. If you
 bought a car from the Dodge brothers, they did not make all the pieces and bought
the engine and all the pieces from independent producers and assembled them.
When they got into the car business, no one made all of the car bits so they were
simply assemblers. They then started to consolidate it so they were doing all of
the bits and pieces in house like Henry Ford’s complete vertically integration.
Ronald Coase’s question was why firms vertically integrated but then split off to
lessen the integration.
o You can talk about pharmaceuticals as well
o “Coasian question”
 A big element in business history is the role of the entrepreneur
o Joseph Schumpeter
 Creative destruction
o William Baumaol
 Productive vs unproductive entrepreneurship
 Entrepreneur is someone who is sometimes defined as a risk-taker. Nowadays that
description gets fuzzy. You should reward successful risk taking and not encourage risk
taking
o A notion that had a certain validity originally but has been distorted in recent
years. It is true that the entrepreneur is someone that takes risks however.
 How does a person decide when to get into business at what time and at what place is the
entrepreneurial decision which you can say is a managerial responsibility – something
that can be taught but entrepreneurial responsibility cannot be taught
o Demand conditions – assuming that you know them
 When you look at economic growth, it is important to distinguish entrepreneurial and
managerial. In terms of explaining economic growth it only explains a tiny fraction of it
o Solow growth model: need policies to stimulate economic growth
o Theory that can explain economic growth is Schumpeter’s creative destruction
theory
 Baumol: modified Schumpeter’s theory. Entrepreneurship is more like a natural resource.
At any given time there will be a select number of people within the population that are
entrepreneurship strive.
o Productive: coming up with a new way of doing something or coming up with a
new product and selling it in the market at a price people are willing to pay
o Unproductive: persuading the government to slap tariffs on foreign countries or to
persuade to government to ensure you don’t have to be innovative
 Yes, with the qualification that productive entrepreneurship leads to economic growth
leads whereas unproductive leads to stagnation