33.1 – Introduction to the Megacorp
Chapter Objectives
In this chapter, you will learn about:
- The imperatives of technology
- Business models, plural: Aims and methods of the megacorp
- Stabilizing unstable markets
- A case in point: The high prices of college textbooks
The importance of businesses in modern capitalist economies cannot be overstated. They are the local barber shops and factories, as well as the multinational oil giants and online retail enterprises. We do business with them when we purchase nearly everything we buy as well as when we set out to earn a living. While economists prefer simply to say ‘firm’, everyday conversations will often include terms like ‘big business’, ‘corporations’, ‘entrepreneurs’, and ‘job creators’. They may reference particular firms, known by name to everyone, or commonly understood terms for whole industries—for instance, ‘the media’ or ‘Wall Street’. Certainly, businesses are an important and complex part of the modern world—not just the economy, but society more broadly. They have been applauded and derided, praised and demonized since before the Sons of Liberty cast crates of tea belonging to the East India Company, a large British corporation, into Boston Harbor in 1773.
Yet, orthodox economics treats ‘the firm’ with typical abstraction: it is simply a production function, translated into a set of cost curves, with a singular objective to maximize profits. That model of the firm, almost regardless of the actual business or businesses it might represent, has a ‘U’-shaped average total cost curve, and increasing marginal costs due to diminishing marginal returns (see chapter “Cost Assumptions for Profit Maximizing Firms”). It pursues, always and everywhere, the greatest possible profits by deciding what, how, and how much to produce, taking technological possibilities as given. As you have seen in previous chapters, the market structure—and therefore the outcome—may differ from industry to industry, location to location, and so forth, but the firm remains essentially the same.
Many heterodox economists will note that abstraction is not, in itself, a bad thing. A complex reality has to be simplified in our understanding of it if we have any hope of understanding it at all. But it’s important to get it right—to simplify reality without departing too far from it. The orthodox depiction of the firm is not only fundamentally problematical, heterodox economists would argue (see chapter “Costing and Pricing in Going Concerns”), it is part of a view of capitalism that may no longer be appropriate to our modern economy. Specifically, the plot of the mainstream economics narrative casts the market as the star of the show—and, at least where that market is competitive, really consumers play the roles of king and queen. In contrast, heterodox economists tell a story in which modern capitalist economies have largely replaced consumer sovereignty with producer sovereignty.
In this alternative story, the true imp