IEEE Technology and Society Magazine - September 2022 - 31

other ends; and if they forthrightly acknowledge their
ethical objectives, they could even do great good.
Neoclassical assumptions: The profit
objective redux
To understand how we should think about the
contemporary information technology firm, we first
need to know something about the well-known-
but wrong-headed-economic theory of the firm.
By following the development of this theory in the
next two sections, we will uncover the ideological
assumptions that drove so many economists to
endorse a firm aimed at profit in a system of pure
pricing. But we will also see how they reduced the
" responsibility " to make a profit almost to the point
of absurdity, making it the essence of market coordination
itself. Their story ended with the conclusion
they sought, that there was no need for central
planning; but to get there, they had to suppose there
was not even much need for corporate planning, let
alone innovation.
The dogmas of the neoclassical economists are
even starker than we might remember. It is clear, for
instance, that Friedman said firms had no " social
responsibility " they were obliged to uphold. But he
actually takes the point even a bit further, arguing
that it is not even permissible to do social good: he
says it would be positively wrong for a firm to pursue
any objective other than profit. Tipping us off to the
ideological motive for his views, he says that anyone
who recommends a goal other than profit is " preaching
pure and unadulterated socialism " [1]. Why so
dire a warning?
Well, another clue can be found in a conspicuous
tension between his various breathless pronouncements.
First Friedman says that " insofar as " the " businessman "
uses corporate money for social good,
he decreases shareholder return and is " spending
their money. " But he also says that " insofar as " this
spending raises prices for customers or lowers wages
for employees, the businessman is " spending their
money " as well [1]. (For analysis of this, see [3].)
So, to whom does the corporate executive really
owe responsibilities: the shareholder, customer,
or worker? The answer is all three. And none at
the same time. The neoclassical theory simply saw
prices, wages, and profits as being in equilibrium in
any efficient, informed market, so that tinkering with
any one of these levels would knock the others off
kilter and cause inefficiency. It was less a question of
September 2022
moral responsibility and more a prediction of their
model: they assumed that in equilibrium the firm
simply would achieve a balance of optimal wages,
prices, and profits by buying input factors at the right
price and selling finished products at the right price
(or cease to exist).
The neoclassical theory was, in its essence, an
ideological attempt to vindicate the price theory. It
sought to show that unfettered free market pricing
would result in the best possible outcomes for all
participants (something called " Walrasian equilibrium, "
after the late 19th-century French economist
who first imagined it). To make this case, the theory
relied on simplified models, which assumed that the
price of input factors was known and that demand
for output from the firm was known too [20], [21].
It assigned only one role to the firm; that of converting
known inputs into known outputs efficiently [5],
[8]. Within the hypothetical world of this model,
demand was fixed, so low prices would move more
sales into the firm's column, et voilà: profits.
According to Nobel-prize-winning economist
Kenneth Arrow-one of the stars of 20th-century
neoclassical equilibrium theory with Gérard Debreu
and Lionel McKenzie-while the neoclassical firm
was not " purely passive " as in classical economics,
its ability to improve on production was known and
diminished with scale [22, p. 68]. Yes, some firms
were better at production than others. But the return
to further efforts would be at best constant; more
often, it would worsen along a U-shaped curve, with
the costs of production-per-unit improving with initial
efforts but getting more expensive once production
reaches scale. This helped the model prove its point,
since a firm gaining a competitive advantage by
ever-improving production coefficients would soon
dominate an industry, creating disequilibrium, and
then monopoly [21], [22]. So, to make free markets
seem safe, entrepreneurship and management had
to be assumed into irrelevance, if not out of existence
[5], [20]. Indeed, Penrose [23, p. x] suggested
of these theorists that " their 'firm' had no 'insides'
so to speak. " Even capital had to be assumed into
irrelevance of sorts: if savvy investments could capture
a market that had price inefficiencies ripe for
the picking, that would be bad for the theory. So, it
was simply assumed that if prices were known, then
potential profits were known too, and any holder of
capital would therefore know how much she stood
to gain. Capital would make itself available at an
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IEEE Technology and Society Magazine - September 2022

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