Nair, Trendowski, and Judge on Penrose

28 October 2008 at 11:51 pm Peter G. Klein Leave a comment

| Peter Klein |

The October 2008 AMR features an essay by Anil Nair, Joseph Trendowski, and William Judge on Edith Penrose’s seminal Theory of the Growth of the Firm (1959), written in the form of a book review. The essay is gated, but you can get a flavor from the conclusion:

Many economists call the unexplained variance in a regression equation the “Penrose effect.” According to Barney, it was left to strategy scholars to propose that the Penrose effect comprises the intangible resources and capabilities that are the source of sustained competitive advantage, and while these phenomena may be difficult to measure directly, the implications of these phenomena for firms’ operations and performance could be tested. After reviewing the passionate and prolific research that has attributed its intellectual roots to Penrose’s book, it is clear to us that her work was successful in rallying scholars who sought an alternative to the standard structure-conduct-performance model within strategy. However, scholars should be careful that Penrose’s theory (and the book) does not become a Rorschach blot on which they impose their own biases.

Here is a paper that links Penrose to Austrian concepts of subjectivism and capital heterogeneity. Penrose was of course a student of Fritz Machlup, himself a student of Mises. Apparently at one point the book was to be a joint project with Machlup; in Murray Rothbard’s papers is a memo Rothbard wrote for the Volker Fund evaluating a 1953 grant proposal by Machlup and Penrose for a “Growth of the Firm” project. (Rothbard’s assessment was unfavorable; he was, however, a fan of Penrose’s earlier paper on “Biological Analogies in the Theory of the Firm,” which he cites favorably in “The Mantle of Science.”)