ABSTRACT
Governance problems have been much ignored by economists if judged by the history of economics after becoming a unified discipline. Partly this is because the corporation is central to the business governance problem, but the corporation did not become an important form of business until late in this history. More important than this, the task that was central to economics during its first 200 years suppressed the problem of business governance. This task was to understand the operations of an economic system in which the price system, not governance, guides resource allocation decisions. Indeed, it is the possibility of achieving a sensible allocation of resources without conscious planning of resource allocation that constituted the mystery of the market-based economy. As a tool for penetrating this mystery, neoclassical economics formulated a model of the firm that, for all practical purposes, concedes no real control to management. Prices, not managements, ‘call the tune’. Management in this model consists solely of reacting to prices in ways that maximize the profit of the firm.
