From Hobson's Choice
This post is under construction
A legal category of firm permitted in all industrial economies, under which ownership is collective (i.e., the owner of the firm may—or may not—constitute many people, and in any event is legally distinct from the management of the firm), and all potential liability is limited to the market value of shares. Limited liability is a valuable form of legal sanction designed to transfer some of the risks of production from the firm to society. Collective ownership is another valuable privilege, since it empowers the corporation to issue stock. While not actually money, shares of stock have some of its properties.
Corporations in the Economic Structure
The corporation represents a nexus between state and industrial system whose size is determined by politics rather than by economics. It takes its size partly in response to uncertainties, such as the unknowable possibility that its suppliers or retailers will gain an advantage over it. The risk of one's customers being engulfed by a monopsonoid retailer, if plausible, will very likely trump comparative transaction costs when considering a merger. Another consideration is the expected future costs of transactions: if superior industrial technologies requires massive investments in new plant and equipment, then the entrepreneur will be seeking an optimal path, rather than an optimal state.
Choosing an optimal path involves planning for a future under certain assumptions about trends in costs and prices. Over the period being planned, it may be expected that there will be years in which the firm is losing money, since it is operating at an excessively large size; at the end of the period, the firms profits (in the aggregate) will be, or have been, greater than if it had optimized from quarter-to-quarter. Different management teams might choose different assumptions about trends, or different time horizons, leading to historic (institutional or personal) peculiarities in the composition of the economy.
James R MacLean (12:04, 23 September 2007 (PDT))