The correspondence between Baumol and Galbraith (1957-1958) : an unsuspected source of managerial theories of the firm

Baumol’s impact on the development of managerial theories of the firm is investigated here through the material found in Galbraith’s archives. In 1957 , Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic). That publication prompted Baumol (1958b ) to send Galbraith a manuscript dealing extensively with a crucial question of managerial theories of the firm, namely, the trade-off between sales and profits. I argue that Baumol’s critiques and Galbraith’s answers largely explain the way Baumol (1958a , 1959 ) framed his alternative model of the behavior of corporations. He reasoned in terms of maximization of sales with a profit constraint as their main objective. In return, Business Behavior, Value and Growth fostered the development of Marris’ (1964 ) and Galbraith’s (1967 ) theories of the corporation. While Tullock (1978 ) provides a narrative in which the sales maximization hypothesis has two main branches – Baumol for the one and Galbraith–Marris for the other – the paper demonstrates that these branches are intimately connected.