The legacy of Chester I. Barnard in the science of organization of Oliver E. Williamson

Abstract

Chester Barnard was an American manager and public administrator who greatly influenced economics and the history of economic thought. Oliver Williamson’s early works were published after Barnard’s death, but the intellectual proximity they show to Herbert Simon, along with the significant influence of John Commons on their analysis, brings them closer. This study investigates Barnard legacy (particularly his work in 1938) in Williamson’s “science of organisation” project by analysing the Barnardian origins of his organisational micro-approach from their complementary theories of cooperation.

Keywords:

• Chester I. Barnard
• Oliver E. Williamson
• Cooperation
• Science of Organisation
• History of Economic Thought

JEL Codes:

• A12
• B25
• B40
• D23
• L20
• M20
• P12

Acknowledgements

The Authors Are Grateful To The Two Anonymous Referees For Their Helpful Comments And Suggestions On Earlier Drafts.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 His work began in 1963, with the defence of his doctoral thesis published the following year (see Williamson 1964) and the publication of his first article, ‘Selling Expense as a Barrier to Entry’ in the Quarterly Journal of Economics (see Williamson 1963). The last original work by Williamson (although it is a methodological synthesis of his work), the article ‘Pragmatic Methodology: A Sketch, with Applications to Transaction Cost Economics’, was published in 2009 in the Journal of Economic Methodology. This was the year he received the Nobel Prize in economics, along with Elinor Ostrom, for his analysis of economic governance and firm boundaries. Other works include his speech at the Sveriges Riksbank, academic tributes to Ronald Coase, and syntheses of his works that have been published since (see Williamson 2010, 2014, 2016).

2 It also means that Williamson was only interested in Barnard’s 1938 work and not in his other contributions. Thus, in this article, we focus on the Functions of the Executive.

3 Notably, Wolf and Iino (1986) proposed a list of 109 articles from 1914 to 1957. In their book of selected papers of Barnard, they published four classic articles written by him before 1938, and six articles after his volume of selected papers in 1958.

4 This work is undoubtedly the richest on Barnard’s writings, because it proposes a rich commemorative eulogy. See also the interviews in 1961 between Barnard and Wolf published in 1973 (see Wolf 1973).

5 This goal was nurtured by two factors: (1) Barnard’s professional experience and (2) his economics readings. Thus, he recalled from his 1938 book: ‘many times I have noted that executives are able to understand each other with very few words when discussing essential problems or organization, provided that the questions are stated without dependence upon the technologies of their respective fields’ (ibid.). He added that ‘if the questions are considered not as practical but as theoretical problems, the common understanding seems invariable to disappear as quickly as it does if the discussion relapses into illustration from their respective technologies’ (Barnard 1938, xxviii).

6 That is, in addition to obey. See the next point.

7 This question is explained in further detail in Section 3.

8 Here is a reference to Barnard’s hierarchy of positions.

9 Moreover, the incentives framework is very unstable because of variations in external elements and human motives (Barnard 1938).

10 This notion has been criticised in the literature; see for example Charles Perrow (1986) and Steven Feldman (1996).

11 This term is from Simon (1947 [1976b]), who substituted it for the term ‘indifference zone’, but the meaning is the same.

12 Furthermore, Williamson analysed authority purely within the capitalist firm, whereas Barnard focused on the organization in general. Thus, the type of authority in a capitalist firm or a political or religious organization differs. This most probably explains Barnard’s more consensus-based approach, whereas Williamson’s approach involves the intervention of ‘State authority’.

13 Albert Hirschman (1970), with his analysis of Exit, Voice and Loyalty, would likely be considered following Barnard’s line of thought on this point. This idea was also defended by Williamson himself in the interview he gave in 2007 to David Gindis and Geoffrey Hodgson (see Williamson 2007).

14 This argument suggests that Barnard and Williamson did not have the same vision of the limited rationality of agents. Barnard was more interested in the rational logics underlying the procedures, while Williamson favoured an argument of efficiency and transaction cost minimisation. Thus, one might think that the integration of behavioural and informal aspects – notably concerning motivation – would make it possible to better understand the limits of formal contractual relationships, hierarchy and internal transactions (see for example the work of the Nobel Prize Laureate Oliver Hart (2001), supplementing those of Williamson).

15 Atmosphere (which is “organizational atmosphere”) can be defined as a satisfying exchange relationship that exists within the boundaries of the internal organization of the firm.

16 In Markets and Hierarchies (1975), Williamson revisited the Barnardian distinction between formal and informal organizations and analyses the informal dimension of the organization through the notion of ‘atmosphere’. Acknowledging Barnard’s role in developing the theory of transaction costs, he wrote, ‘Barnard’s notion of ‘informal organization’ is useful to transaction cost economics in two respects. First, informal organization arguably helps to safeguard the security and integrity needs of employees […] For another, informal organization may be a manifestation of a more general condition of ‘atmosphere’, the effects of which serve to distinguish market and hierarchical modes or organization’ (Williamson 1990, 184).

17 This original position was summarised by Barnard on page 21 of his 1938 book.

18 As Gabor and Mahoney indicate, ‘Barnard understood better than most executives–then or now–, the importance and difficulties of conventional incentive schemes’ (Gabor and Mahoney 2013, 134).

19 Different from the ‘maximizing’ rationality of neoclassical economic theory.

20 This occurs even if Williamson proposes a form of bounded rationality, compatible with the hypothesis of opportunism of agents and the principle of minimisation of transaction costs (see Baudry and Chassagnon 2010).

21 These authors have analysed failures in bureaucratic organizations, caused by procedures based on a mechanistic and the Taylorian concept of human behaviour.

22 See also Gibbons (2021) on this point.

23 Williamson noted: ‘given that individuals differ with respect to their preferences for metering (…) the issues are to supply the requisite mixture of structures, which vary in the intensity of metering (…) and to recognize the possibility of attitudinal interaction effects among sets of transactions’ (Williamson 1975, 55).

24 See Section 2.

25 Williamson used the expression ‘worker discretion’ (Williamson 1985, 262).

26 See Baudry and Chassagnon (2012) and Chassagnon (2014a, 2014b).