Discussion Post #2

In a properly functioning economic market, where does the economic value created by firms go? In other words, who gets it? Why?Think about the phrase “properly functioning economic market” in the previous sentence. What does this mean? This assumption (“in a properly functioning economic market. . .”) is intended to imply that Figure 1 is a closed system (i.e. that it’s possible, for example, for individual firms to operate in a market context without producing externalities, positive or negative). Is this really possible? For example, given that firm behavior has the potential to contribute to the stability (or instability) of the larger economic system itself, doesn’t this imply that firms always have some systemic or social responsiblity? Systemic analysis is about understanding the role of firms in the larger social system. Take a look at the rectangle labeled “firms” in the above sketch. What kind of control, if any, should society be able to exercise over what goes on in this box? How can (do) firms exercise influence over society with regard to societal attempts to control firm behavior (see arrows #4 and #5 above)?