tag:blogger.com,1999:blog-4900303239154048192.post6840106101708919840..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: The Second Shoe, Part IIUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4900303239154048192.post-11631390374490313142008-10-07T02:47:00.000-04:002008-10-07T02:47:00.000-04:00Very nice, Tom. The calculation problem in the la...Very nice, Tom. The calculation problem in the large corporation directly parallels that in the old Soviet economy. <BR/><BR/>Leave aside, for the moment, all the Hayekian problems of the sheer quantity of information and the ability of large organizations to process it (what R.A. Wilson called the Snafu Principle: the tendency of hierarchies to filter the upward flow of information, so that--as Kenneth Boulding said--those at the top of the pyramids live in completely imaginary worlds).<BR/><BR/>The large corporation is an island of calculational chaos for the reasons Mises pointed out: the absence of any rational basis for pricing inputs. IOW the problem is not (as Peter Klein pointed out) so much the quantity of data, but how the data is generated at all.<BR/><BR/>Murray Rothbard explicitly applied the calculation argument to the corporation, considering in particular the possibility that a firm might become so vertically integrated that no external markets existed for some of its production inputs.<BR/><BR/>But Rothbard greatly underestimated the extent to which such size actually prevails. If you take into account intermediate goods, which are product-specific rather than generic, then most large manufacturing corporations have crossed Rothbard's threshold. The majority of intermediate goods are unique to the firm, and are assigned internal transfer prices by the very same arbitrary methods that Lange proposed.<BR/><BR/>Even when external markets exist, their prices are far removed from the spot conditions of supply and demand that prevail in a firm, and are therefore of little relevance for the pricing of goods within the firm so as to reflect internal conditions. If such recourse to an "external market" is sufficient, regardless of how tangentially connected its conditions to those prevailing inside the firm--and Rothbard thought it was--then the old Soviet planning system ought to have worked OK so long as a single market economy remained in Switzerland or someplace.<BR/><BR/>This is the subject of an article I wrote last year: <A HREF="http://www.fee.org/publications/the-freeman/article.asp?aid=8092" REL="nofollow">"Economic Calculation in the Corporate Commonwealth"</A>Kevin Carsonhttps://www.blogger.com/profile/07525803609000364993noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-7267265681058070772008-10-07T02:09:00.000-04:002008-10-07T02:09:00.000-04:00Tom, you said:"Accounting incentives encourage man...Tom, you said:<BR/>"Accounting incentives encourage managers to count the destruction of value in the wider world as a plus for their own narrow enterprises."<BR/><BR/>Count or ignore? In the tragedy of the commons story the herder who overgrazes his sheep on the commons benefits by his overproduction of wool and mutton. How does the shepherd benefit from the degradation of the meadow? <BR/><BR/>I can cite cases where the manager counts the degradation of the meadow as a plus for the firm - such as a real estate firm specializing in selling foreclosures, but aren't companies that thrive off of bad times self qualifying rule exceptions?The Big Mookhttps://www.blogger.com/profile/14275789156621632522noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-13142645316485680482008-10-04T14:10:00.000-04:002008-10-04T14:10:00.000-04:00Man, what an angle. Beautiful, I love it.Man, what an angle. Beautiful, I love it.Anonymousnoreply@blogger.com