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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Location: Northwest Arkansas, United States

Tuesday, August 14, 2007

New Issue of The Freeman: and I'm in it.

Well, I felt like I'd reached a big milestone with the JLS symposium issue on my book last year. This feels like another one: I'm in The Freeman.

The June issue of The Freeman is out, and it includes an article by yours truly as well as a lot of other good stuff (some of you may object to that word "other"). Editor Sheldon Richman kindly offered to run a condensed version of my posts applying the calculation problem to the corporation, in the form of an article: "Economic Calculation in the Corporate Commonwealth." It's available online, but who wants to read it hunched over a monitor when you can get a hard copy at the newsstand (or order it here)?


Blogger Matt Jenny said...

That's great, congratulations! And a great article too.

The left-libertarian infiltration of the libertarian "mainstream" continues... :)

August 15, 2007 9:58 AM  
Blogger Ben Darrington said...

Awesome. I can't wait to read the article.

August 15, 2007 10:21 AM  
Blogger Bernard said...

ok 'the left-libertarian infiltration' continues but at a certain point the left-libertarians are going to have to giveaway the right and join the left where by definition they belong. As Arthur Silber has done.

I couldn't believe the mawkish photograph of Ron & Nancy Reagan at the FEE link. Talk about a giveaway. Actually a mistake, if the intention is to mislead well meaning people into supporting the Republican Right. A little more subtlety would surely be more efficacious.

August 15, 2007 4:22 PM  
Blogger Kevin Carson said...


Sheldon Richman has no say over the content of the FEE site. The FEE is not a monolithic entity; his only control is over the content of The Freeman. And although The Freeman provides space for a diversity of views, Sheldon has actively promoted far greater visibility for left libertarian views under his editorship. The picture of Ron and Nancy does not, as your "giveaway" remarks suggests, reflect a hidden agenda.

August 16, 2007 10:01 AM  
Blogger scumble said...

I'm glad to see blog posts refined into such an article. I can see most of it is pretty much the same as I've read before, but this particular line of argument is getting smoother, if that make some sort of sense. Flowing nicely...


August 17, 2007 1:14 AM  
Blogger Nick Manley said...

Congrats! Kevin. I wish I knew where I could find a copy of The Freeman nearby. I may have to do some net research on it.

It's kind of tiring to read long pieces when you're hunched over a PC monitor.

August 18, 2007 8:19 AM  
Blogger Sheldon Richman said...

You can get a copy here: http://tinyurl.com/32m9e4

In the comments box, specify the June issue.

August 19, 2007 6:13 AM  
Anonymous P.M.Lawrence said...

I'd like to make some remarks more or less connected to the article, but simply coming out as I am reminded of things and not really well enough ordered - a sort of mind dump. Feel free to organise and use this, KC.

Here in Australia we have a GST (Goods and Services Tax), introduced in the last decade with the spurious description "consumption tax" (it isn't - it's a production tax, also hitting capital, in particular working capital tied up in business activity). From other countries' experience it was entirely predictable that it would have high compliance costs; in fact, in the form of VAT, it was first introduced in France and Italy in the 1950s because it was largely self-policing, very necessary in those cultures (there's a story that when the figures for agricultural land in Sicily were added up, the total exceeded the total area of Sicily - unsurprising).

The compliance in Australia largely goes through a BAS or "Business Activity Statement". When objections were canvassed before implementation, in the usual "consultation" process, they were countered by saying "the BAS will force you to research your accounting details more, which will actually help your business; the compliance will really be a benefit!" Ha. First, if it really was a benefit, that runs counter to the doctrinaire idea that a free market introduces those things anyway. Second, it turns out that those levels of detail are really only necessary for large scale businesses. Contrary to claims that a GST is economically neutral, its compliance costs are heavier on small businesses - large firms really do need that anyway, and guess what, they have it anyway. Small businesses are forced onto the "level" playing field of maintaining accounting information that is not of use to them. [Aside: it means a market for such things as the MYOB accounting package, and I am being pushed into training for that as from tomorrow.]

My father briefly ran a small shop after taking early retirement, and he told me what is actually involved: you keep track of a few specific high value items, but for the general run of fast moving items, you merely keep a general sense of what is there so as to highlight pilferage, and then between stocktakes you work on a cash accounting basis for those and dead reckon the specific accounting numbers from that.

Yes, I noticed in my MBA that the course material really only covered finance and marketing, while I had figured out for myself that business rested on a third leg, operations. I appreciated that the reason it wasn't covered was that it couldn't be generalised for course purposes, but it seemed wrong not even to mention the omission. But then, we were all supposed to have had some real world experience to bring to the courses.

There was one management accounting technique that they did teach, though strangely they never mentioned why it was so useful. Read on, and I'll show you how I figured that out. The Du Pont measure breaks down ROI (Return on Investment) as return/investment = (return/sales) * (sales/investment), a simple mathematical identity (sometimes sales were replaced with turnover, say). The MBA emphasised that ROI was what mattered to the business (a narrowing that should highlight the limitations of MBA thinking for running a country, say). Why was such a ho-hum mathematical relation important? What they didn't tell us, what I had to spot, was that the two parts (return/sales) and (sales/investment) were almost unconnected, except by coincidences in a business. That meant that you could measure each independently, and optimise each fairly separately. Working them out and working with them let you modularise the business fairly well. That in turn led on to ABC (Activity Based Costing), which let you work out less arbitrary transfer prices - if they could be found at all, which was not guaranteed. Transfer pricing, the dummy values needed to hook up different parts of a firm, are what are missing from the firm-level calculation problem. Even when free market equivalents exist, they might well not be valid if the very reason for a large firm was real synergies - outside prices wouldn't allow for those.

Another observation on large firms and organisations: they need to use the clumsy instrument of budgets, because it's all they have. But with budgets, there is the assumption that departments are not playing straight, so any department that comes in on or under budget is "rewarded" - with a budget cut for the next period. So all departments have an incentive to burn up and slightly exceed any budget item that looks like not being used; and so that is precisely what they do. Actually, the better way to spot dishonest excesses is to analyse the dummy numbers, e.g. true random numbers have some digits more common than others (I forget the name for this effect off hand). Likewise Vickrey Auctions filter out some spurious pricing artefacts.

In fact, even bureaucracies can bypass actual calculation and emulate part of what free enterprise achieves. They need only apply certain mathematical effects, like when curves that describe behaviour are all increasing/decreasing or have just one optimum, sloping away in the rest of the realistic range, with the opportunity cost of being off optimum typically being proportional to the square of how near the miss (so it's not important to be spot on). Things like dynamic programming allow experiments to be designed with least cost, e.g. the golden ratio comes up in designing where to look. This is a marriage of mathematics and experiment, not any kind of abstract calculation at all.

Oh, free markets carry out "greedy algorithms" - and mathematics shows us just when those do not work. It's not one size fits all, even though market solutions really are usually the best. One area in which they fail is by penalising near misses disproportionately, which encourages risk taking which does not show up by comparing with market practice - and don't get me on to "best practice", which is just snails following their own slime trails even when ihose are circular.

End of mind dump.

August 19, 2007 6:54 PM  
Blogger Kevin Carson said...

A general thanks for all the congratulations posted here!

Sheldon, I added your link to the main post.


Thanks for the thoughtful comment. If all your "brain dumps" in comment thread around the blogosphere were made as posts on your own blog, I have no doubt it would be widely read--certainly one of my first daily reads.

Your BAS sounds, in its effects, like many state measures. I'm thinking especially of single-payer health insurance. Even if it's collected as a payroll tax with a large employer contribution, it will surely be a vast cost reduction for the employers who are "doing it already," and a crushing burden for those (mainly small and medium firms) who are not. Incidentally, we have a lot of ass-brained proponents in this country of our own version of the consumption tax: the so-called "Fair Tax."

The "real-world experience" expectation of your MBA curriculum was certainly justified in your case, but from my observation of the typical MBAs who actually make most management decisions, it's wildly optimistic in most cases. IMO a generalizable curriculum for the "operations" leg would include, if nothing else, intensive study of the principle of x-inefficiency, the ways in which minute adjustments of the production process can lead to order of magnitude changes in productivity, and general principles of org theory as they relate to management self-dealing and milking, and the efficiencies associated with self-management.

This article is based primarily on Part II of the original blog post, so it doesn't include much material on transfer pricing. But as I recall Pt. III deals pretty heavily with the subject.

August 20, 2007 1:16 PM  
Anonymous P.M.Lawrence said...

Thanks for the kind words, KC.

I don't run my own blog or anything like that because of my lack of resources, both financial and stamina. I am currently doing a slow recovery from reactive depression, a term with which I'm sure you'll be familiar. It was actually brought on by the slings and arrows of a management-captured health professional group for which I worked which I will not name, first when they were stitching me up and later when they were running the rigged internal and external grievance systems. It's a bit like "the law in its impartial majesty forbids rich and poor alike from stealing bread and sleeping under bridges" (quoting from memory). First they hound you for not accepting a Dunkirk rearguard role to work yourself out of a job (even cancelling a transfer to another department so they can keep you in the work that's ending), then they claim you are bullying other workers by displaying a stressed attitude like the one they thrust upon you, then they don't log your complaints, then they fire you without running their own processes, then they run you out of funds so you can't use the external processes all the way (with the tribunal accepting that all the complaints against you and none from you "prove" you weren't being hounded, and never mind any timelines from memos and bank statements showing that they terminated before the reviews they claimed they made), then it's your fault for not settling for a mess of pottage and a career destroyed by off the record verbal comments on references...

I will probably be changing my ISP to something cheaper in a few days time when my annual subscription runs out. There may well be a hiatus, so I'd suggest you download my publications page while you may (would you like to host it, or my Furphy page or any of the others stemming from a less stressed era?). I've set up a gmail address in anticipation, and I'll be circulating it as, when and if need be.

August 22, 2007 2:21 AM  
Blogger Kevin Carson said...


Yes, reactive depression to job stress is something I understand all too well. Management's violation of its own due process procedures for progressive discipline (complete with "forgetting" to record statements, and back-dating paper trails) I also understand. Ditto unemployment directly resulting from same. That's why, as I said, on my worst days I wouldn't feel too bad about an American Pol Pot liquidating everyone in a necktie. It's also why my immediate news to workplace shootings is usually dismay that the shooter wasted bullets on petty grudges with coworkers when there are such bigger fish to fry.

In the past, I've been quite familiar with feeling like an animated corpse as I walked through those workplace gates. Since I adjusted my metoprolol dose downward (for blood pressure), though, I've started noticing the novel sensation of muscle tone in my face, and feel far less that I'm walking through the gates of Dante's Hell.

I hope your situation improves soon and you get back on your feet.

On the blogging thing, I was thinking of something as minimalist as possible: just subbing to Blogger and copying and pasting your comments elsewhere into your own blog, so they could be aggregated in one place; it would be an invaluable resource. In the meantime, I've downloaded your pubs (it's much easier when they're all on a single page--I had a hell of a time saving Arthur Silber's best essays when his Light of Reason blog went offline), so they won't be lost if your netlink account goes down.

If all else fails, though, the Wayback Machine will preserve it. (I'm having similar anxieties over the MaxSpeak archives).

September 03, 2007 12:33 PM  

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