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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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Monday, November 12, 2007

Chapter Seven Draft

Chapter Seven: Economic Calculation in the Corporate Commonwealth (the corporation as planned economy)

10 Comments:

Blogger scumble said...

It's a very good chapter Kevin - I enjoyed reading the full version (after the blog version) as it really gets the point across.

Incidentally, I'm always pleased that you give Mises and Rothbard their due while criticizing a number of their assumptions. With the Mises Institute often sounding more like a fan club than a serious research organisation, I think this needs to be done more often.

I'm a bit disappointed with this tendency to elevate Mises to an almost god-like figure, like this apparent "worship" of entrepreneurs.

Still, I feel the need for more positive work on worker-managed co-operatives and such, but some of this is of course coming along in part 4

Nathan

November 12, 2007 5:03 AM  
Blogger Kevin Carson said...

Thanks, Nathan. I try to give proper appreciation to the accomplishments of Mises and Rothbard because their principles are often useful when their own applications of them are completely off.

That's actually the way Rothbard treated Mises. Mises himself, in his visceral political sympathies, was something like Reisman; he was the kind of man could look at the German industrialists putting Hitler into power and say "Egad! Will those tree-hugging hippies stop at NOTHING?" It's hard to imagine Misesian principles being used in a manner any more repugnant to Mises' own cultural sensibilities than Rothbard's use of them during his New Left entente.

On worker co-ops, in the meantime, you might like Marxism and Workers' Self-Management by David Prychitko, a sympathetic treatment by an Austrian-leaning economist who sees the Hayekian advantages of self-management. It's still over $90 used at Amazon, last I checked, but I ordered a copy from interlibrary loan and copied it (Congress has yet to mandate DRM in photocopiers).

November 12, 2007 11:25 AM  
Blogger scumble said...

Well, I feel the tone of Human Action is rather paternalistic and somewhat dated, which isn't surprising considering the era he came from. Companies like Siemens tend to fit his idea of a fee market enterprise, which is ironic, again as Siemens grew considerably thanks to Bismarck's program of connecting the country together with telegraph wires. Technology in the aid of centralisation, as I see now. I happen to know about this as I worked for Siemens as a student (in Munich) and had to write up a report on the company! Might be an interesting one to revisit, come to think of it, given that Siemens is one of the largest corporate behemoths in the world.

On another tangent, I remember another thing Siemens were working on internally to automate parts of the patent application process to assert control of various things invented by employees. Back then of course, it hadn't occurred to me this was actually a form of gaming the system by appropriating ideas.

Still, I reckon German corporatism is a lot softer than the American brand, but rather paternalistic. German culture appears to be particularly amenable to this sort of thing though, and they seem to make a relative success of things like public transport infrastructure and so on by sheer force of will, unsustainable as such subsidised works may be. Then again, their taxes are seriously high. I managed to get a bonus while working over there and most of it seemed to evaporate before my paycheck turned up the bank!

Anyway, enough rambling. I only mention these things as they might provoke some thought...

Nathan

Nathan

November 12, 2007 1:26 PM  
Anonymous joshua holmes said...

Another fine chapter. A suggestion: you need an editor. Your sentences ramble too long, and you have too much "throat-clearing" language and too many passive sentences.

To wit:

But the Austrian critique of central planning can be applied more widely than to mere state planning. From the standpoint of a Martian observer, what goes on inside the large firm would probably look a lot like a planned economy.

Reads better as:

The Austrian critique of central planning applies to more than state planning. A Martian observer might think that a large firm's structure itself resembles a planned economy.

Also,

Corporate management is enabled to engage in such gamesmanship at all levels of the hierarchy, to the prejudice of any would-be omniscient entrepreneur cum double-entry bookkeeper, in part because of the information rents entailed in their positions. For
example Michael Schiff and Arie Lewin, in a 1968 study, challenged the traditional approach to management accounting, which treats individuals as "passive members of the system." In its place they substituted a model based on modern organization theory, which emphasizes limited information-processing capability and individual sub-goals. In the real world, they said, the budget preparation process involves management bargaining "about the performance criteria by which they will be judged throughout the year and for resource allocations. The outcome is a bargained budget incorpoating varying degrees of slack." Slack is defined as the difference between "minimum necessary costs and the actual costs of the firm."

Reads better as:

Information rents allow corporate management to use these tactics up and down the heirarchy. For example, a 1968 study(1) challenged the traditional approach to management accounting, by using modern organizational theory. The traditional approach sees individuals as passive members of the system; the modern approach sees individuals with limited abilities and selfish goals. Under the modern approach, the budget process is:

"about the performance criteria by which [management] will be judged throughout the year and for resource allocations. The outcome is a bargained budget incorpo[r]ating varying degrees of slack."(2)

(1) Cite here, including authors.
(2) Id., page number. (Slack is the difference between the firm's minimum operating costs and its actual budget.)

As always, I admire your ideas and look forward to your book. but just because you're a lefty doesn't mean you should write like one. =)

November 12, 2007 4:52 PM  
Blogger Kevin Carson said...

Thanks, Josh. P.M. Lawrence also suggested I could use an editor, but he identified the trouble areas as typos and the bits of economic and org theory jargon that might require some parenthetical definitions.

I think some of the tightened-up language (and the active voice) in your version is an improvement, although I'd keep in some of the detail you edited out.

As with PML's suggestion, I agree the weak points are there. The problem is text editors are expensive and scraping up the $$ for the basic package with an on-demand publisher is about all I can manage.

I do intend to edit the final version, after the drafts have had sufficient "cooling time" for me to read them fresh, with an eye to some of the problems you and he pointed out. But there'll probably be a residuum of ponderous Germanic style even then (hey, Mises wrote like a lefty, too!).

One of the benefits of posting drafts online, also, is that I get to use helpful readers as unpaid proofreaders. I already fixed a couple of problems PML and Martin identified, and I'll probably wind up incorporating some of your changes as well.

November 12, 2007 7:36 PM  
Anonymous P.M.Lawrence said...

"...but [P.M.Lawrence] identified the trouble areas as typos and the bits of economic and org theory jargon that might require some parenthetical definitions..." - no, I wasn't identifying the areas needing attention, but those that were most obvious on a quick scrutiny; I didn't mean to imply that areas I hadn't had the opportunity to assess were therefore OK. I'm currently reading through chapter 3, and I will probably end up with a few deeper suggestions, e.g. look at the European SA (Societe Anonyme) corporate structure that can deliver de facto limited liability even in the absence of de jure provisions, and at least cover network externalities when assessing optimal economic sizes, even if you end up concluding that they are over-rated (some are, but some are under-rated - and not currently addressed by government intervention).

November 12, 2007 9:52 PM  
Blogger Kevin Carson said...

I didn't mean to imply any blanket endorsement beyond the things you mentioned, PML. The context was a discussion of the kinds of problems that could be fixed by an editor, not to problems of the "burn it down and start over" kind.

November 13, 2007 11:18 AM  
Blogger Ineffabelle said...

scumble said : "I'm a bit disappointed with this tendency to elevate Mises to an almost god-like figure, like this apparent "worship" of entrepreneurs."
Indeed.
One of the things that, in my opinion, contributes to "vulgar" Austrianism, is the idea that there is some sort of mystical "knack" that allows some entrepreneurs to predict the market. If you believe that, you have a ready explanation for why some businesses consistently make high profits, and would also do so under anarchy.

I happen to think that its more of a selection filter. That is to say, some entrepreneurs are going to get it right, by sheer chance. Sure, some people just aren't going to have an intuitive understanding of what other people want, but by and large no one is going to always out-guess everyone else.
Once a pocket of unmet demand is discovered, under anarchy, capital will flow in that direction and will arbitrage out the profit opportunity pretty rapidly.
So while there will always be profit making going on somewhere in the economy, it will never consistently flow to the same people. If it does, that is prima facie evidence of violent intervention or fraud, IMO.
This is just one reason why I don't think anarchy will have a large inequality of wealth.

November 14, 2007 9:37 AM  
Blogger Kevin Carson said...

Well put, Ineffabelle. Especially this part:

"Once a pocket of unmet demand is discovered, under anarchy, capital will flow in that direction and will arbitrage out the profit opportunity pretty rapidly.

"So while there will always be profit making going on somewhere in the economy, it will never consistently flow to the same people. If it does, that is prima facie evidence of violent intervention or fraud, IMO."

I may quote you in the chapter on privilege, if that's all right. That's similar to what R.A. Wilson said about equal exchange. In a genuine market, where all exchanges are for mutual advantage, it's highly improbable that one party will be consistently enriched as others are impoverished. A particularly astute person might come out ahead in the bargain more often than not, but not on a scale to produce the wealth of (say) Bill Gates. Wealth from entrepreneurial skill (and even savings from hard work) would exist in a free market society, but my guess is that it would top out in the low tens of millions of $$.

November 15, 2007 1:10 PM  
Anonymous P.M.Lawrence said...

Be careful. There is actually a fallacy in "Once a pocket of unmet demand is discovered, under anarchy, capital will flow in that direction and will arbitrage out the profit opportunity pretty rapidly", because it leaves out a special case where this is not actually true.

The special case is, there may be other parts of the economy that work on a different time scale in a way that resets the filled in pocket. The reasoning only works when "pretty rapidly" is no slower than (roughly) a third of that resetting speed - I won't go into the mathematics of it. Think of the Barnum method of having a lion lying down with a lamb; when asked how they did it, a worker said "we just put another lamb in every so often". It's also used in "there's one born every minute"; if you can't fool people twice, well, that's arbitrage eliminating a niche - but it gets rebuilt faster than it gets filled in.

So, permanent profit opportunity should only create a presumption of something fishy going on. It's not evidence unless this special case can be ruled out - and remember, financial markets are much faster than markets involving changes in physical stock or most production of services, since they don't have the same physical constraints.

November 15, 2007 8:13 PM  

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