Than, stop responding.
For Vishnu’s sake man, you lack even rudimentary familiarity with corporations in theory and practice. You’re as qualified to criticize them as I am to debate Tibetan theonomy.
http://www.economics.harvard.edu/files/faculty/57_internal-capital-markets-jf-march-97.pdf
http://cier.uchicago.edu/papers/students/krislertthesis.pdf
Damn, that last one was the wrong paper. I’ll post the one I was looking for later.
Edit: It’s not available freely, it turns out, but Peter Klein blogged on it here.
Since you have not answered a single point of mine, such comments are indeed superfluous. Still thanks for the links.
And Klein on internal capital markets: http://web.missouri.edu/~kleinp/papers/07071.pdf
Since you have not answered a single point of mine, such comments are indeed superfluous. Still thanks for the links.
I am not inclined to respond to patent gibberish.
Ricky James Moore II,
No need for ad hominem attacks on Merlin, regardless of what you think about his ideas. It’s simply non-academic.
Second, I do agree with Merlin’s position on transaction costs, specifically, that middlemen can replace firms on this matter.
However, I don’t agree with the rest. Merlin seems to have read Mises’s Bureaucracy (1944) but he wasn’t convinced – I don’t know why. I myself am convinced that as long as there is a profit-and-loss mechanism it’s impossible for firms to become bureaucratic. Bureaucracy means providing services/products that can’t be measured in monetary terms (Mises’s definition) so in this sense even by definition a firm can’t be bureaucratic.
…transaction costs, specifically, that middlemen can replace firms on this matter…
Are you using the word middleman in some specific technical sense here? I mean, from layman perspective middlemen increase transaction costs, not decrease them. I agree that specialization of the middleman can lead to decreased costs, even if we have two transactions now instead of one - was specialization the factor you meant?
I am still not convinced that this middleman can reduce transaction costs to the level of command economy - which rules inside every firm.
Middlemen can replace transactions costs, and so can incorporation and partnerships. Which one works the best depends on the circumstances. Also, a middle-man can not solve the issue of organizing long-term huge scale production structures based on contracting where any small proprieter can disrupt it by defaulting or hiring his idiot brother as a manager. The impersonal, technocratic structure of a corporation is great for keeping huge resources devoted to one entrepreneurial vision.
Glad to see you posting more often, Bardhyl. Let us now conquer the LvMI, and tomorrow the world!
Let me take Rothbard’s generalisation of the issue of economic calculation to make my point: Rothbard says that, as long there’s an external market for all factors of production and finished goods a firm employs, it can use such external prices to calculate the notional cost of its every branch. Thus, for example, the firm will know whether its worthwhile to produce tires instead of simply buying them. Here I fully agree.
The problem is that there never was, nor can there ever be an external market in human resources. The whole idea of the Austrian method is that humans are not reducible to machinery. Each is unique and unpredictable (in the sense a machine is fully predictable). When you employ, say, an engineer you cannot assume to have bought a designing software, which will respond to your every command in a predictable way. And herein lies the issue.
Humans are unpredictable, hence we cannot say that every engineer is equal to an other, even assuming exact professional proficiency among the two. There is no market for human resources, every employee is unique and unpredictable.
Hence, if all other factors of production can be included into rational economic calculation, as long as there is an external market, such a market will never exist for labour. The sheer volume of literature on management, which almost always translates to HR management, is proof of that. Why there are no books on how to manage your Excel worksheet (besides instruction manuals, of course)?
Hence, as long as we have this factor of production which will, due to its very nature, never aggregate into a market, the rational choice is to get rid of it entirely. How? When and only when all firms will be owned, managed and run entirely by a single person, only then will ‘complete’ rational calculation be possible. Such firms transacting with each-other in market, rather than within a burocracy, will provide the most efficient structure of production (note that such firms need not be small in capitalisation terms).
That is the issue I have with the ‘firm’, understood as an entity employing at least an other person besides the owner.
Thanks. But aren’t capital goods heterogenous as well? If you agree they are then the only way you can salvage your argument is to say something like “Yeah, but not heterogenous enough.” That, however, would only complicate things because then you would have to show what is the optimal level of hetergenousity in order for a factor to be “unpredictable.”
Well, it’s one thing to criticize the idea of holistic ‘capital stock’, but quite another to push this to its extreme and say that capital units cannot possibly be grouped. For example, there sure ain’t any ‘mining capital’ which you can get a price for, but you certainly can get a price for a specific type of mining truck. So, for that specific model you can have a price, and calculate whether it’s better to use this model, another one or what other options one has. Otherwise one could not rationally employ said truck but would have to guess.
But you just can’t get a price for ‘engineers’, or even ‘aeronautical engineers’, or even ‘aeronautical engineers graduated from X university in Y year”. Every person is unique. Labour is, to say, maximally heterogeneous.
How are wages inadequate to reflect the price of engineers in this context? They reflect their productivity after all.
All factors of production (and in fact all goods) have their properties hidden to some extent - you cannot absolutely reliably predict the quality and the quantity of the service you will receive. Whatever categorization of goods you use, the specific instance of good will perform a bit differently from ypur expectations.
What Merlin is saying (I guess) is that for HR/labor this uncertainty is higher than for other goods - to the extent that he sees it as a qualitative jump.
Since I ‘advocate’ replacing wages by profits, the question could be rephrased: “what do profits do that wages do not?” The answer becomes clear: the uncertainty related to the ultimate value of the work being performed, uncertainties partially caused by the unpredictability of labour itself, is not included in the wage rate, but is transferred to the employer through interest contained in profits. This means that wages do not fully reflect a workers productivity, because this productivity (which must be guessed because labor’s productivity cannot be known in advance) is uncertain.
So, if you employ an engineer for designing a civil aircraft, you pay him what you think his productivity will be discounted by your assessment of the risk involved. If you just contracted him for the job, he himself would discount his expensed productivity. And since assessing his own unrepeatable characteristics is his field of specialisation, the latter arrangement will be more efficient, I suspect.
That and also the technical aspect. One can be rather sure that, from a technical point of view, machinery X can turn out, say, 2’000 candies an hour. No such certainty can ever be had with people, which are influenced by countless factors. A machine, on teh other hand, is either on or off. So its more than simply a quantitative jump, its introducing a whole new level of uncertainty.
I see. I never thought of it like this. It certainly is a very interesting perspective.
I see. This is an interesting perspective. I remember Mises once wrote that labor is the most scarce factor. It’d definitely the least predictable as well.