Shouldn’t Mises’s Calculation Problem, as commonly applied to socialism, also apply to very large, multinational, multi-industry corporations? Are they not essentially a blanket ownership of many orders of capital used vertically to produce goods? Does the Calculation Problem mean that businesses should be as small and specialized as possible?
Check the past week’s threads (the one called My View on Capitalism and another where I linked to an article by Kevin Carson.) [:P]
-Jon
Yes.
Remember that on the market it may the case that the most productive arrangement for a specific good is only one producer. Because of the price of the good and costs in producing that good that market prices make possible, everyone except the existing producer decides it is not worth it to start a second business based on the cost-calculations of their own individualized knowledge.
This applies to a corporation as well. The corporation’s employees know from cost accounting what the corporation pays for different production factors. If they find out that they can do it at a lower cost if they leave their employee status at the corporation and form their own business with their previous employer as their client, then the fact that they choose not to do so reveals that vertical integration is the most economically efficient way to organize production. However, for this to be true, these employees must be legally allowed to start their own business (in monopoly theory, they must have the right to compete with themselves) otherwise they won’t realize lower costs when they do become aware of them. Because this is forbidden in a socialist economy, there is an economic calculation problem. This problem does not arise in an economy with free enterprise, whatever size an organization takes.
Successful business cannot be unnecessarily big or it will go out of business. Some may be big because of government intervention, but I think in a free market one couldn’t say a multinational or multi-industry company was too big (doesn’t this include small ebay sellers that sell worldwide and in a variety of goods?). How big is too big? Such questions are themselves calculation. The only thing that says too big in a free market is when they go bankrupt or quit selling anything anyone wants. The difference between that and big government is that the government never ever has to say enough is enough (and more often than not government also wants this same privilege for its revenue-generating “corporations”)… and the government’s business operation is basically setting the consumers into the mold of their “services” instead of satisfying anything at all.
We don’t have an economy with free enterprise. Noone does. So why continue this misleading charade of using theories about the ideal conditions of free enterprise to describe current conditions without it? The modern buraucratic large corporation is not a product of free enterprise, this much should be quite clear. The fact that people make certian choices now - in the atmosphere of an unfree economy in which their choices are artificially limited - does not prove that this would be their choice in a free economy, and it most certainly does not legitimize the current structure and conditions of the unfree economy. This is fallacious - it’s what “vulgar libertarianism” means. It is only through the effects of all sorts of restrictions on competition that the contemporary corporation can get as powerful as it does today. When one takes into account the fact that big buisiness and the state have a certain synergy between one another, it no longer suffices to use “the free market” as a descriptor and legitimizer of whatever structure and size buisiness happens to take. The buisinesses become more closely modeled after the state due to the synergy.
There are tons of refutations of the perfect competition and other relevant theories on this site. Vulgar libertarians should read upon that before they start supporting socialism.
Methinks some people need to read the posts in a topic before replying. [:P]
-Jon
Noone here is supporting socialism.
The question was whether vertical integration implied problems of economic calculation. The answer is that it doesn’t; even on the pure theoretical free market, large corporations can be economically efficient. If government interference makes it too costly to compete against vertically-integrated corporations, then the large corporation is an outcome of economic calculation: people form corporations to protect themselves from the government.
Are you suggesting that WWJD…er, constructing an imaginary Evenly Rotating Economy to understand the basic principles of an economic system is unproductive?
I could point out some examples of former employees setting out in business under the theory described under the post you were responding to that would invalidate your counter point if I were so inclined. Or even an example of vertical integration being the most efficient means of production as in Standard Oil back before the Trust Busters got through with them.
But, you know, marginal utility of my leisure time and all that…
The answer is, I think, ‘vertical integration’ can lead to calculation problems but in a real free-market those problems would be self-correcting.
No, it is the inverse. A problem of economic calculation can lead to vertical integration. For example, if it is really expensive or complicated to start a business, then it will be advantageous to organize the economy in vertically-integrated corporations.
But most of the cost and complications in starting a business are imposed by the state. Thus, I think that there would be a tendency of fewer large vertically-integrated companies in a truly free market.
No doubt, but bigness also makes you prey to antitrust regulators, thus it is possible that government interference in the economy favors small business.
Yes. The market should limit the size of businesses by balancing economy of scale against the calculation problem, and other managerial problems associated with big business. It has failed to do so because of the state. Would we expect anything different? The biggest can pay off the government to get bigger.
You might be interested in Kevin Carson’s article in the Freeman this month. You might also check his blog for comments on this issue. I also started a thread called “Kevin Carson” to discuss this issue.
That’s only very big businesses that don’t “share” their profits with the politiceans. 
Anyway, if you ignore special interests (tax and ecological benefits for a factory to move to a region, and all kinds of not so visible regulation that is buderson to a smaller scale business) and just focus on the size of the government, you’ll see that it promotes at least mid-sized businesses because of their contracts; government as a big consumer needs big producers.
What people tend to ignore is that big corporations like a lot of the food chains and a lot of recreational stuff are franchises. They just offer some services in exchanges of part of the revenues of its franchises. A lot of times, they don’t even own the building.
But the state presents barriers to entry, which make starting a business more capital intensive - not to mention connections intensive. Besides, what if a company tends to attract non-entrepreurial workers?
I agree. What we can say is that there are sound economic reasons to conclude that present companies are bigger than the market would allow due to government interference. We can say this because:
-
There are governmental policies which would tend to promote the growth of big business.
-
There are big businesses which are massively inefficient.
However, it goes even further. Kevin Carson has a blog post recently discussing the creation of demand by large industries.