Sure, except that no one is supporting socialism and no one is making use of perfect competition or other “relevant theories.” What we’re supporting is a free market, as opposed to a corporatist market where the state grants certain priviledges to business at the expense of other people’s freedoms. Do you really want to call that socialism?
If there are non-entrepreneurial people in the economy, then clearly we are better off with big corporations to tell them what to do and exploit their productive potential, which they cannot do on their own. This has nothing to do with government.
Any society has entrepreneurial and non-entrepreneurial people. The existence of non-entrepreneurial people doesn’t mean that we need big corporations, they could just as easily work for a larger number of small firms. In any case, my claim is that it might be that the non-entrepeurial people end up working for Walmart, invalidating your claim that if the big corporation was inefficient, the workers would immediately start their own firm. The entrepreneurial people in society might lack information, and those with information might not be entrepreneurial.
Knowing that one is not entrepreneurial is information. It serves nothing to start your own business if you know that you are going to bungle it up and go bankrupt your first year, wasting the economy’s capital. You are much better off supplying labor to a corporation without having to understand how to run a business yourself.
Agreed 100%. But that goes against your original claim that a big business must be efficient because an employee who sees a department being inefficient can start his own firm and sell the output of that department to the company. There are good reasons to think that even in an inefficient firm, that won’t happen.
Also, the fact that someone is better off supplying labor to another doesn’t imply that we need big, vertically integrated businesses. That would depend, at the very least, on the proportions of entrepreneurial vs. non-entrepreneurial people in society.
The fact that the employee knows that he could not run his own business well enough to make profits in excess of what he gets paid by the corporation is precisely what makes the corporate relationship efficient. If people choose to work for corporations, then that corporation must be efficient.
No, we just dealt with this. You’re ignoring personality types - some people are not entrepreneurial personality types. These people are likely to be the people who end up working for corporations. Just because HE can’t make profits in excess of what he gets paid doesn’t mean that someone else, with the information about how the company operates, can’t run an outsourcing firm more profitably, and employ that very same person at a higher wage. This means that the corporation could be inefficient and still not have someone outsource its departments.
The employee doesn’t care who he works for - he cares about what he does and what he gets paid. Just because the initial conditions are such that they favor big, vertically-integrated firms doesn’t mean that the employee is choosing to work for a big, vertically-integrated firms, just that the employee chooses to work for a boss rather than start his own company. And, again, there are state-built roadblocks to starting your own company as well that can skew this choice. Finally, as Carson pointed out, people who take a job are in many cases expressing a preference for working for someone else over starving, not over other options, because there might not be other options - as is the case when we have land being expropriated by governments early on.
Sooo large size is a market failure. Maybe it should be banned.
That other information does not exist, hence the corporation is efficient until it does exist.
I’m done. Any honest reader will know you are talking in circles.
So, we live in a free-society where all industry is laissez faire. I didn’t notice before, but thanks for the info.
Maybe we could regulate the market into freedom. Just determine what the free market would look like then force it into the mold.
The calculation problem has nothing to do with size. It is a problem that arrises without a price system.
A small government will suffer the same problems as a large government. There is no value in discussing size, only method.
Please tell me, where did I say that regulation is necessary ? thanks.
Quit it with the straw men please. Nobody said large size is a market failure. Who said they want to regulate the economy into freedom?
Government most definitely grants favors to large businesses and passes regulations to stifle competition. Thus with a truly free market we would see more competition and many of the large firms would have trouble with this new competition. Thus we would see a trend towards less vertical integration than we presently have under a free market.
That’s the point you should be disputing (if you disagree with it).
Lets look at a scenario for a vertically integrated company.
Ford is the sole producer of widgets which it installs in its cars. If Ford were to sell widgets by themselves it possible that they would be put to a more productive use, thus sell for a higher price. This is not the calculation problem. This is a lack information. Should someone offer to buy Widgets from Ford, they would instantly know if the deal was profitable or not.
Thats not integral to government, its coincidental. A state that designed to create excess competition would just as much a state.
I don’t presume to know what a free market should look like. The most significant change towards increased competition would the abolition of IP, but I don’t see that changing vertical integration.
But the fact remains that the state favors big business (maybe not ALL big business, but the gang on top will certainly look after its own). The lack of a state will fundamentally change the nature of society. The cost and complication of starting a business will be much lower, and without a central bank providing artificially large amounts of credit, credit will be harder to come by, also limiting the size of many businesses.
i read the first two. it was a good explanation, and thorough, of their differences, which seem to stem from their underlying foundations of economic theory.
so to support your answer, i’d have to say
no because
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consumers own private property, as does the corporation - exchange ratios here will be the calculated according the knowledge acheived through private property. in that each consumer can choose alternate private property, or save for future alternatives, or invest for possibly greater future alternatives, firms must deliver desirable products at cheap costs. These products, as the corporations’ property, have a calculated cost of its sum factors of production.
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factors of production are market consumers - laborers, which would be the primary factor of production would then get to evaluate the firm’s product upon the market. if they were simply to get paid in firm credit, then their would still be a calculation of the firm’s products compared to other allocations of resources. because labor is so capital intensive, large firms must satisfy their labor as consumers.
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stock-holders are entrepreneurial owners of property - firms have underlying assets, contracts, and consumer goods. Owners wishing to profit from capital investment will be forced to seek firms that have the better management of the firm’s property, as those will grow in productive capabilities, in capital value, and in market size (by lowering prices). If some market participant knows of a better arrangement of some firm’s capital, he (they) can purchase it and redirect the assets’ management.
Because consumers can calculate, much production cost leaving the firm’s control, and competitive ownership calculation, it is likely that very large firms will still face competition, on various scales. Laborers could both invest in and buy competitors’ products. As such, large firms will always have calculations - not simply with management and accounting based upon knowledge of past actions, but on the part of their owners on whether to sell or buy more of the firm, predicting whether or not they will be profitable in the future, and under what ownership-management conditions. These things are speculative.
In other words, mismanagement would essentially be under fire from calculated competition in ownership, which ultimately faces consumer calculation. This basically forces managers to act as private owners. They face the loss of employment to not understand the property they control and effectively use it. Thus, calculation enters in the value of their employment (and career improvements for production increases).
Thus, I assume there is a calculated effort to solve the “what do i do next?” question posed to the firm’s property managers. Where there isn’t, the stock price will fall with profits until there is an exchange of owners, with one entrepreneurially acting to redirect capital management in a more productive arrangement.
Maybe the time the market owners, managers, and laborers can respond to adjusting their production process is lesser than would be many independent owners of capital goods, but then would this be more like the efficiency argument, rather than the calculation problem? perhaps this is why the calculation problem is applied to socialism, which allows for no alternative arrangment, and thus direction, of ownership. While socialism’s managers may change, its owners cannot. The exchange of capital goods is impossible. Even with large firms in a market, firms essentially calculate profit. Unprofitable firms lose stock price relative to assets as valued by other firms, so at some point, ownership serves to sell existing assets for a more productive function. Ownership, and its ability to calculate profit, also promotes calculation upon direct managers of property. Also, in the ability for laborers to be owners, profitable calculation occurs.
I like many of the points on both sides of this. I think it’s fairly obvious that we don’t see too many of such huge corporations, who only purchase raw materials and labor and sell only consumer goods, even while government may show bias towards larger business.
Ultimately, i think, the calculation problem seems to apply exclusively to socialism, as its foundation lied in that all capital goods were public property. No one could benefit from the ownership or the exchange of such property. No one could determine exchange ratios and scarcity among goods. In large firms, rather, the demand for stock ownership would reflect the judgement of management of the capital. If capital were mismanaged, it would appear that there were some missing information link between those knowledgeable about the good, who would best serve as its owners. This creates investment opportunities for them inside the company, as well as outside. However, the lattice work is not missing. Owners may own many multiples of firms, exchanging their shares in proportion to capital management’s ability to turn a profit. A huge network of private owners of capital goods, consumers, and managers all function according to calculation.
Agreed, for governments. Here, the relevent meaning of “big business” also has nothing to do with size persay, but with vertical integration. As Carson argues in the Freeman, vertically integrated businesses operate without a market price for intermediate goods. The higher the business goes vertically, the more this is a serious problem for the business. In a free market, this would tend to limit the growth of vertically-integrated firms.
When it comes to government, it always operates without a price structure, so yes, it always is afflicted by the calculation problem, and to the same degree (100%) while the business is afflicted by it to a greater or lesser degree. On the other hand, as the business grows, it gains economy of scale, which tends to counteract the problems it suffers from the calculation problem, which is why the market wouldn’t shrink it down to an individual, as well as the presence of non-entrepreurial individuals, as Stranger spoke about.