First, I'm not sure if I understand what is so uniquely Austrian about the calculation argument. As I understand it the point is that entrepreneurs maximise profits by putting goods to their most valued uses and the price system is exactly what allows them to do this by means of relative price adjustments and profit and loss accounting (very briefly put). My first point is that this implicitly assumes some sort of harmony of interests, in some cases where this assumption doesn't hold, I don't see how the calculation argument is valid. In the case of asymmetric information, externalities or monopoly power entrepreneurs maximise profits by going against what is in the public interest (yes, Austrians will find this term objectionable). But the other point I'd like to make is that this is a pretty standard point in even principles level micro...
Second, in reality firms costs are highly interdependent and often inextricable from one another. What implications does this have for profit loss accounting? Well, as far as I can tell a lot of big firms don't actually know exactly how to maximise profits so they resort to rules of thumb. My can't government do this? And more importantly, in firms still exist and are efficient, clearly there are some other considerations as to what serves consumers best, why shouldn't they be applied to governments as well?
Third, one of the big arguments against math that I've noticed is that it isn't necessary, something along the lines of "we can express these arguments in verbal logic". I think this is completely besides the point, identifying correct arguments and saying, ex post, that we can say what is in mathematical terms in verbal logic misses the point. The math was useful in fleshing out these arguments in the first place.
Four, I've asked this before, but I want to ask it again: what justifies the large salaries of econ PhD in the private sector? Their model building abilities and econometric skills are often used so what causes firms to be so systematically misguided (that is, according to Austrians).
Five, what is wrong with the concept of willingness to pay?
How this topic has generated more heat than light since I've been away.
I think you may have been trying to be too clever, but I was referring to SL, student and EIT. They constantly have *something* to say about Austrianism, even though it has never been apparent they understand what it is they are criticizing in the first place. They won't define what Austrianism is, or if they do, it is an unsourced strawman, and then they proceed to critique that caricature. Thankfully, most here have realized what a pointless endeavor discussing with these sorts are, and have passed beyond it. You are a clever guy, you might be wise to do the same.
I think you may have been trying to be too clever, but I was referring to SL, student and EIT. They constantly have *something* to say about Austrianism, even though it has never been apparent they understand what it is they are criticizing in the first place.
They won't define what Austrianism is, or if they do, it is an unsourced strawman, and then they proceed to critique that caricature.
Thankfully, most here have realized what a pointless endeavor discussing with these sorts are, and have passed beyond it. You are a clever guy, you might be wise to do the same.
Well then please, ask us which terms you'd like us to define and point out which positions we're misrepresenting. I have to say, I'm somewhat amused that you criticize us for our lack lack of specificity whilst making blanket statements about three separate posters and our posting habits.
Every interventionist is for the price system, except when they are not. As Mises said, there is no third solution.
Well, I have to say you're oft repeated remarks about the lack of a third way has got me confused. It seems to me that every society for just about ever has been some mix of government intervention of private enterprise, far from being non-existent, this third way seems to be pretty ubiquitous.
EconomistInTraining:Well, I have to say you're oft repeated remarks about the lack of a third way has got me confused. It seems to me that every society for just about ever has been some mix of government intervention of private enterprise, far from being non-existent, this third way seems to be pretty ubiquitous.
And statements like that ^^^ indicate you aren't familiar with Mises' arguments.
The issue is always the same: the government or the market. There is no third solution.
In fact, thanks for bringing this up, because it helps me illustrate my main point. The calculation argument is a lot less powerful than most people here seem to assume. Because, as I said, under certain conditions the free flow of information is not always possible, and its theoretically possible (ignoring public choice arguments) that government can improve on the market outcomes by facilitating the flow of information (which Hayek himself admitted) either by Pigovian taxes in the case of externalities or regulation concerning what information producers must provide.
EIS, at this point in time you still have no coherent argument as to why the calculation argument does not entirely refute the possibility of efficient and rational government planning. It seems like you’re waiting for me to make your argument for you somehow. Also, I'd like you to clearly define how you're using the term "government intervention." You're using a very broad definition; the calculation and coordination arguments, in my opinion, are not arguments for anarchy (though some may disagree with me here). They explain the effects of actions such as nationalizing the banking system, capital markets, money markets, forcing vertical or horizontal integration and/or disintegration, breaking up what they call monopolies (though they ignore the historical definition of the term, namely as a firm given arbitrary government privileges), price controls, completely socializing the entire economy, etc.
But does the point you raise concerning dynamic efficiency mean that monopolies are always good?
Yes, natural market "monopolies" (firms with significant market power) are always "good."
Presumably you learned about willingness to pay in your welfare economics class?
I didn't take welfare economics, but willingness to pay doesn’t tell you anything; it’s just a proxy. Additionally, it’s impossible to reach a definitive conclusion regarding the demand for any particular product when you include monetary transactions. You cannot separate the demand for that particular item, on the one hand, with the demand for the money employed in the transaction, on the other. In other words, if person A is willing to pay $100 for item “x” and person B is willing to pay $1 for that very same item, then we cannot assume that person A values the item more relative to person B with any degree of certainty (person A might have a very low demand for money, for example).
Thanks for ignoring the OP. My point was this, for large corporations "maximise profits" is almost an impossible task in the sense that costs are highly interdependent, profits may be difficult to forecast etc. So they rely on rules of thumb such as "maximise revenue" or "maximise sales", well, my question is simply why can't the government operate similarly?
This seems like a confused version of Simon's argument (Organizations and Markets), but I can't tell. The fact that profits might be difficult to forecast does not, in anyway, justify government planning. Again, what's missing here is an actual argument from you.
The fact of the matter is that those firms that incorrectly calculate go out of business, i.e., lose access to their capitals which are then redirected towards other, more efficient producers, precisely because of the price mechanism. It is true that firms essentially plan their own capital combinations based on what they perceive to be relevant prices (if the price of tin rises, for example, firms, in order to protect potential profits, may employ a substitute such as aluminum). But it is the price mechanism that attempts to coordinate and organize all of the various capital combinations of each particular firm into a coherent capital structure that actually reflects consumer preferences and desires. It does this, again, by eliminating those firms that organized their capitals in inefficient ways, and it disperses information regarding how to organize your capital, what production methods to employ, what inputs to use, etc.
Again, the price mechanism attempts to match entrepreneurial expectations with reality, in a dynamic process of competition and trial and error. Simply put, the price mechanism tells firms whether they're correct or incorrect. Ludwig Lachmann writes about this a lot.
Indeed, Rothbard and Klein seem to have made a big deal out of this in terms of the size firms can grow to. So my point is, given that firms can't calculate internally and yet they exist and are allegedly beneficial, why can't the same be said of governments? Of course, you could make the case that governments are different, but this remains to be shown.
Because firms, even the mega conglomerates, still face competition, calculate internally and externally, and are bound by the profit/loss constraint. The same cannot be said for government. As a firm continues to grow, and as it increases the amount of internal calculation relative to external calculation (market prices), the information problem reveals itself. It begins to create massive capital combinations that are disconnected from actual consumer preferences. These large capital combinations are relatively inelastic, and once they are revealed as inefficient, which is inevitable, the firm has a hard time readjusting (it will either go out of business, or sell off entire sections of the firm). This variable, along with other variables (transaction costs, managerial diseconomies of scale, etc) prevents continuous firm expansion, i.e., why socialism hasn't naturally emerged due to economies of scale.
But you still haven't demonstrated that you actually understand the calculation argument or are even familiar with it at all. You're trying to somehow invalidate the calculation argument by referring to firms that operate within the market, that have access to prices (which reflect consumer preferences, production techniques, etc), and that are bound by profit/loss. You talk about how they act like governments, but entirely ignore how they act like market institutions.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Well what do you expect them to say? It's clear you can't be bothered to research what they are advocating and it's naive for you to expect them to try and explain 100-200 years worth of economic theory over an internet chat forum.
I will make a separate thread to properly respond to this point to give the subject matter its proper due and not derail this thread. I am quoting it in this thread not to single out the poster because I see the line of thought often. I do desire to level this argument.
I feel ignored. :(
The state is not the enemy. The idea of the state is.
AFAIK, Smiling Dave's posts from page 3 haven't been addressed yet, either, so I think you have to wait in line. :)
As long as we don't have to read 'the Austrians never give any good explanation to our remarks' in 2 weeks, it's all good.
Sorry, I completely missed your post. I'll try to get to it sometime tonight, if not I'll answer you tomorrow.
Don't sweat it. It's not that important. :)
Because, as I said, under certain conditions the free flow of information is not always possible, and its theoretically possible (ignoring public choice arguments) that government can improve on the market outcomes by facilitating the flow of information (which Hayek himself admitted) either by Pigovian taxes in the case of externalities or regulation concerning what information producers must provide.
With your last point, are you talking about something along the lines of requiring the Soylent company to tell people that Soylent Green is people?
faber est suae quisque fortunae
EconomistInTraining: In fact, thanks for bringing this up, because it helps me illustrate my main point. The calculation argument is a lot less powerful than most people here seem to assume. Because, as I said, under certain conditions the free flow of information is not always possible, and its theoretically possible (ignoring public choice arguments) that government can improve on the market outcomes by facilitating the flow of information (which Hayek himself admitted) either by Pigovian taxes in the case of externalities or regulation concerning what information producers must provide
In fact, thanks for bringing this up, because it helps me illustrate my main point. The calculation argument is a lot less powerful than most people here seem to assume. Because, as I said, under certain conditions the free flow of information is not always possible, and its theoretically possible (ignoring public choice arguments) that government can improve on the market outcomes by facilitating the flow of information (which Hayek himself admitted) either by Pigovian taxes in the case of externalities or regulation concerning what information producers must provide
What do you mean by 'the government can improve on the market outcomes by facilitiating the flow of information'? Does it have to be 'the government itself'? You say; 'let's ignore public choice', but why should we ignore them public choice arguments about information and incentive and not the market inefficiencies? That kind of policy advocacy in a vacuum isn't legitimate scientific investigation, imo. Ceteris Paribus as a tool to analyze stuff is justified, but this seems to be an illegitimate use of it.
Another problem; why should it be the government? There is an argument that institutions might arise to facilitate information - and they have - within the market process, if there estimated marginal cost and estimated marginal benefit are worth it. 'The government' doesn't work with such an system and could, in fact, 'oversupply' information - even if we disregard the 'public choice' arguments. This is because - wait for it - the government can't calculate. Surprise, surprise!
Institutions and mechanisms to facilitate trade have grown in an enormous amount of diversity; but all arise within a framework of the overall mechanism of the price mechanism: to see wether or not it's worth it.
Can someone show me one time post 3500 BC that there has been no government intervention in the market, none, nothing direct, nor indirect?
I'm gona say intervention is not the problem, autocratic intervention is. I think Esuric posted earlier about how Hayek (I think) even said there's no problem with market regulators inherently (rating agencies, consumer reports, etc). It's giving someone the final say on completely subjective matters.
In States a fresh law is looked upon as a remedy for evil. Instead of themselves altering what is bad, people begin by demanding a law to alter it. ... In short, a law everywhere and for everything!
~Peter Kropotkin
Epicurus:Can someone show me one time post 3500 BC that there has been no government intervention in the market, none, nothing direct, nor indirect?
It's not necessary because it misses the functional argument of calculation all together. The answer to your question is irrelevant.
What is an economy that is not directed by the consumer?
What is an economy that does not have government intervention? If it has never existed, how can one say it can only be market or government? It seems like it is usually/always market and government.
Epicurus ibn Kalhoun: Can someone show me one time post 3500 BC that there has been no government intervention in the market, none, nothing direct, nor indirect?
There is no government. What more do you need?
At most, I think only 5% of the adult population would need to stop cooperating to have real change.