The Freeman: Ideas on Liberty – June 2007 – Vol. 57 No. 5
Kevin Carson is the author of Studies in Mutualist Political Economy. He blogs at Mutualist Blog: Free Market Anti-Capitalism.
The present article comes out of his work on a forthcoming book on anarchist organization theory.
The general lines of Ludwig von Mises’s rational-calculation argument are well known. A market in factors of production is necessary for pricing production inputs so that a planner may allocate them rationally. The problem has nothing to do either with the volume of data or with agency problems. The question, rather, as Peter Klein put it, is “[h]ow does the principal know what to tell the agent to do?”
This calculation argument can be applied not only to a state-planned economy, but also to the internal planning of the large corporation under interventionism, or state capitalism. (By state capitalism, I refer to the means by which, as Murray Rothbard said, “our corporate state uses the coercive taxing power either to accumulate corporate capital or to lower corporate costs,” in addition to cartelizing markets through regulations, enforcing artificial property rights like “intellectual property,” and otherwise protecting privilege against competition.)
Rothbard developed the economic calculation argument in just this way. He argued that the further removed the internal transfer pricing of a corporation became from real market prices, the more internal allocation of resources was characterized by calculational chaos.
Mises’s calculation argument can be applied to the large corporation – both under state capitalism and to some extent in the free market – in another way not considered by Rothbard. The basic cause of calculational chaos, as Mises understood it, was the separation of entrepreneurial from technical knowledge and the attempt to make production decisions based on technical considerations alone, without regard to such entrepreneurial considerations as factor pricing. But the principle also works the other way: production decisions based solely on input and product prices, without regard to the details of production (the typical MBA practice of considering only finance and marketing, while treating the production process as a black box), also result in calculational chaos.
The chief focus of this article, however, is Mises’s calculation argument in the light of distributed information. F. A. Hayek, in “The Uses of Knowledge in Society,” raised a new problem: not the generation or source of data, but the sheer volume of data to be processed. In so doing, he is commonly understood to have opened a second front in Mises’s war against state planning. But in fact his argument was almost as damaging to Mises as to the collectivists.