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Source link: http://archive.mises.org/14035/the-enduring-power-bureaucracy/

The Enduring Power of Bureaucracy

September 28, 2010 by

One by one, Mises discusses and dispatches the pillars of progressive dogma: government spending can create jobs for the unemployed; the service motive is better than the profit motive; government choices are superior to individual choices. FULL ARTICLE by Marcia Sielaff

{ 15 comments }

Fallon September 28, 2010 at 9:48 am

Thanks Marcia, well done. Two thoughts:
a) I have a hunch that minarchists are reluctant to embrace the full implications of the calculation problem because it indeed applies to their visons of a rational political apparatus.
b) And by extension, it was inconsistent for Mises to bifurcate proper bureaucracy tied to (an alleged) legitimate government function vs. intervention and displacement of market.

edmundosullivan September 28, 2010 at 1:48 pm

Bureaucratism is not uniquely a state characteristic. Political parties manifest identical features. So does practically every private company: CEO appoints, promotes and dominates apparatchiks according to whim presented as a greater good (shareholder value, return on equity etc). Values are imposed on employees from the top. The ideology of the brand is inculcated to restrict freedom of thought, and consequently, of choice among employees and customers (Coke is Life!). Intangible assets are bought and sold as if they actually exist rather than what they are, which is, a form of fiat money created by finance directors to support gigantism and destructive growth through M&A in service production.
Libertarianism will only become truly influential and popular when it stops being one-eyed. Bureaucrats can be bad. So can bosses and for the same reasons.

Fallon September 28, 2010 at 2:41 pm

Who said that bureaucratism, the absence of economic calculation/evaluation and the use of policy in its place, is only a government phenomenon? Of course a firm could get too big or lazy or far removed from the price system to be efficient and responsive. This is part of the libertarian argument. It shows that there are natural limits to conglomeration without state interference.

Fallon September 28, 2010 at 2:49 pm

“No firm can become so large that it is both the unique producer and user of an intermediate product; for then no market based transfer prices will be available, and the firm will be unable to calculate divisional profit and loss and therefore unable to allocate resources correctly between divisions.”
Peter Klein

Vanmind October 6, 2010 at 9:44 am

Read the book. It concentrates on the bureaucratization of the firm.

Douglas McKee September 28, 2010 at 5:56 pm

Armageddon is seen as the ultimate battle between good and evil and the end of the world as we know it. It should be fairly obvious by now to almost everyone who reads the news, that the destruction of modern civilization has become a real possibility. The current leaders around the globe are obviously no more intelligent than those of ancient Egypt, Greece, or Rome.
No civilizations have ever made it past this point in development; the point at which their governments have started wars they cannot win, with money they did not have and, in doing so, have bankrupted future generations by obligating them to pay for it.
Why is this? What drives successful governments to commit cultural suicide over and over again on behalf of the people they have sworn to protect? Who would ever consider a civilization’s very success as the seed of its failure?
Every successful venture begins with one person who has a vision and a goal. This person is a “doer” and gets things done. If the venture is large enough, other people, capabilities and supplies are enlisted, an agenda is laid out and everyone moves forward, doing their part, to the accomplishment of the goal. This is not rocket science. It’s simply the process involved in getting something done, and it doesn’t matter if the goal is individual, familial, corporate, cultural, or even governmental. The important point here, from a higher perspective, isn’t even the “doer,” it’s the process going on behind the scenes.
If the venture is sufficiently large and ongoing, people and skills need to be enlisted to support and maintain the efforts of the doers. The personality of the supporters and maintainers is usually very different from the doers. Their vision and drive is not necessarily greater than the task they are asked to perform to facilitate the doers, and the doers are not often called upon to share their vision or explain it to the supporters because that vision and drive is not required for a supporter to do their part.
If the venture grows, eventually the drive and vision that started the process is forgotten and the agenda of supporting and maintaining becomes the reason for the ventures continued existence. The personality of the subsequent generations of supporters evolves into that of maintainers, making sure nothing upsets the part of the process in which they are involved so the venture can continue. This is the seed of destruction. A maintainer is focused on problems, not solutions, because the solution is already rigidly defined in his task. The status quo has become the goal.
It is quite evident in looking at governments, corporations, religions, and quasi-governmental entities around the world, such as health-care and education, that all are focused on “the problem.” There is no vision, drive or support for any real solution, for a real solution would require a significant change in their process, and there is simply no support for that kind of change either from the maintainers above them or below them. The only way to keep such a system going is to dis-empower anyone who has anything to do with the system, thereby eliminating any threat.
At the most critical time in mankind’s development, supposed leaders, the majority of whom are nothing more than maintainers themselves who have floated to the top by pretending to have a new vision, are only interested in what they see as problems. Assigning blame and justifying their actions remains their main focus and “don’t really change anything” their credo. Their position depends on keeping the organization that maintains their position the same.
So what has all this to do with Armageddon? Look at the world. We are on the brink of destroying all the amazing advancements the human race has made and there is truly no voice of reason, no single leader has come forth with any valid solutions. All the voices heard are raised in anger, fear, and greed, pointing out the justification for continuing on the path to our destruction. The media is the tool used to convince us that this insanity is the best course; that war is a solution for anything; and that complacency is what we and our children need most. It appears that most of our leaders today are not much more than children involved in “he said/she said” so they are justified in doing what they did or what they want to do.
Megiddo, according to history, was a valley in which many “decisive” battles were fought. Maybe they weren’t quite as decisive as the combatants thought, having been repeated so many times without a hint of a lasting solution. The focus on the middle east, the current dependence on oil and the wealth it has created, have once again poised the military might of the world to duke, or nuke, it out to see which tribe gets away with the sp(oils) this time.
The rhetoric by politicians and priests has ignited insane actions by many fundamentalist groups, which has only served as justification by the larger fundamentalist groups to demand protection of their interests by the politicians who started it all.
Has there ever been a time in history that cries out for solutions louder than now? Who will step up with a solution, any kind of solution that doesn’t include bullets and bombs? Who will dis-empower war by seeking peace? It might be helpful in asking, “Who is actually involved in the fighting? Is it the people in the neighborhoods and small towns? Is it you or I, or my children?” It isn’t now, and it never has been.
Is there anyone who can interrupt the slide into the abyss? As always, there is a hero in the shadows waiting to come forth at the critical time to turn the tide of battle and rescue the day. Today’s hero, however, is each of us who are non-combatants. Our task is to choose to focus our lives on finding solutions, both in our personal lives and then, and only then, looking outside of our own homes to see what else needs to be done.
Individuals choose to give power to a system or to hold it for themselves. If they give it away they no longer have it to find solutions for themselves. Without the support of the common man and woman, the maintainers can not build the critical cultural momentum necessary for war.
The only possible solution is that we each must awaken to the danger looming over us and, in spite of it, focus on finding solutions for ourselves and for our children. If enough of us do this, the emotional rhetoric for war will simply fall on ears not tuned to war, and we will survive, something no civilization in this position has ever done before
The peoples of the world are so used to being focused on the problems that it has become simply a habit. It might not even occur to them to look for solutions, but the choice to seek solutions instead of focusing on the problems is the only hope the world has.

Fallon September 28, 2010 at 6:11 pm

Douglas Mckee is a spammer

edmundosullivan September 28, 2010 at 10:17 pm

Fallon
You say: “Of course a firm could get too big or lazy or far removed from the price system to be efficient and responsive”. This seems to imply that a privately-owned firm becoming bureaucratic is exceptional, rare or unusual. It is not. Any company based on hiring people for wages in return for their time is going to be bureaucratic, inefficient and destructive of value. And in service economies, the private firm has as much difficulty calculating prices as governments.
This is my point. Libertarians say government is generally bad. But then say (or imply) that business is generally good. But it isn’t: either in theory or in most people’s experience of it as consumers or employees.

Guard September 29, 2010 at 12:26 am

Very important to differentiate between a company owned by one single person which is private property, and a corporation which is an extension of state power. The dynamic of the two situations are quite different, leading to entirely different outcomes. Much of the discussion about the difference between a monarchy and a democracy apply to a company versus a corporation. In a privately held company some particular person is responsible and gains nothing from shortsighted plans, since anything he does to destroy his company is directly destructive to himself. With a corporation the opposite is true. People come and go and the greatest incentive is to extract value as quickly as possible and then move on.
Bottom line though is that corporations exist solely by the coercive authority of the state. I have noticed considerable confusion on this site regarding this fact. Personally privately held companies, which include families and other small businesses, make up the business sector of the economy. Corporations are part of the government.

Fallon September 29, 2010 at 6:12 am

Guard makes good points. I would add that his examples could be used as ideal types by which to estimate a more complex reality. E.g. a corp may also have a profit motive dependent on serving customers in addition to government favor. Which gets to a key point of understanding. Does an entity answer to the fickle customer or not, where, and to what degree? In theoretical bureaucratic situation by the definition I used, the answer is no, or relatively no. The reality on the ground may be that the bureaucratic area of a corporation is subsidized by its profit making arm in addition to having government favor propping it up.

Prof. Peter Lewin talks of the use of “conventions” by firms to try to infer opportunity costs removed from direct pricing. But importantly, there must at least be some point of reference, some buyer feedback. And most corporations, in spite of their favored status, have organizational pieces much closer to the price system than outright government.

Supposedly a govt agency answers to an elected official’s oversight. But public agencies today make the policy and interpret law; corporations and interest groups, like unions, ‘capture’ the regulatory framework too.

edmund o'sullivan September 29, 2010 at 3:08 pm

Guard
“Very important to differentiate between a company owned by one single person which is private property, and a corporation which is an extension of state power.”
Bureaucratism — inherent in companies that make tangibles because of the need to capture and process market price information and, therefore, have a large centralised management/accounting team — runs riot in companies making intangibles/services regardless of whether the firm is owned by a single person or by many.
First, because the market-clearing price doesn’t work in markets for services since what determines how much people are prepared to ask for a service and pay for a service is essentially determined by the relationship between the parties to any service transaction (eg, if I don’t like you, I won’t sell a service to you no matter how much you pay me. But if I like you, then I might in certain circumstances let you have it for nothing).
Service firms deal with the challenge of pricing their services “right” by creating a bureaucracy which seeks (1) to impose centrally-determined rules upon employees involved in service transactions and (2) to discipline employees and customers who seek to break free from the bureaucratic stranglehold that companies impose on service transactions.
The second reason for bureaucratism in services is that service companies are allowed to include intangible assets (brands, goodwill) on their balance sheets. Intangible assets only exist as a result of avant garde accounting rules that have reinforced by recent legislation (the idea that someone could own something that had no material form would have been considered ridiculous before the 20th century in the same way as we today would consider it ridiculous to treat a human being as property). To defend these fictional “assets”, companies producing services hire an army of bureaucrats and company lawyers who will use that legislation to punish any employee or customer accused of “stealing” those assets (aka infringing copyright) which are in fact ideas and knowledge inside their heads and not property of any kind.
The only non-bureaucratic form of business organisation in service economies is a company owned by a single person that only employs that person in an environment where intangible assets are not recognised.
Voluntary co-operation in the form of partnerships could occur among these employee-owned and controlled service-producing entities, but I’m not sure that is a “firm” in the sense the economics text-books uses the term.
The pervasiveness of intangible assets is the main reason for bank-financed real asset bubbles. It’s the government’s fault in so far as it has allowed intangible assets to become balance sheet items in the first place.
Intangible assets are the business equivalent of fiat money.

Fallon September 29, 2010 at 4:35 pm

“First, because the market-clearing price doesn’t work in markets for services since what determines how much people are prepared to ask for a service and pay for a service is essentially determined by the relationship between the parties to any service transaction (eg, if I don’t like you, I won’t sell a service to you no matter how much you pay me. But if I like you, then I might in certain circumstances let you have it for nothing).”

You are confusing preferences with the economic category of exchange. In this sense you turn the service market into a deterministic phenomenon whereas other markets are not? Wow. That sounds crazy. In the Austrian school, economics is the search for universal validity about human action.

Fallon September 29, 2010 at 4:39 pm

In case it wasn’t clear enough, exchange is a reflection of two individuals expressing preferences. The exchange itself is based on a discrepancy in each’s valuations, says Mises. One wants the money more than the product or service and the other wants the product/service more than the money.
To believe that this transaction is hard wired in the human skull is to make a giant leap into mind reading however. You engage in a misuse of determinism.

Fallon September 29, 2010 at 5:31 pm

I mean that the idea that preferences are hard wired– leading to pre-determined action as you believe– is nutso.

edmund o'sullivan September 30, 2010 at 3:42 pm

Fallon.
There can be no exchange in services since what is being bought and sold has no material existence.
What is happening is an interaction between individuals rather than the exchange of a thing for money as happens in tangibles.
For example, I’m a farmer producing apples. You are a consumer who likes applies.
I provide apples to you in return for money or something money-like.
That’s a transaction
But let’s think of a service. Teaching. What’s being exchanged? Impossible to say.
What’s happening is an interaction.
The value the parties of the interaction place on it is completely indeterminate because they have no material basis upon which to form a definite view.
Even if preferences were fixed, something which I don’t think I have even impllied, it wouldn’t lead to any definite price.
Basically, in services, value is determined by the confidence that the parties to an interaction have in each other.
If a pupil trusts a teacher, then he/she will value what is being imparted more than if he/she doesn’t.
So the entire theory of price in economics (neoclassical, Austrian) collapses when it’s applied to services/intangibles.
In services, the market doesn’t only not work.
It actually doesn’t exist.
What you have are a mass of unique interactions which are incommensurable.
Hope I’m clear.
You can get a fuller exposition at https://sites.google.com/site/theendofthemarket

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