Wednesday, February 03, 2016

The Economic Calculation Debate: Misunderstanding Mises and the Austrians

Andy Denis, a Senior Lecturer in the Department of Economics at City University London (see his home page), has written a paper, Economic calculation: private property or several control,
 that disputes Mises's requirement of private property to permit economic calculation.
First of all he suggests that several property, or multiple ownership, is to be preferred to private property and that control is to be preferred to ownership. These preferences, in Denis's opinion, take a socialist or planned economy out of the realm of impossibility, at least in terms of Mises's argument.

As I see it, Denis completely misses the point that the owners of private property, singly or severally, value it and are at risk when purchasing or investing. Without the risk of loss -- what Nassim Taleb calls an 'absence of "skin in the game"' -- prices are simply wild guesses and do not reflect the values or opportunity costs of market participants.

Denis does mention the principal-agent problem, in which owners are subject to the will of managers, talking as if this process amounts to expropriation.  Certainly this situation is a problem in a publicly held, bureaucratically run, stock corporation; but he fails to recognize that owners may withdraw their property from the managers if they are dissatisfied with the results. If there are no owners, there is no one to value the results, and hence no one to withdraw the property. If the benefits and costs of control are added to his system, he arrives at the a point where it is hardly different from that of private property.

Perhaps Mises fails to adequately stress the connection between the ownership and valuation of property, leading Denis to misunderstand the thrust of the argument. But it is also possible that Denis, in his eagerness to upend the Austrian/Misesian argument, has a great incentive to ignore or misinterpret it.

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