Monday, December 26, 2011

Another Mises-Hayek Dehomogenization Quote

In the following quote from "Bureaucracy" Mises makes a rather conspicuous distinction between the fundamental allocative importance of profit-seeking (which is possible only in the system of private ownership of the means of production, capable of generating a meaningful price structure) and the additional allocative importance of not interfering with the activities of local branch managers, who are best suited to utilize the knowledge of particular circumstances of time and place.

From this it clearly follows that the added value of decentralization can be gained only in the environment that allows for economic calculation, and that it is by no means logically (or even empirically) impossible for the latter to operate sufficiently effectively in the absence of the former, though there certainly exists a one-way "efficiency correlation" between the two.

"It would be impracticable to restrict the discretion of (...) a responsible submanager by too much interference with detail. If he is efficient, such meddling would at best be superfluous, if not harmful by tying his hands. If he is inefficient, it would not render his activities more successful. It would only provide him with a lame excuse that the failure was caused by his superior's inappropriate instructions. The only instruction required is self-understood and does not need to be especially mentioned: seek profit. Moreover, most of the details can and must be left to the head of every department."
- Ludwig von Mises, "Bureaucracy", p. 34

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