How is it possible that I will be forced to end up having to give money to Vanguard or BlackRock for whatever computer I decide to buy? Both processor manufacturing companies, AMD and Intel, have Vanguard and BlackRock in the listed as institutional investors while BlackRock is also a shareholder of the largest integrated circuit manufacturer Taiwan Semiconductor Manufacturing – TSMC.
Even if I decide to make the effort to buy a highly exotic, completely atypical laptop, I won’t be able to avoid transferring money to Vanguard or BlackRock. For the reader of this text it is important to note that from the perspective of Vanguard or BlackRock production is vertically integrated, it is also important to note that laptops are not only consumer goods but are often enough capital goods or means of production in the Marxist jargon.
It just so happens that these days an update package issued by Microsoft has become a false positive for Level 5 equipment produced by CrowdStrike. If Microsoft hadn’t monopolized the operating system market the issue would have been minor and wouldn’t have made headlines or stalled global economic activity.
For the above reasons, I remembered the compulsory courses on scientific socialism that I had to take at university. I remember the theory quite well:
“Monopoly capitalism, or imperialism, is the highest and last stage of capitalism, with the replacement of free competition by the dominance of monopolies as its fundamental distinguishing feature.”
For reasons that are beyond the scope of this text, Marxists have used so-called market imperfections to criticize capitalism by bringing to the fore issues such as oligopoly and monopoly. This is why free-market advocates have always paid special attention to situations like monopoly. For conservatives and classical liberals alike, Rothbard’s demonstration of the impossibility of the emergence of monopoly under free market conditions is particularly important, because Rothbard takes from von Mises the argument of the impossibility of economic calculation in socialism, expands it by generalization, and then uses it to demonstrate that in free-market conditions a hypothetical monopoly situation will lead to computational chaos and therefore to economic ruin.
The argument of economic calculation is important in the economics of conservative thought, it was originally used (1920) by von Mises, to explain the impossibility of economic calculation in a socialist economy. The fact that 70 years later the Soviet economy went bankrupt exactly according to the recipe that von Mises had intuited in his 1920 essay and knowing how Rothbard demonstrated the impossibility of the emergence of monopoly under free market conditions made us too confident, we did not come up with real attention to the emergence of monopolies in the modern economy. We glossed ad nauseam on topics such as “Government regulation of competitive firms creates monopolies” (and as a person who was deeply involved in the European Union monitoring of Romanian public procurement, I would say that, yes, government regulations favor the emergence of monopolies) but we did not pay attention to the serious, structural, tectonic issues that led to the emergence of monstrous monopolistic structures.
Let us briefly resume Rothbard’s argument (the curious reader can find it in all its splendor between pages 613-615 of Man, Economy, and State second edition LvM Institute):
”Our analysis serves to expand the famous discussion of the possibility of economic calculation under socialism, launched by Professor Ludwig von Mises over 40 years ago. Mises, who has had the last as well as the first word in this debate, has demonstrated irrefutably that a socialist economic system cannot calculate, since it lacks a market, and hence lacks prices for producers’ and especially for capital goods. Now we see that, paradoxically, the reason why a socialist economy cannot calculate is not specifically because it is socialist!”
Rothbard demonstrates reductio ad absurdum that if there were any monopolistic producer, he could not set the prices of capital goods because – as von Mises had already explained – there is only one owner. Capital goods cannot be priced and as a result profits and losses cannot be calculated, economic chaos being the logical consequence. This is the reason why monopolies cannot arise, they are inherently inefficient, they are sources of economic chaos or in rothbardian terms “islands of noncalculable chaos” ready to “swell to the proportions of masses and continents”. For the same reason, Rothbard believes that the vertical integration of production is inefficient – the impossibility of establishing prices for capital goods leads – inevitably – to the appearance of islands of computational chaos. Furthermore:
“As the area of incalculability increases, the degrees of irrationality, misallocation, loss, impoverishment, etc., become greater. Under one owner or one cartel for the whole productive system, there would be no possible areas of calculation at all, and therefore complete economic chaos would prevail.”
In other words, the rothbardian argument regarding monopoly in a free market refers to the ownership structure of the rothbardian “One Big Firm” since the free-market system is an entrepreneurial system and not a managerial one, as von Mises explained very clearly. The managerial structure of the economy has no relevance regarding the possibility of the development of monopolistic structures, only the ownership structure of the economy is relevant if we are interested in issues related to the emergence of monopolies. This is why the ownership structure of modern corporations is important, the ownership structure of any corporation is the only relevant fact if we are concerned about the possibility of a monopoly. The administrative structure of corporations is simply irrelevant from this point of view.
On the other hand, in most Western economies the so called public sector often exceed 50% of the economy, in such cases the emergence of islands of noncalculable chaos is certain; we don’t need to read Rothbard, von Mises is just enough.
The majority share of the public sector in Western economies leads to the politicization of Western societies, political decisions spill over to society particularly to the still private economy. The socialization of the currency, the fractional reserve system, the socialization of the interest rates are such examples, they not only lead to the emergence of economic cycles, but also create the possibility of the emergence of political entrepreneurs. The Cantillon effect is another example of the virus of politics infecting the private environment, nowadays the winners and losers of the economic game are no longer determined by consumers in the free market but by politicians based on political merit.
If we carefully reread the rothbardian argument above, we only discover that monopolies are islands of noncalculable chaos, that they are inherently inefficient structures. It is therefore impossible for any private entrepreneur to be able to support such a structure under free market conditions, the losses would be immense. But Rothbard does not tell us that political entrepreneurs cannot connect their corporations to the resources of the modern state. Corporations politically connected to state resources can reach monopolistic dimensions, although they suffer losses by the very fact that they are monopolies, but the political relationship with the state makes them immune to bankruptcy, losses are transferred to the whole society. Balancing political gains against the losses due to the monopoly position becomes a political equation and not an economic one. The ever-larger islands of computational chaos that arise as a result of the emergence of politically connected corporations become incomprehensible turbulence for truly private entrepreneurs, the area of the economy where economic calculation is still possible narrows drastically.
The fractional reserve system with inflation as its corollary penalizes saving, this is why artificial forced saving schemes have been politically imposed. The capital market is flooded with money belonging to various pension funds, the amounts are huge, such money is not managed entrepreneurially but administratively. On the other hand, the amounts of money issued fractionally by commercial banks are the result of fraud and counterfeiting of the currency and not of entrepreneurial activities, such amounts are managed in any way the reader of this text might imagine but certainly not entrepreneurially. As a result, corporate financing undermines even more the functioning of the free market by expanding the scope of the rothbardian islands of computational chaos and further undermining the private firms still remaining on whatever is left of the free-market.
Entire economic sectors such as the medical sector but also the production and distribution of medical drugs are distorted beyond the possibility of normal functioning in accordance with the laws of the market. Economic loss is socialized as such corporations are well connected to public budgets; this is why health related budgets have exploded everywhere. The mechanisms are completely similar in the cases of Vanguard or BlackRock, but they are much more subtle and less visible, understanding them implies a knowledge of some financial mechanisms whose explanation is beyond the scope of this text.
Poverty, political conflict and decivilisation are natural when it is impossible for us to do economic calculation for any reason, either because the economy is socialized in proportion of more than 50%, or because the rest of the nominally private economy has a monopolistic structure.
What is the difference between a fully socialist economy like the old Soviet economy and one dominated by two big companies like Vanguard and BlackRock on one side, while the other half is owned by the government in one of its many incarnations? In other words, when the government, pension funds, fractional banks or corporations like Vanguard or BlackRock represent modern capitalism, we should understand that this version of capitalism is not fundamentally different from the Soviet socialist economy because both economic models are administrative (i.e. managerial in newspeak) and are not entrepreneurial.
Consequently, we should also understand that the differences in mentality and human quality between the members of the Central Committee of the Communist Party of the USSR and the various occupants of government or corporate offices are not as great as we would like to believe precisely because the economic system which produced them is largely similar, its essence being – it is necessary to emphasize – administrative and not entrepreneurial. Last but not least, we must understand that since the path of the USSR included tyranny, crime and genocide only to reach bankruptcy as the final destination, the destination of Western societies will be bankruptcy while tyranny, crime and genocide are only the first stages of managerial societies.
The revolving door that moves bureaucrats/administrators between corporations, state agencies and the political arena shows that the nature of the elites of Western societies is managerial, that the entrepreneurial spirit is, at best, evanescent. In such an environment, politics is the only reality, truth is largely irrelevant.
The argument of the impossibility of economic calculation was produced by von Mises in 1920, just in time to save the lives of millions of people under Bolshevik rule. The truth was largely ignored, socialist propaganda prevailed even in the western part of the world, and the Soviet version of socialism was allowed to produce the full cycle of economic disaster and genocide before it naturally collapsed as a consequence of the misesian argument of economic calculation.
Rothbard extended the misesian argument of economic calculation to allow us to have an intellectually coherent view of the contemporary corporate environment. In the face of impending economic disaster, there is little doubt about the ideology of Western elites, there is little doubt about the narratives that the corporate media will offer as an explanation for the collapse that has become inevitable as a result of economic inefficiency. It will surely be some Marxist denunciation of the free market as being inherently unstable, prone to imperialism and concentration of capital. The argument of economic calculation will, once again, be ignored. It’s up to us to change that.