Yes, Senator Cruz, Elon Musk should read Mises’s Bureaucracy


On his podcast “Verdict” November 13, Ted Cruz mentioned one of my favorite books by Ludwig von Mises: Bureaucracy. He mentioned it in reference to the “Department of Government Efficiency” that was also announced by President-elect Donald Trump on the same day. Cruz brings up a crucial point to the conversation surrounding this plan, pointing at Mises for getting it right. The idea lingers that this Department will make government efficient; that is why you need two businessmen—Elon Musk and Vivek Ramaswamy—at the helm.

At a surface level, this idea is compelling, but a closer examination shows that it runs into roadblocks. That roadblock is Ludwig von Mises and his analysis of socialism. Mises’s theory of socialist calculation put an end to the debate over socialism, but it reaches just as much into bureaucracy. To really grapple with what Senator Cruz is sharing about Mises, we need to ask ourselves why businesses are efficient and then ask why the government is not? Mises answers both of these questions.

Why Do Businesses Succeed (or Fail)?

Mises’s Bureaucracy is a rather short text and is a hidden gem in Mises’s collection. He takes his famous theory of the impossibility of socialist economic calculation and grafts it onto bureaucracies. To understand this we first should ask ourselves what are bureaucracies and what aren’t bureaucracies?

Mises addresses this problem quickly. “Bureaucracy”—even in 1944 when Mises wrote this book—was used arbitrarily as a slur against general inefficiency. Corporate affairs? They were dubbed “bureaucracy” by progressives. Governments? Well, conservatives called those “bureaucracies” too. Mises clarifies that businesses—unlike the mentality of the progressives—cannot be “bureaucratic” in the sense it is popularly used. Businesses are naturally efficient. Led by entrepreneurs with a vested interest through ownership, businesses pursue profit. Profit isn’t an aberration of exploitation but rather a demonstration that the use of resources creates value for others.

Exchange only occurs (short of violence) when the actors in the exchange have a double inequality of valuation—both sides of the exchange believe they are receiving more value from the object they are obtaining than what they give up. Through this process—alongside the help of a medium of exchange (money)—we get market prices and economic calculation.

Economic calculation is the core of the market economy. It is the ability to gauge whether the deployment of land, labor, and capital has been beneficial to society is the essential function of the market-price system. This is why businesses have the ability to be efficient. Businesses are able to gauge whether their actions—as well as the actions of managers or their employees—are profitable. Mises praises double-entry bookkeeping for this reason. Double-entry bookkeeping allows for the entrepreneur to view various factors and learn whether they are lending to the general profitability of the venture. Management must—on the risk of losing their job, if not everyone’s—seek out the most efficient and profitable means for operating. This is hardly bureaucratic.

Businesses are not omnipotent, of course, but the market system largely solves this problem. Entrepreneurs and managers who continually make poor judgements of future conditions are quickly flushed from these positions. They suffer losses and must liquidate their poor investments. Those more successful at sleuthing out future conditions through their general knowledge and anticipations are rewarded with profits.

Businesses are, thus, efficient! This isn’t the so-called bureaucracy of contemporary slang. It also isn’t Mises’s bureaucracy. Then, what is a bureaucracy?

Bureaucracies and Why They Fail

Mises has a distinct definition. He defines bureaucracy as “the method applied in the conduct of administrative affairs the result of which has no cash value on the market.” What he means is that a bureaucracy is not a form of management. It isn’t even necessarily a structure. It is a trait of firms and agencies that do not have the ability to engage in proper economic calculation. They either do not, or cannot, seek profit.

Without profit, a bureaucracy cannot be efficient. This gets to the core of Mises’s socialist calculation problem. Mises concedes—for the sake of the argument—that so-called central planners could be benevolent and be imbued with knowledge of technological possibilities with the resources at hand. But, without the ability to engage in economic calculation of factors of production, they will have no idea whether they have engaged in malinvestment or waste. Are they producing too much or too little? Are they going to the right place? Is X method more efficient than Y method? These questions cannot be answered without economic calculation.

Bureaucracies suffer the very same problem. These agencies are given some ideal other than profit and have no gauge for efficiency. This is necessarily the core method of government, as Mises argues. Government does not operate for profit and lacks the ability to do so, even if they wanted to do so.

Take the Post Office for instance. The United States Postal Service is notoriously sloppy and inefficient. On the other hand, UPS and FedEx are celebrated as far more efficient. What causes this difference despite the similarity of their services? The USPS does not work to earn a profit. Their modus operandi is simply transporting mail that they are given a monopoly over. Their only goal is to do this task that is assigned by government edict and often constrained by the very same. The bureaucrats in them have no means to determine whether they are profitable or not. Even the small modicum of revenue brought in are fees rather than market prices.

Bureaucracy is not a thing of business, but rather government. Government services and agencies have no gauge for profitability and, as a result, no gauge for efficiency. How does one calculate where to allocate efficiently police, or the IRS, or immigration, absent of market prices? This leaves government groping around in a dark room with no information that tells them where they are: until they run into a wall.

The Businessman & Bureaucracy

Can a savvy businessman fix a bureaucracy? Can they apply the methods of a successful business to a government agency to make it more successful? The idea is appealing at first: after all, why couldn’t a more efficient person fix the government? Unfortunately, this misses the core problem with government efficiency. The issue of government efficiency is not one of personage and their knowledge. The issue is one of the system in which they operate. Mises clarifies:

The quality of being an entrepreneur is not inherent in the personality of the entrepreneur; it is inherent in the position which he occupies in the framework of market society. A former entrepreneur who is given charge of a government bureau is in this capacity no longer a businessman but a bureaucrat. His objective can no longer be profit, but compliance with the rules and regulations. As head of a bureau he may have the power to alter some minor rules and some matters of internal procedure. But the setting of the bureau’s activities is determined by rules and regulations which are beyond his reach.

The system of a bureaucracy is not one of profit and loss, and the methods of an entrepreneur cannot operate there. Mises continues in the same section:

In the field of profit-seeking enterprise the objective of the management engineer’s activities is clearly determined by the primacy of the profit motive. His task is to reduce costs without impairing the market value of the result or to reduce costs more than the ensuing reduction of the market value of the result or to raise the market value of the result more than the required rise in costs. But in the field of government the result has no price on a market. It can neither be bought nor sold.

While it is well-meaning to desire greater efficiency in the systems through which we must operate; we encounter a problem that cannot be solved by changing the men inside them. No swapping around of policies, personnel, and processes can make government work better, because those have no measurement mechanism in profit or loss. Government is by the code, not by the consumer. It lacks a way to efficiently allocate labor, land, or other resources because it lacks economic calculation. An entrepreneur doesn’t operate in these conditions.

Senator Cruz sums it up well: “All of your incentives [in government] not only are they not aligned on the profit motive, they are exactly the opposite of the profit motive. So I actually recommended Elon, he read the book.”

Government in of itself can never be efficient, it can only get moved out of the way of what brings real efficiency—entrepreneurs like Elon and Vivek. The best way to bring efficiency to America is to heed Mises’s warnings and just get rid of bureaucracies. I hope Elon Musk takes the time to read this book by Mises, as it is a perfect encapsulation of everything that is wrong with government. To make America efficient again, we need to make America non-bureaucratic again.

Get a copy of or read Mises’ Bureaucracy here!

 


Originally Posted at https://mises.org/


  • Related Posts

    Putin ‘will not stop on his own,’ warns Zelensky on 1,000th day of war

    Ukraine’s President Volodymyr Zelensky on Tuesday urged Europe to push Moscow “harder” towards what he described as a “just peace”, in a speech to the European Parliament marking 1,000 days since the start of Russia’s invasion. “Putin is focused on winning this war, he will not stop on his own,” Zelensky told EU lawmakers in […]

    The post Putin ‘will not stop on his own,’ warns Zelensky on 1,000th day of war appeared first on Insider Paper.

    Millions Of Swedes Receive ‘How To Survive War’ Booklet From Government

    Millions Of Swedes Receive ‘How To Survive War’ Booklet From Government

    On Monday the government of Sweden began issuing pamphlets advising its population on how to survive an unexpected disastrous war scenario, at a moment tensions are on edge with Russia, and after weekend reports saying the Biden administration has authorized Ukraine to conduct long-range missile strikes on Russian territory using US-supplied weapon systesm.

    Millions of Swedes are receiving the directives, entitled “in case of crisis of war” – which is an updated version of something the Swedish government issued six years ago. But now things are very different, given there is a hot war in Eastern Europe, and given Sweden is NATO’s newest member state. It’s all about being able to survive for a few days or a week, and imagines something like a shock invasion by a foreign hostile power.

    TT News Agency via AP

    The newly updated booklet is said to be twice the size as the one that was issued in the last decade. The other new NATO member, Finland, has also issued its own guidelines to the Finnish population on “preparing for incidents and crisis”. The warnings document how to cope with not just war-time situations where basic services and infrastructure may go offline, but how to survive extreme weather events as well.

    According to the BBC, the Swedish pamphlet reflects the new realities of Stockholm having abandoned its historic post-WW2 neutrality

    For Swedes, the idea of a civil emergency booklet is nothing new. The first edition of “If War Comes” was produced during World War Two and it was updated during the Cold War.

    But one message has been moved up from the middle of the booklet: “If Sweden is attacked by another country, we will never give up. All information to the effect that resistance is to cease is false.”

    “We live in uncertain times. Armed conflicts are currently being waged in our corner of the world. Terrorism, cyber attacks, and disinformation campaigns are being used to undermine and influence us,” the booklet’s introduction section reads.

    “To resist these threats, we must stand united. If Sweden is attacked, everyone must do their part to defend Sweden’s independence — and our democracy. We build resilience every day,” the pamphlet continues. “You are part of Sweden’s overall emergency preparedness.”

    The booklet even addresses local collective preparedness, such as citizens banding together to form volunteer defense units, and giving blood, or giving classes on CPR and survival skills.

    in the case of Finland, its digital booklet states that the country which shares a border with Russia “has always been prepared for the worst possible threat, war.”

    Such instructions from Nordic governments, envisioning the worst-case scenarios that could befall the region, have only stepped up since the start of the Ukraine war. 

    One 24-year old Finnish student, Melissa Eve Ajosmaki, has told BBC: “Now I feel less worried but I still have the thought at the back of my head on what I should do if there was a war. Especially as I have my family back in Finland.”

    Tyler Durden
    Tue, 11/19/2024 – 05:45

    You Missed

    Putin ‘will not stop on his own,’ warns Zelensky on 1,000th day of war

    Putin ‘will not stop on his own,’ warns Zelensky on 1,000th day of war

    Millions Of Swedes Receive ‘How To Survive War’ Booklet From Government

    Millions Of Swedes Receive ‘How To Survive War’ Booklet From Government

    Celebrating International Men’s Day

    Celebrating International Men’s Day

    Paper

    Paper

    Hollywood Must CHOOSE Its Future: Studios Face RECKONING Over Woke Ways! The Pro Show LIVE

    • By WDWPro
    • November 19, 2024
    • 2 views
    Hollywood Must CHOOSE Its Future: Studios Face RECKONING Over Woke Ways! The Pro Show LIVE

    US to call for Google to sell Chrome browser: report

    US to call for Google to sell Chrome browser: report