BofA Bailout - Limits To The Size of Corporations

Austrian school economists argue socialism failed for the reason that when the state owns the means of production, there is no way to know prices or costs, so allocation is distorted until things get so bad it all falls apart. Think Soviet Union.

RH Coase argued the point of a corporation is to take advantage of costless or less cost transactions: think of your copper tubing company buying copper from another company versus mining your own copper; also if you and I run out and get photocopies, we pay sales tax on the transaction using after-tax dollars. A corp pays no tax using pre-tax dollars. The list goes on.

Austrian economist Peter Klein has blended both points "Economic Calculation and the Limits of Organization," Review of Austrian Economics 9, no. 2 (1996): 51-77." Available here in .pdf.

His thesis is simple: there is a limit to the size of corporations for the same reason there is a limit to the size of states. They lose control of costs. Bank of America has gone from over $40 to $7 in less than 3 months after engorging on other failed banks. Now Bank of America has been given its first tens of billions with many more to come.

Since in this election ideas do not matter, we will get more of the same. If the government keeps it up, we will get to where the Soviet Union got in 1990. This prospect does not worry me. I spent a few weeks in Moscow in 2004. While the vast majority of people were experiencing want of basics, there were some terribly wealthy people and a wide swath of self-employed doing just fine. If the Hamiltonians fail with Obama, it will have no impact on the Jeffersonians.

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