Tuesday, July 24, 2007

Peter Klein, Mistaken?

I get this quote second-hand, from Peter Lewin (1999):
"[N]o firm can become so large that it is both the unique producer and user of an intermediate product; for then no market based transfer prices will be available, and the firm will be unable to calculate divisional profit and loss and therefore unable to allocate resources correctly between divisions." - Peter Klein (1996: 15). "Economic Calculation and the Limits of Organization", Review of Austrian Economics; V. 9, N. 2: 3-28.
I have already explained that Sraffa's price theory can be read as instructions to accountants. Klein is being too categorical; correct accounting rules can exist in some cases where he says they cannot. (I am sympathetic to the idea that accounting rules, in practice, contain a large conventional element. Sraffa's instructions to accountants need more information than is usually available, and cases may exist - joint production when the so-called Golden Rule does not hold - where the instructions cannot, even in principle, be applied.)

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