1. LABOUR-TIME ACCOUNTING OR CALCULATION IN KIND?
In 1920 Ludwig von Mises published an article “Die Wirtschaftsrechnung im sozialistischen Gemeinwesen”, which was translated into English in 1935 as “Economic Calculation in the Socialist Commonwealth” and published in Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism edited by Fron Hayek. His basic argument was that socialism would be impossible because, without money and prices fixed by the market, society would not be able to do economic calculations rationally. Or, as he put it, “where there is no free market there is no pricing mechanism; without a pricing mechanism, there is no economic calculation”.
Von Mises defined socialism to mean any system in which the ownership of means of production by private individuals was entirely abolished. His definition thus covered total State capitalism as well as socialism. This makes some of his arguments, in so far as they were meant to be arguments against socialism, irrelevant, but in arguing against the possibility of a moneyless society he was also arguing against socialism.
Von Mises accepted that socialist society would be able to decide what it wanted but denied that it would be able to work out the most rational way of meeting those wants:
It will be evident, even in a socialist society, that 1,000 hectolitres of wine are better than 800, and it is not difficult to decide whether it desires 1,000 hectolitres of wine rather than 500 litres of oil. There is no need for any system of calculation to establish this fact: the deciding element is the will of the economic subjects involved. But once this decision has been taken, the real task of rational economic direction only commences, ie, economically, to place the means at the service of the end. That can only be done with some kind of economic calculation. The human mind cannot orientate itself properly among the bewildering mass of intermediate products and potentialities of production without such aid. It would simply stand perplexed before the problems of management and location. It is an illusion to imagine that in a socialist state calculation in natura can take the place of monetary calculation. Calculation in natura, in an economy without exchange, can embrace consumption-goods only; it completely fails when it comes to deal with goods of a higher order. And as soon as one gives up the concept of a freely established monetary price for goods of a higher order, rational production becomes impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.
He did not deny that “labour time” could theoretically provide an alternative unit of economic calculation, but argued that in practice it would be impossible to establish an accurate labour-time unit because of the difficulty of measuring the intensity and skill of different people’s labour. The only possible unit of economic calculation, he concluded, was therefore money.
This was a powerful criticism which caught the Social Democratic and Bolshevik thinkers—both defenders of a total state capitalism rather than socialism, it is true—unprepared. There were three possible reactions to Von Mises’s criticism:
- To accept that money would have to continue to be the unit of economiccalculation in “socialism”;
- To argue that labour-time could be the unit of economic calculation “in aneconomy where neither money nor exchange were present”;
- To argue that in socialism “calculation in natura [in kind] can take the placeof monetary calculation”.
The Social Democrats, including the Bolsheviks (who were of course Social Democrat up until 1917), tended to have a technocratic conception of “socialism” which in practice, as we have already remarked, made them advocates of state capitalism rather than of socialism. As a result discussion on what should be the unit of calculation in socialism was largely a discussion of what should be the unit of calculation in state capitalism. This meant in fact that the outcome of the debate was predictable from the start: the partisans of retaining money, as Kautsky advocated in 1922, as “a measure of value for accounting purposes and for calculating exchange ratios” were bound to win since, in the long run, this was the only solution compatible with the operation of the capitalist system which they wanted to continue, even though in a statised form. The partisans of accounting in labour-time and those of accounting in real physical quantities were never more than marginal and by the end of the 1920s had disappeared both amongst the Social Democrat and amongst the Bolsheviks.
A LABOUR-TIME BLUEPRINT
Calculation in labour-time was defended by the Social Democratic writer, Otto Leichter, in his Die Wirtschaftsrechnung in der sozialistischen Gesellschaft (“Economic Calculation in Socialist Society”) published in Vienna in 1923, in which he argued that this was perfectly feasible as it was already applied under capitalism by accountants to fix prices and by time-and-motion experts. Money, he argued, could therefore be abolished in socialism (= state capitalism), even for the distribution of consumer goods, which could be distributed directly to consumers in kind in amounts fixed by nutrition and other experts.
Otto Neurath (later prominent as a logical positivist philosopher) argued that even labour-time accounting would be unnecessary in socialism (state capitalism). In an “administrative economy” production plans could be drawn up and executed directly and solely in real physical quantities:
The theory of the socialist economy knows only a single economic agent— society—which without profit-and-loss accounting, without monetary circulation—whether metallic money as now or labour-money—and on the basis of an economic plan, organises production without using a unit of account and distributes the means of subsistence according to socialist principles. (O. Neurath, Wirtschaftsplan und Naturalrechnung, Berlin, 1925, p.84)
As the last part of this passage indicates, Neurath too argued that consumer goods could be directly allocated to people in kind.
An attempt to present an alternative to what they called the “State socialism” of both the Social Democrats and the Bolsheviks was made by a group of Dutch “Council Communists” in their Grundprinzipien kommunistcher Verteilung und Produktion (“Basic principles of communist distribution and production”) published in Berlin, in German, in 1930. The “Council Communists” were a group which had supported the Russian Revolution, really believing it to be what, in its propaganda, it said it was, namely a soviet (the Russian word for “council”) revolution. Within a few years, however, they realised their error and that Russia was heading rather for state capitalism. They called themselves “Council” Communists to distinguish themselves from “State Communists” such as Lenin, Trotsky and Stalin.
The Grundprinzipien outlined a plan for organising the production and distribution of wealth without money but on the basis of accounting in units of labour-time. They followed Otto Leichter here, but totally rejected the technocratic structure in which he had seen labour-time accounting replacing monetary calculation. In its place they proposed a federation of workers’ councils.
But when this plan is stripped of its socialist terminology, it turns out to be a scheme for a sort of self-regulating exchange economy in which money as we know it today would be replaced as the currency by a “labour-money”; in other words, the money-prices-wages system would continue to exist but would be run by workers’ councils and without exploitation. But to believe that an exchange economy could function in the interests of the workers if labour-money and labour-time accounting were to be used in place of the coins and notes and monetary calculation we know today is to completely misunderstand how capitalism works and to fall into the purest currency-crankism.
CALCULATION IN KIND: THE RIGHT ANSWER
In the end, then, it was Otto Neurath, with his view that socialist society could organise the production and distribution of wealth directly and solely in kind, who was on the right track. The only other personality in the Social Democratic and Bolshevik movements to take this view was Amadeo Bordiga, but not until the 1950s and in a quite different context to the so-called “economic calculation” controversy sparked off by Von Mises in 1920.
Bordiga had been the first leader of the Italian Communist Party but was eased out of this post in 1923 for his leftist views (which had already been denounced by Lenin in his famous pamphlet Leftwing Communism An Infantile Disorder) and was eventually expelled from the Party altogether in 1930. Although he himself dropped out of political activity till the fall of Mussolini in 1943, his particular brand of “leftwing communism” continued to be propagated by a group who came to be called “Bordigists”. Bordiga did not begin to reflect seriously on the nature of socialism till he was faced with the problem of explaining, after the war, to his followers why Russia was state capitalist and neither socialist nor a “workers’ state”. Thus, after commenting that planning in Russia wasn’t socialist because the plans there were drawn up in money terms as well as physical quantities and that in fact, just like in the capitalism analysed by Marx, these physical quantities had to be converted into money before the productive cycle could begin again, Bordiga went on:
If there is accumulation in socialism, it will take the form of an accumulation of objects, of materials useful to human needs, and these will have no need to appear alternatively as money, nor to undergo the application of a “moneymeter” allowing them to be measured and compared according to a “general equivalent”. Thus these objects will no longer be commodities and will not longer be defined except by their quantitative physical magnitude and by their qualitative nature, what the economists, and Marx also, for explanatory purposes, express by the term use-value. (A. Bordiga, Structure economique etsociale de la Russie d’aujourd’hui, Paris, 1975, pp. 191-2.)
Elsewhere, he pointed out that:
In post-bourgeois society, therefore, it will not be a question of “measuring value by labour-time”, as fools believe, but of finishing altogether with the measurement of value. (Quoted in J. Camette, Capital et Gemeinwesen, Paris, 1976, p.213.)
The rational relationship between man and nature will be born from the moment when these accounts and these calculations concerning projects are no longer done in money but in physical and human magnitudes. (Quoted in J. Camette, Bordiga et la passion du communisme, Paris, 1975, p. 23.)
This is undoubtedly the correct position. Calculation in socialism can only be done directly in physical quantities without the need for any “general equivalent” or any general accounting unit, certainly not money but not labour-time either.
Basically, socialism does not need any general equivalent. Such a universal unit in which all goods can be expressed is only necessary in an exchange economy where all goods have to be reduced to some common denominator as a means of determining the proportions in which they exchange for one another.
ECONOMIC CALCULATION AND CAPITALISM
Capitalism is in fact not just an exchange economy but an exchange economy where the aim of production is to make a profit. This too requires a general equivalent in order to be calculated and measured. Profit is the monetary expression of the difference between the exchange value of a product and the exchange value of the materials, energy and labour-power used to produce it, or what Marx called “surplus value”. Similarly, the cost of production of a good is the-exchange value of the other goods (including labour power) used up in its production, while its selling price is the monetary expression of its exchange value.
Since, as the classical economists and Marx showed, the exchange value of a product depends on the amount of socially-necessary labour incorporated in it from start to finish, the question arises of why calculations cannot be done directly in labour-time rather than in money. It is this reflexion that is behind all schemes for labour money and labour-time accounting.
The reason why it is not possible to use labour-time as a general equivalent in place of money is that the exchange-value of a product does not depend on the actual amount of labour incorporated in that product in the course of its production from start to finish but on the amount of socially-necessary labour incorporated in it, which is by no means the same (otherwise an inefficient worker would, because he took more time, produce more value than an efficient worker, but this is not the case).
While the actual amount of labour spent on producing a good could theoretically be measured, what labour is socially-necessary is a social average — taking into account average techniques, average productivity, average intensity of labour, etc — that can only be established through the social process that is the operation of the market whose price changes reflect the changes which are continuously taking place in the various factors we have just mentioned which determine the average. In other words, it is an average that can only be established after a good has been produced.
This is why Von Mises was right to say that — under capitalism of course — the only possible unit of economic calculation is money not labour-time, but this point had already been made by Marx when he discussed, and dismissed, various schemes for labour-money in 1859 in his A Critique of Political Economy.
NO EXCHANGE VALUE TO MEASURE IN SOCIALISM
If calculation in labour-time is impossible under capitalism, it is simply unnecessary in socialism since socialism will have no place for the concept of “exchange value” of which both money and labour-time are proposed as units of measurement. In socialism goods will not be produced for sale, they will not be commodities and so will not have any exchange value or price. They will simply be useful things capable of satisfying some human need, or as Bordiga put it “materials useful to human needs”, use-values. While capitalism is only interested in the exchange value of goods — capitalism is in fact an economic mechanism geared to the accumulation of more and more exchange value — socialism will only be interested in their use-value. Socialism will be a society entirely geared, in the field of wealth-production, to turning out the specific useful things which people have indicated they want to live and enjoy life.
Under these circumstances calculations concerning the production and distribution of wealth will of course still be necessary, but these can be done exclusively in units to measure specific amounts and kinds of different goods — units such as kilos, litres, square metres, watts, even hours. There will be no need for any general equivalent by which to measure and compare all goods. In other words, calculation in socialism will not be economic but technical. In socialism calculations will be done directly in physical quantities of real things, in use-values, without any general unit of calculation. Needs will be communicated to productive units as requests for specific useful things, while productive units will communicate their requirements to their suppliers as requests for other useful things. How this might work is outlined in the following article.
2. ECONOMIC CALCULATION VERSUS PRODUCTION FOR USE
Defenders of capitalism never seem to ask themselves the practical question about what is the critical factor determining a production initiative in a market system, and moreover, what is the function of a cost/price calculation in relation to that initiative.
The answer is obvious from everyday experience. The factor which critically decides the production of commodities is the judgement that enterprises make about whether they can be sold in the market. Obviously, consumers buy in the market what they perceive as being for their needs. But whether or not the transaction takes place is not decided by needs, but by ability to pay. So the realisation of profit in the market determines both the production of goods and also the distribution of goods by various enterprises.
In the market system the motive of production, the organisation of production, and the distribution of goods are inseparable parts of the same economic process: the realisation of profit and the accumulation of capital. There is no choice about this. Commodity production is organised within the constraints of the circulation of capital. This capital can accumulate, maintain its level or become depleted. The economic pressure on capital is that of accumulation, the alternative is bankruptcy. The production and distribution of goods is entirely subordinate to the pressure on capital to accumulate. Therefore the practical, technical organisation of production is entirely separate from the economic organisation of the accumulation of capital in which cost/ price, value factors play a vital part.
The economic signals of the market are not signals to produce useful things. They signal the prospects of profit and capital accumulation. If there is a profit to be made then production will take place; if there is no prospect of profit, then production will not take place. Profit not need is the deciding factor.
The real function of economic calculation in the market system is not to facilitate the practical, technical organisation of production; it is ultimately about calculating the exploitation of labour.
The market system, involving the circulation of capital, generates commodity values which are brought into a relationship of exchange in the market, so that value, surplus to the value of labour-power, embodied in commodities is realised through sales. When enterprises calculate costs as a relationship of labour-time to output this is not with a view to passing on socially useful information about the organisation of production. They are calculating costs plus the average rate of profit.
Through the exchange of labour-power for wages, capital is invested in the power of workers to produce goods. It is with active labour functioning as deployed capital that capital expands. Labour-power generates more values than it consumes. These surplus values belong to the enterprise in the material form of commodities which are then sold in the market. This is where capital realises its self-expansion and thereby accumulates. The market price of commodites produced must exceed the price of the materials and labour-power required to produce them. This is what costing is all about, and it has nothing to do with the practical organisation of production. In its overall effect the subordination of useful production to the accumulation of capital distorts and constrains social production.
The market is at every point in the system a barrier of exchange between production, distribution and social needs. The circulation of capital confines useful labour within a self-enclosed system of exchange. Labour is activated by an exchange of labour-power for wages and this is determined by the capacity of the market to provide profit through sales.
Economic calculation is not part of the technical organisation of production; it is an indispensable part of the accumulation of capital whether this takes place within the free market or under the system of stale capitalism.
What socialism will establish is a practical system of world production operating directly and solely for human needs. Socialism will be concerned solely with the production, distribution and consumption of useful goods and services in response to definite needs. It will integrate social needs with the material means of meeting those needs, that is to say, with active production. Under capitalism what appear to be production decisions are in fact decisions to go for profit in the market. Socialism will make economically-unencumbered production decisions as a direct response to needs. With production for use, then, the starting point will be needs.
QUANTITIES OF MATERIAL THINGS
Socialism will not depend on calculations of labour-time or the conversion of these into costs since production will not be generating exchange-values for the market. Production for use will generate useful goods and services directly for need, and this will require not economic calculation but the communication of quantities of material things throughout production. This will result from the change in productive relationships. The use of labour in a market system begins with an exchange of labour-power for wages, which is an economic exchange between individual workers and invested capital. This will be replaced by direct co-operation between producers to satisfy social needs in the material form of productive activity.
Modern production embraces activity across the world as a network of productive links. It consists of decisions and actions by individuals, small groups and large organisations. Many of these dispersed activities interact with each other and alter the pattern of the whole. Modern production can only operate on the basis of particular production units being self-adjusting to social requirements in response to information being communicated to them.
Socialism would take over existing world production which is generally structured on three scales. Socialism could rationalise this world structure on a decentralised basis which could operate in the most efficient way through a world, regional and local structure.
Extraction and processing of basic materials such as metals, oil, coal, and some agricultural products, etc., could be organised as world production with distribution to regions and localities.
These materials could be taken up by the regions for the production and assembly of component parts of machinery, equipment and goods for distribution to localities within a region. This regional organisation could include the extraction and supply of those materials which could be contained within that region. A regional tractor-producing plant could take its materials from world supply and then distribute tractors down to the localities within that region.
On the smallest scale, but nevertheless extremely important, local production units could be producing local goods for local consumption and use.
This need not be a rigid arrangement, but an adaptable skeleton structure operating in these three, world, regional and local scales. These would represent the general scales of productive organisation, through which required quantities of materials and goods could be communicated between production units.
DIRECT RESPONSES TO NEEDS
Production for use could work with the basic structure as outlined above. It would operate in direct response to need. These would arise in local communities expressed as required quantities such as grammes, kilos, tonnes, litres, metres, cubic metres etc., of various materials and quantities of goods. These would then be communicated as required elements of productive activity, as a technical sequence, to different scales of social production, according to necessity.
Each particular part of production would be responding to the material requirements communicated to it through the connected ideas of social production. It would be self-regulating, because each element of production would be self-adjusting to the communication of these material requirements. Each part of production would know its position. If requirements are low in relation to a build-up of stock, then this would be an automatic indication to a production unit that its production should be reduced. If requirements are high in relation to stock then this would be an automatic indication that its production should be increased.
The register of needs and the communication of every necessary element of those needs to the structure of production would be clear and readily known. The supply of some needs will take place within the local community and in these cases production would not extent beyond this, as for example with local food production for local consumption.
Other needs could be communicated as required things to the regional organisation of production. Local food production would require glass, but not every local community could have its own glass works. The requirements for glass could be communicated to a regional glass works. These would be definite quantities of required glass. The glass works has its own suppliers of materials, and the amounts they require for the production of 1 tonne of glass are known in definite quantities. The required quantities of these materials could then be passed by the glass works to the regional suppliers of the materials for glass manufacture. This would be a sequence of communication of local needs to the regional organisation of production, and thus contained within a region.
Local food production would also require tractors, and here the communication of required quantities of things could extend further to the world organisation of production. Regional manufacture could produce and assemble the component parts of tractors for distribution to local communities. These would be required in a definite number and, on the basis of this definite number of final products, the definite number of component parts for tractors would also be known. The regional production unit producing tractors would communicate these definite quantities to their own suppliers, and eventually this would extend to world production units extracting and processing the necessary materials.
This would be the self-regulating system of production for need, operating on the basis of the communication of need as definite quantities of things throughout the structure of production. Each production unit would convert the requirements communicated to it into its own material requirements and pass these on to its own suppliers. This would be the sequence by which every element of labour required for the production of a final product would be known.
This system of self-regulating production for use is achieved through communications. Socialism would make full use of the means of communication which have been developed. These include not only transport such as roads, railways, shipping, etc. They also include the existing system of electronic communications which provide for instant world-wide contact as well as facilities for storing and processing millions of pieces of information. Modern information technology could be used by Socialism to integrate any required combination of different parts of its world structure of production.
IN WHOSE INTEREST?
Defenders of the market such as Von Mises and Hayek appear not to understand the system which they represent. But this is not simply a matter of them putting forward fallacious assertions as a matter of ignorance. Their position is based on a crude defence of the privileged interests which do benefit from capitalism. In arguing in favour of these interests, it appears that any nonsense which defies the reality of experience will do. Their more honest position would be that the market system does work, but for those who monopolise the means of living and that therefore economic calculation of the exploitation of labour is indispensable in pursuit of that interest.
The interest which socialists pursue is fundamentally different. Socialism stands for the interest of all workers, the wage and salaried working class on whose skills and energies the material running of society depends. But we also emphasise that the political victory of labour over capital through socialist action will result in a society which will work in the interest of the whole of mankind without distinction of race or sex.
(This article originally appeared in Issue 2 of the World Socialist)