On the fading away of the labor theory of value in a classless society

Labor-money and socialist planning
(part one)

by Joseph Green
(from Communist Voice #25, Nov. 27, 2000)


Part one
Why deal with this issue?
Overview of the argument
The labor content
The search for the natural unit
-- The early days of the workers' movement
-- The emergence of Marxism
-- The Day After the Revolution
-- After 1917
-- One, two, three, many natural units (the method of material balances)

Part two (to be published next time)
The annual cycle of production
The mistake of equating living and dead labor
Contradictions of true value
True value and capitalist growth
Marx's and Engels's views
Some remarks on planning in a classless society
Value and the transition period


. The bourgeois economists say that without money, markets and capitalists, economic life would come to a standstill. There would supposedly be no way to decide what to produce, what methods to use to produce it, and how to distribute it among the population.

. How, indeed, will economic calculation take place in a society without capitalists or the profit motive? This is one of the questions about the feasibility of communist society. It has been answered in various ways by different schools of communist thought. Some communist theoreticians say that calculations with money should be replaced by calculations using labor-hours. In the mid-nineteenth century this idea first appeared with those theoreticians who argued that ordinary money should be replaced with "labor-money", which doesn't use dollars and cents but instead measures the value of things by the number of labor-hours needed to produce them. They regarded this as letting every object have its "true value", and thought that the evils of capitalism came from the distortion of this true value in the prices that occur in the marketplace. Later, among those who advocated that communist calculation would be in labor-hours, it was usually argued that this wouldn't mean the establishment of true value, but would instead be a sign that exchange-value and money had been overcome. Many of these theorists argued that the superiority of communist planning over capitalism centered on the use of a "natural unit", which is how they regarded the labor-hour, instead of artificial financial units, such as the dollar, ruble, franc, or peso.

. This article disagrees with these positions. It advocates that the labor-hour scale is not a rational, natural or scientific unit of planning, but the essence of capitalist exchange value. While any communist society will of course pay attention to the amount of labor, raw materials and equipment needed for the production of any useful item, it will not be able to reduce these considerations to the bottom line, a single unit, whether of labor-hours or anything else. Communist planning, the assessment in a communist society of what production is possible and what benefits and shortcomings it involves, will proceed from a concrete assessment of economic activities, and not by judging each choice by a single number on some numerical scale, even if that number represents so many labor-hours. In my opinion, this is what Marx and Engels meant when they said neither value, nor true value, would govern the future society. They stressed that to imagine that a society without capitalists and commodity production would be ruled by true value is to imagine that one could abolish Catholicism by setting up the true pope. This means that, as far as applicability to future economic life, the labor theory of value will fade away in a classless society, along with capitalist value: it is not a theory of how planning should be done under communism, but an insightful analysis of capitalism and of its exploitation of the working class.

Why deal with this issue?

. But why bother worrying about how planning will take place under communism? After all, the future society will figure out for itself how to do economic calculations. Experience will soon lead it to abandon various theoretical fallacies, and far more completely than any amount of theoretical disputation will accomplish today. Moreover, it is unlikely that the revolutionary movement under capitalism will ever agree totally on the methods of future communist calculation. Indeed, even in the CVO we are still discussing this issue, and have not yet come to a final conclusion. A strong socialist movement should be clear on the basic class changes it wants to bring about, but it would be a mistake to split the revolutionary movement over mere details about the future society.

. Nevertheless, the discussion of the nature of communist planning can help clarify some points about the nature of communism. Certain broad conclusions will eventually emerge, and they can help clarify a number of points of interest today, and refute some common but mistaken ideas.

. For example, today there are a number of left theorists who are preoccupied with inventing new mathematical systems of planning for a future society. But a careful study of the needs of planning will show that it is not mathematical technique, but social relations which are crucial to whether communist society will function. The fundamental issue remains whether workers (the entire population will be workers in a classless society) will produce efficiently and in a disciplined manner without the existence of a separate managerial class holding the whip of oppression and hunger over them. If so, then even relatively simple mathematical techniques will allow the economy to function, and the techniques can be improved over time. If not, then no mathematical technique can make communism viable.

. A careful study of the needs of communist planning will also pour cold water on the fruitless search for the single, "natural" economic unit, what one might call the natural unit of planning. The medieval alchemists sought long and hard for the philosopher's stone that would convert lead to gold, while in the twentieth century the natural unit was the philosopher's stone of much quasi-communist theorizing.

. Issues about planning also come about with respect to the collapse of the Soviet and other state-capitalist economies. For decades, many of the advocates of new mathematical systems of planning have believed that their inventions would supply a critical gap in the state-capitalist systems such as the former Soviet Union or eastern Europe. Yet the problem with these economies was not that defective econometric techniques resulted in a growth rate a percent or two lower than otherwise achievable. Instead the economies eventually bogged down in stagnation and crisis; the economic figures sent from factory to ministry and back, or appearing in the public reports of the government, were in large part fantasy; and the struggle of each individual and grouping for their private interests went on underneath the constant repetition in public of pious words about concern for all. These were symptoms of the exploitative class relations in these societies, which were no longer revolutionary but had developed Stalinist or other oppressive ruling classes. The ruling classes of these societies beat their breasts about how "socialist" they were, but these were societies where the workers had no say, and where the state-capitalist bureaucrats jockeyed among themselves to accumulate the most privileges. It was the struggle of one state-capitalist executive and planner against another, and the struggle of them all against the local working classes, that led to the false reporting of economic figures, and to the anarchy that corroded the entire economic system.

. The refutation of the fallacies of labor-money and the natural unit of economic calculation also bears on the fallacies of the market socialists, who believe, along with straight-out bourgeois economists, that only money and the market can effectively direct economic life. Indeed, many of the left economists who are looking for elaborate new planning schemes are vainly seeking to devise market mechanisms which will, by some magic, produce socialist rather than capitalist results.

. There is also the question of what central planning will look like in a marketless communist society. There are those who believe that, if there is no money and no market, then every economic decision must be dictated from the center. It has therefore been advocated that communism has only now become a possibility because there are powerful supercomputers, capable of keeping track of thousands, indeed millions, of different products and factories, and comparing them via complicated mathematical methods. This computer model of communism is a science-fiction nightmare, which ignores the need for extensive human initiative at every step of economic activity. This is related to the issue of the natural unit of calculation, because to reduce decisions to what can be mechanically calculated by a computer, generally requires a method of reducing the multitude of different economic factors to a single quantitative index or parameter: the computer then evaluates the different plans, arriving at how each plan measures up according to this ultimate index. In reality, computers are important economic tools, but subordinate ones, and the single quantitative index that provides a true and supreme guide to all economic life will never be found. Instead of searching for this index, it is important to get an idea of how, in a communist society, central planning and local initiative can not only coexist, but even be prerequisites, one for the other. The bloated central ministries of the old Stalinist model, which feared and quashed most local initiative, are not models of communist central planning but of state-capitalist oppression of the mass of the population.

. It is also important to show that the possibility of communist society and of central planning does not depend on there being perfect foresight of every eventuality. It is the development of large-scale production, and of a working class accustomed to cooperation and social production by its work in large-scale production, that creates a material basis for the emergence of communist society, with its planned economy. But life will always bring unexpected events, and indeed progress itself -- the replacement of the old by the new -- involves some unpredictable results. Communist economic life will be notable for its ability to handle economic surprises better than a market economy.

. The present article will deal with what seems a mainly technical question: the issue of whether the labor-hour will replace the dollar as the regulator of economic life. Nevertheless, it will touch, at least to some extent, on all of the above issues, some of which deserve future articles in their own right. Although we can only anticipate the most general outlines of a future society, we can still draw some conclusions of use to our work today.

Overview of the argument

. The body of this article begins by defining the "labor-content" of a product, which measures the number of labor hours used in producing this product. It then proceeds to sketch the history of the search for the natural unit of economic calculation that would replace financial measurement, with the labor-content (or some variant) being the main contender for this role.

. Historically this search has been closely connected to a belief that equal exchange would eliminate capitalist exploitation. The labor theory of value was first developed by bourgeois economists. But starting in the first half of the 19th century, a number of major left-wing figures, both socialists and anarchists, took the labor theory of value to mean that equal exchange, according to the fair or true value of goods, would allow the working class to vanquish capital. The article points out that Marxism, with its insistence that equal exchange leads not to the liberation of the working masses, but their exploitation, marked a radical challenge to previous ideas. Marxism also denounced the pursuit of true value as a chimera, but some communists now believed that the quest for a natural unit was a quest, not for true value, but for its negation.

. This survey of the search for the natural unit concludes by examining the method of "material balances", which was originally developed in the Soviet Union and served to supplement financial calculation with a consideration of the physical (natural) interrelationships between the different sectors of the economy. Experience with this method verifies that planning an economy directly in material terms requires a multitude of natural units, and can't be done by the use of a single natural unit. Thus ends the first part of the article.

. Part two of this article, to appear in the next issue of Communist Voice, will then turn from history to theory in itself, and elaborate a series of reasons why neither the labor-content nor anything else can fulfill the role of being a single, regulating natural unit for economic planning. The first reason to be given will be that it is crucial, in planning the yearly production of an society, to distinguish between present (or living) labor and past (or dead) labor. As far as the labor-content goes, past labor, crystallized into existing stocks of such things as raw materials, machinery, and consumers goods, is equivalent to living labor. A hour of past labor equals an hour of present labor. But in economic planning, they cannot be equated. For example, a production plan is restricted by the amount of raw materials and machinery (produced by past labor) that exists: it can plan to increase these goods for the next production cycle, but in the present production cycle it can only use as much raw materials and machinery as it already has on hand, no matter how much living labor is available.

. It will be further be shown that the labor-content doesn't provide a means of determining whether factories are producing efficiently. Nor does it provide a way of allocating labor to different enterprises, even given that one has already decided what goods should be produced. And it does even worse in dealing with the issue of deciding what goods should be produced.

. Moreover, the article will advocate that to regulate production by measuring all economic goods via a single index, a single unit of measurement, would mean, in effect, using money. It would, ultimately, subject the economy to the law of value. Using labor-hours as the single or controlling index doesn't change this conclusion. The article will show that the result of regulating production under communism in this way would be to reproduce a number of the economic irrationalities of capitalism.

. Along the way, the article will cite some of Marx's and Engels's denunciations of the idea that either present-day value, or a purified true value, could regulate future society. It will at one point turn in more detail to Marx's and Engels's views concerning measurement by labor-hours and the regulation of production under communism. It will cite Marx's view that to equate different economic products quantitatively, on a single scale, means to ignore the qualitative differences that truly exist between them. Hence, it would seem to me, it follows that no such single numerical scale can serve as the natural unit of economic calculation, because any such scale negates the "natural" (material, physical) qualitative differences between products and between the labor of different people. There can only be a multiplicity of natural economic units, each measuring a single material good or factor of production, not a single natural unit which stands supreme above them all and serves as the natural unit of overall calculation. To put the different natural units into a purely quantitative relationship with each other, as is required if there is to a single, supreme unit of economic calculation, is to negate the qualitative differences between the things being measured by the different natural units. The article also deals with a series of quotations from Marx and Engels which seem to show them advocating--and have been widely used to portray them as doing such--that the measurement of labor-hours will indeed be the regulating principle and bottom line of communist society. It shows that, actually, they were simply advocating that, despite the lack of money, economic accounting and calculation exist in communist society.(1)

. The article will then turn to a brief discussion of some ideas about how planning will take place under communism. It will sketch how such planning can proceed even though there is no single natural unit of economic planning and to refute the idea that this would require every single economic decision to take explicit account of thousands, indeed millions, of different factors, something that would squelch all local initiative.

. However, the theme of this article, that the labor-content is not a natural economic unit, is not meant to imply that no consideration whatsoever will be given to the labor-content (or some other single scale of economic measurement), only that such a scale can only be one of several tools that might be used in economic life. It will not be the bottom line of economic decisions, nor the regulator of overall economic decisions. Were an attempt made to use it as the bottom line in economic planning, it would be subject to all the objections made earlier in the article. But the article is not putting forward a type of magic which would make the number of hours of concrete labor of a definite sort used to produce a product disappear from economic planning, nor does it even advocate that the labor-content -- a measure of abstract rather than concrete human labor -- will necessarily disappear altogether from economic considerations. It will instead suggest what use a communist society might conceivably make of a single numerical scale upon which all articles are measured. It will also point out that communist society will routinely, frequently, and inevitably take major and minor decisions that ignore or even completely violate this scale, something that would be impossible if this scale really were the long-sought natural unit of economic planning.

. If the reader didn't realize in advance that this article is not arguing that the labor-hour is irrelevant to economic planning, the reader might end up feeling cheated. Coming to the latter part of the article, such a reader will feel that the article, in discussing the subordinate uses which the labor-content might have in communist planning, is going back on everything said earlier. If the distinction between concrete human labor and an abstract measure of labor (such as the labor-content), and the distinction between the labor-content as the bottom line of economic planning versus being a subordinate measure, seem at first to be vague and forced to some readers, such a reader, being warned in advance, may then consider these points in connection with every argument against the labor-content as bottom line or natural unit that is made throughout the article. Again and again, the reader will see that there is a distinction between concrete labor-hours and abstract labor-hours. Concrete labor-hours are not interchangeable and have distinct, qualitative features (some being crystallized in past production, and some being the labor expended during the current production cycle; some being done by workers of one skill or residing at one particular location, some by workers with another skill or living elsewhere; etc.). Abstract labor-hours are interchangeable, one abstract labor-hour being equivalent to any other such hour. The labor-content is a measure of abstract labor-hours, which would only be a natural unit if all labor-hours were indeed interchangeable. But labor-hours are only interchangeable on the market; once the market is gone, labor-hours must be considered in their material distinctness. In such a situation, a measure of abstract labor-hours can only be an approximation, and can only be of use under certain circumstances. It may be hard work to grasp these distinctions, but there will be ample rewards for doing so: once these distinctions are grasped, they will be found to be key to a number of economic problems.

. Finally, the article will conclude by raising some issues concerning the labor-content and value in a transitional society. The socialist revolution will not immediately produce a classless, moneyless society. After the capitalists are stripped of political power, there will be a protracted transitional period during which the capitalists are dispossessed and the working masses develop their ability to run the economy, and to run it in a new way. The article will show that the labor-content and value will continue to have an objective reality in such a society, not just as a subordinate planning tool but as an independent reality that can never be lost sight of. But the extent of that role will be a measure of how far the transitional society has still to go to achieve communism, a measure of how far commodity production is still a reality in the transitional economy.

The labor content

. Now to begin. What this article calls the "labor content" of a product refers to the number of labor-hours it takes to produce it. This includes not just the number of hours which workers at the final factory or workplace have to devote to fabricating it, but also the amount of labor embodied in the raw materials needed for its production, as well as the amount of labor needed to maintain in good condition the needed tools and machinery or embodied in replacement tools and machinery. So the labor-content of an item equals the number of labor-hours expended by the immediate producers plus the labor-content of the necessary raw materials and the labor-content of the machinery etc. that has to be replaced due to being worn down during the production process.

. But isn't this numerically equal to what the labor-theory of value regards as the value (exchange-value) of a commodity? Yes, it is, so that one can find more elaboration on what it is by consulting the detailed description given by Marx in volume one of Capital. For example, as explained by Marx, the labor-hours that count toward the labor-content or value are solely the "socially-necessary" labor-hours. For example, if a particular worker is clumsy and slow and takes more time to produce things, this doesn't make the things produced more valuable than those of the average worker, nor are the products of an exceptionally fast worker -- who spends less time on the work -- thereby less valuable. Whether a particular worker takes five hours or fifty hours to produce something, the labor-content of the product is determined solely by the average time that workers of normal skill and dedication would take to produce it under average conditions and with the usual equipment.

. Well, if the labor-content is, numerically, simply the value (as defined by Marxism), why give it another name? But for one thing, I will apply the term "labor-content" not just to commodities, which have a capitalist exchange-value, but to things produced in a communist society, which don't have an exchange-value. Moreover, this article also deals with different views concerning whether calculations via labor-hours provide a system of communist economic calculation, or whether this would result in having the economy duplicate the problems caused by capitalist value. To discuss these issues, it is necessary to distinguish between the number of hours involved in producing a product (the labor-content), and whether such a number functions as the value of a product. This should hopefully reduce terminological arguments and misunderstandings to a minimum and focus attention on the content of the matters at stake.(2)

The search for the natural unit

-- The early days of the workers' movement --

. The idea of replacing money with calculations based on the labor-hour goes back to the first half of the 19th century. It appeared at first not as the idea of eliminating money, but of replacing ordinary money with labor-money, money denominated in labor-hours. The details of the idea varied from author to author, but generally speaking, the idea was that buying and selling were to continue, but these transactions would now be exchanges of equal value: anyone producing a product should be able to exchange it for money worth the precise number of hours that the product required for its production. The use of labor-time for calculations was supposed to ensure that any product would always be exchangeable, and its producer could always obtain goods of equal value in return for it. There would be no problem of producing goods which couldn't be sold or exchanged, and no problem of finding suitable goods which one wanted in exchange for one's product.

. The famous utopian socialist Robert Owen put forward such a view as early as 1821. One history of socialist thought points out that

"In the Report to the County of Lanarck Owen compares labour-power to horse-power. He says that, although individual horses differ greatly in power, that has been no obstacle to the establishment of a standard of horse-power as a unit of measurement. The same, he says, could be done with the power of labour, which is the sole agency capable of imparting value to commodities. . . . Owen argues that the natural value of things made by men depends on the amount of labour incorporated in them, and that this labour is measurable in terms of a standard unit of 'labour time'. . . . Labour, he contends, should supersede money as the standard for measuring the relative values of different commodities; and the exchanging of one thing for another should be done in terms of their relative values thus ascertained."(3)

Eventually a series of "Labor Exchanges" were set up that used "Labor Notes" for buying and selling.

. Marx pointed out that

"the theory of labour time as an immediate money unit was first systematically developed by John Gray" in 1831. He cited Gray posing the alternative: "Shall we retain our fictitious standard of value, gold, and thus keep the productive resources of the country in bondage? or, shall we resort to the natural standard of value, labor, and thereby set our productive resources free?" (emphasis added)(4)

. These ideas were inspired by the labor theory of value developed first by such bourgeois economists as Adam Smith and David Ricardo. However, left-wing activists derived conclusions rather different from those intended by Smith and Ricardo. Marx pointed out that during this period

"in England. . .  almost all the Socialists . . . have, at different periods, proposed the equalitarian application of the Ricardian theory"

and pointed in particular to Thomas Hodgskin, William Thompson, T.R. Edmonds, John Francis Bray, and John Gray.(5) He characterized the "ultimate meaning" of the reproach that they leveled at the bourgeois economists as follows:

"Labor is the sole source of exchange-value and the only active creator of use-value. This is what you [Adam Smith, David Ricardo, etc.--JG] say. On the other hand, you say that capital is everything, and the worker is nothing or a mere production cost of capital. You have refuted yourselves. Capital is nothing but defrauding of the worker. Labor is everything."(6) (Emphasis as in the original)

. Thus these socialists not only believed that the labor theory of value vindicated the proletarian cause, but that it showed that capital oppressed the worker simply by defrauding him. Hence, they held that if exchange proceeded fairly, according to the real value of goods as determined by the labor theory of value, capital could be overcome by the working class. Marx pointed out that "the most important" of these proletarian advocates wanted to eliminate capital. However, Marx said, they accepted commodity exchange and the marketplace, unaware that these are the "economic pre-conditions of capitalist production" and that their "necessary consequence" is the development of capital.(7)

. The belief in labor-money and equal exchange existed not only among many early socialists, but also among many anarchists. Josiah Warren, one of the early American individualist-anarchists, was originally a participant in the Owenite utopian community of New Harmony in Indiana. In 1827 he left New Harmony and began to develop his own theories, in which he looked to an extensive development of commodity exchange for a solution to the problems of New Harmony. This was to differ from the ordinary commodity exchange in capitalist society by being equal exchange. As the pro-anarchist historian Woodcock says,

. ". . . He therefore made 'labor for labor' his formula, and sought to find a means of putting into effective practice Owen's original proposal for an exchange of labor time on an hour-for-hour basis, but with a flexibility that would allow individuals to agree on some kind of adjustment when one man's work, irrespective of time, had clearly been more arduous than another's.
. "Immediately on his return from New Harmony to Cincinnati, Warren started his first experiment, which he called a Time Store. He sold goods at cost, and asked the customers to recompense him for his own trouble by giving him labor notes, promising to donate to the storekeeper an equivalent time at their own occupations for that consumed in serving him."(8)

. Years later Pierre-Joseph Proudhon, one of the patron saints of anarchism, came to a similar conclusion about equal exchange. He held that capitalist market relations were essential, but had the bad side that the small producers were suffering under them. The key to removing the bad side of capitalist relations was supposed to be buying and selling at a fair price. That price was the amount of labor needed to make the product being traded, the labor-content, which he called the "constituted value" or "absolute value" of the product. More generally, he saw the principles of fair exchange and of contractual relations as key to allowing small production to flourish under capitalism.(9) He further suggested that it was absurd not to carry out this exchange in labor-units, rather than then the French monetary unit, the franc. As he said:

"In economic science, we have said [that] after Adam Smith, the point of view from which all values are compared is labor; as for the unit of measure, that adopted in France is the FRANC. It is incredible that so many sensible men should struggle for forty years against an idea so simple. But no: The comparison of values is effected without a point of comparison between them, and without a unit of measure, -- such is the proposition which the economists of the nineteenth century, rather than accept the revolutionary idea of equality [equal exchange, according to "constituted value" and labor-hours], have resolved to maintain against all comers. What will posterity say?"(10)

. Proudhon's system of "mutualism" involved, besides equal exchange, having the small producers create some institutions to help themselves out, but these institutions were to help them survive under equal exchange. Thus he held that the small producers needed to get free credit from a "People's Bank". And he advocated that the aim of co-operatives and workers' associations should be

"not to substitute collectivities for individual enterprise . . . It is to secure for all small and medium-sized industrial entrepreneurs, as well as for small-property owners, the benefit of discoveries, machines, improvements and processes which would otherwise be beyond the reach of modest firms and fortunes."(11)

. Woodcock points out that when

"Proudhon's mutualism was introduced into the United States . . . its similarity to native individualism was quickly recognized. The Proudhonians remained a small sect, but they and the disciples of [the previously-mentioned Josiah] Warren" helped focus interest on "currency reform".(12)

. It may seem strange that the anarchist Proudhon, who is most famous for his declaration that "property is theft", was a fervent advocate of commercial exchange and respect for contracts. But he also believed that "property is liberty". Proudhon repeatedly clarified that he was only denouncing such things as the abuse of property rights, feudal property rights, the cheating of the small producer by the large, and unequal exchange, not the right to "possession" (which, in his mind, was the right to small property) or even the right to profits, rent and interest. He wrote that

"Property is theft; property is liberty: these two propositions stand side by side in my System of Economic Contradictions and both are true."

And he clarified that

"I protest that when I criticized property . . . I never meant to . . . prevent property from being freely and regularly acquired through sale and exchange, nor to forbid and suppress, by sovereign decree, ground rent and interest on capital. . . . all these forms of human activity should remain free and optional for all."(13)

. Thus, among both socialists and anarchists, there were a number of advocates of exchange according to the true value of commodities, or the carrying out of calculations in labor-hours. Indeed, this idea was reasonably widespread for a time in the workers' movement of the first half of the 19th century. It was not just a matter of theory, but was implemented in a series of experiments with Labor Exchanges, Time Shops, People's Banks, and proposals for currency reform. The collapse of various Labor Exchanges and other experiments threw cold water on these ideas, and the working class movement turned to unions, strikes, political parties, and other means of struggle. Nevertheless, labor exchanges and alternate currency schemes have continually popped up here or there, and they are still promoted today as methods of establishing alternate community currencies. Minor reformist projects of this sort, such as LETS plans (Local Exchange Trading Systems), have been created by community activists in a number of cities.

. There are also variants of the LETS idea which use the labor-hour as the unit of account. These include the "Time Dollar Service Exchange" plans, "Ithaca HOURS" style-plans, and another variant under development called ROCS (a Robust Complementary Community Currency System). They differ in a number of details, including the relationship of the standard hour of account to an actual hour of an individual's work. For example, in most Time Dollar plans one person's labor-hour is equal to another's, and anyone can get a standard labor-hour worth of Time Dollars for an hour of work. But how many Ithaca HOURS one gets for any particular job or for an hour of work is negotiated in each transaction, and can depend on skill, intensity of work, use of one's own expensive tools, bargaining skills, desperation, etc.

-- The emergence of Marxism --

. The emergence of Marxism brought something new into socialist theory. Marx took up the labor theory of value, as had various socialist theorists prior to him, but his elaboration of this theory marked a revolutionary break with previous ideas. Marx showed that pricing according to value would not eliminate exploitation. On the contrary, pricing according to value,

"measured by labour time, is inevitably the formula of the present enslavement of the worker, instead of being, as M. Proudhon would have it, the 'revolutionary theory' of the emancipation of the proletariat."(14)

. No doubt capitalists cheat the workers as much as they can. But Marx showed that the origin of the surplus-value which the capitalists extracted from the workers did not lie in cheating in the marketplace. It arose from the process of capitalist production itself, in which the capitalists monopolized the means of production and the workers sold their labor-power, and this exploitation would continue if everything, including the workers' labor-power, was bought and paid for at its full value. Moreover, even if there was the most perfect and equal exchange in the marketplace, the class differentiation between workers and capitalists would continue to grow so long as commodity production continued to exist. All this might suggest that any plan for running an economy more exactly according to the labor-content than is achieved in the capitalist economy, would not amount to anything but copying, and trying to improve and perfect, the commodity marketplace.

. But why had value, reflecting the underlying laws of commodity exchange, ever been thought of as a remedy to exploitation? Well, in the marketplace, the prices of goods only have a tendency to conform to their exchange-value: they only average around this value, and even that only under appropriate conditions. Fluctuations in pricing cause hardships for the working masses, and the inability to sell goods at a reasonable price often ruins small producers. But the labor-exchange plans promised to stabilize prices and provide guaranteed markets for small producers and guaranteed sources for consumers. In dealing with the conceptions that were current in his time, Marx devoted a good deal of his criticism of these labor-exchange and labor-money plans to the mistaken idea that they could accomplish these goals. He pointed out that fluctuations in pricing, and in supply and demand, were inherent in commodity production. He also criticized the idea that simply reforming the currency could affect the basic nature of commodity production. He stressed the need, if the workers were to be emancipated, to directly eliminate the conditions of capitalist production. Thus some supporters of Marxism hold that Marx was not criticizing the idea of running the economy according to the labor-content of goods, but only the idea of doing this while commodity production and capitalist relations still existed. This interpretation of Marx's view was reinforced by the way some people saw Marx's repeated remarks on the fact that communist society will indeed keep track of the amount of labor used for producing things.

. But what if there were no ordinary buying and selling, and yet the economy was run according to labor-content? The famous polemic between Engels and Duhring in the 1870s comes close to raising this issue. One of the things Engels criticized was Duhring's picture of the future society, which maintains equal exchange between economic communes according to "the estimate of the quantity of labor required" to produce things, i.e., the labor-content, but does this without an ordinary marketplace in goods. The notable point is that Engels grants that Duhring wants to eliminate the old-style competition in the marketplace. In most other systems of equal exchange criticized by Marx and Engels, the old marketplace had been retained, but not in Duhring's plan. Nevertheless, Engels advocates that Duhring's system, in which the old capitalists and exploiters have been removed and even exchange between the communes is regulated to avoid direct competition, will inevitably develop new inequalities and capitalist features because it still regulates production by the labor-content. Engels describes this regulation via the labor-content as Duhring maintaining the law of value in his future society.

. Let's look at this more closely.(15) Duhring's plan for a future "socialitarian" society is not particularly clear, but he did envision society divided up into a multitude of "economic communes" which produce goods communally. There was not supposed to be economic exchange between individuals inside the communes: instead, the commune was to be the collective owner of all the means of production. It was to distribute consumer goods to its members on the basis of reimbursing them for the amount of communal labor that they took part in. Duhring specified that "interest or profit would never be paid to him [the member of a commune­JG]." Despite the fact that the individual would maintain some private possessions, it would "not be able to lead to any amassing of considerable wealth, as the building up of property . . . can never aim at the creation of means of production and rent-receiving existences."

. The different economic communes were to be federated together, and there was to be exchange among them, an equal exchange based on the labor-content of the goods involved. As Duhring says, "Labor . . . is . . . offered in exchange against other labor on the basis of equal valuation", both between the economic commune and its members, and between communes. But at the same time, the exchange between the economic communes was to be regulated: it was to be conducted through groups of communes organized into "trading communes" that embraced the entire country. Indeed, the trade communes would, according to Duhring, "possess the whole of the land, houses and productive institutions", despite the control and utilization of these things by the local economic commune. Engels characterized Duhring's plan as involving a "national organization of trade" that would "prohibit competition in products between the individual communes". Nevertheless, each commune would be expected to deliver up ­ through the intermediary of the trading communes ­ as much in goods to other communes as it received in turn from them.(16) Duhring no doubt believed that, so long as this was equal exchange, it ensured that justice and morality and economic stability would prevail in his "socialitarian system".

. But Engels analyzed the features of Duhring's system and concluded that the communes would break up into rich and poor communes. He wrote that:

. "The 'exchange of labor against labor on the principle of equal value,' in so far as it has any meaning, that is to say, the exchangeability against each other of products of equal social labor, that is to say, the law of value, is precisely the fundamental law of commodity production, hence also of its highest form, capitalist production. . . . By elevating this law into the basic law of his economic commune, and demanding that the commune should apply it will full consciousness, Herr Duhring makes the basic law of existing society into the basic law of his imaginary society. In this he is on the same ground as Proudhon. Like Proudhon, he wants to abolish the abuses which have arisen out of the evolution of commodity production into capitalist production by applying to them the basic law of commodity production, precisely to the effects of which these abuses are due."(17)

. Thus Engels held that exchange relations between independent economic communes -- even though there was no private ownership of the means of production within each commune and even though there was equal exchange between communes -- would give rise to commodity relations. Moreover, it is notable that Engels holds that this occurs even though direct competition between the communes in the sale and purchase of products has been eliminated. Engels held that the mere keeping of economic accounts by the economic communes in terms of value, or "social labor" (if it includes keeping these accounts in balance so that the communes receive no more and no less social labor from other communes than they give up to those other communes) would serve to have this result. This would seem to put a limit on what role the labor-content could play in planning in a communistic society. Whether social-labor (the labor-content) is measured directly in labor-hours or indirectly via some sort of money, it is still social-labor. Indeed, Engels held that Duhring's communes could just as well keep their accounts in labor-hours as in any type of financial unit. So this would seem to mean that, if calculations in labor-hours were used in an attempt to maintain equal exchange between different economic units, it would amount to applying the law of value.

. However, in Duhring's system, this equal exchange of labor for labor only takes place because each commune has its own ownership rights (even if its ownership rights are subordinate, in some sense, to those of the trade communes).Hence Engels's polemic is probably generally taken to be directed only at the fact that the economic communes are independent entities, with their own ownership rights (and hence their right to equal exchange).

. Moreover, Duhring couldn't imagine that future society could do without various of the features of capitalism, and he added them back into his picture of the "socialitarian society". For example, there was a capitalist-style division of labor in each commune. As well, he insisted on the use of money, both within the commune and between communes; indeed, he insisted on using the "precious metals" (gold and silver) as money. Engels dwelt on these features, and in particular showed how the use of money would facilitate the breaking down by economic exchange of the communal features of Duhring's plan

. Engels also pointed out that a true socialist society would, of course, have to keep track of the amount of hours used in production, and it would do this directly in labor-hours, not by translating the amount of labor-hours into financial terms or value terms. This has probably led a number of people to believe that Engels was saying that the difference between Duhring's "socialitarian plan" and socialism was mainly that Duhring used money, rather than calculating directly in labor hours. In any case, it has led to the belief that Engels was advocating that calculations in labor hours would indeed constitute the natural unit for socialist society. In part two of this article I would deal in more detail with Engels's remarks in Anti-Duhring on the use of the labor-hour. Here it suffices to remind the reader that there is a difference between future society having to take account of the number of labor-hours used in production (and in the passage concerned Engels specifically noted that the "labor forces" were only one part of the means of production that would have to be taken account of), and regarding the labor-content as having the same significance for socialist society as the dollar has for capitalist society.

-- The Day After the Revolution --

. The issue of the role of value in socialist society also came up in correspondence between Engels and Karl Kautsky, one of the leading theoreticians of the Second International.(18) In a letter in 1884, he reproached Kautsky for believing that

"current value is that of commodity production, but, following the abolition of commodity production, value would also be 'changed,' that is to say, value in itself would continue to exist, and only its form would be modified. But in fact, however, economic value is a category specific to commodity production, and disappears with the latter, as it likewise did not exist prior to commodity production. The relation of labor to the product, before as after commodity production, is no longer expressed under the value-form."(19)

. Unfortunately, I have not been able to find the remarks by Kautsky that brought forward this protest by Engels. It would have been valuable to know what type of arrangement Engels regarded as a mere modification in the form of value, a modification that left its essence unchanged. Nor do I know what Kautsky's immediate response to Engels was. However, more than a decade and a half later, in Kautsky's main attempt to picture a future socialist society, he was at pains to claim that value had been eliminated. What is most interesting, however, is what he means concretely by the elimination of value.

. Kautsky depicted the future society in an essay of 1902, "On the Day After the Revolution", which was an influential socialist pamphlet in its day.(20) It concerned not the problem of overthrowing the exploiters politically, but what the proletariat would do economically after it conquered state power. It sought to consider what the proletariat would be forced to do by "its class interests and the compulsion of economic necessity", rather than simply invent a plausible new society. Thus it dealt with the economic expropriation of the bourgeoisie, the improvement of the conditions of the workers, the need to increase production, the further centralization of various industries, etc..

. Kautsky ended up picturing a mixed economy, with the state sector controlling heavy industry and large-scale production in general, but with there also being municipal ownership, co-operatives, and even private ownership of various enterprises. Money and exchange still exist, both within and between the various sectors of the economy pictured by Kautsky, but this economy is nevertheless supposed to be subject to the "systematic regulation of production and circulation". Many of the measures that Kautsky described resemble measures taken in a number of revolutions of the 20th century. But what Kautsky described is a situation in which the big bourgeoisie has been expropriated, but commodity production and small capitalism still exist. This could represent a transitional economy, if the workers had both political power and an increasing ability to run the economic enterprises and to supplant the need for a separate class of managers (conditions which, unfortunately, have not existed for any length of time in 20th century revolutions). But it is not a picture of a fully socialist society which has overcome commodity production.

. It was reasonable for Kautsky, writing about the immediate steps to be taken by a proletarian revolution, to focus on the steps needed to reach a transitional economy. But, in The Day After the Revolution, despite occasional statements that suggest that he envisioned something further (for example, when he wrote that it was impossible to "immediately" abolish money), Kautsky didn't distinguish between a transitional and a socialist economy. Instead he tried, in effect, to prove that the transitional economy has various of the features of a society without commodity production.

. Thus, since he accepted Engels's point that the law of value would disappear in a socialist society, he had to show that the law of value wouldn't apply to the economy that he depicted. He sharply pointed out the incompatibility of the law of value and socialism, writing that

. "There could be no greater error than to consider that one of the tasks of a socialist society is to see that the law of value is brought into perfect operation and that only equivalent values are exchanged. The law of value is rather a law peculiar to a society of production for exchange."

But since he didn't raise the issue of there being a transitional economy, he had to show that the mixed economy he portrayed itself had gone beyond the law of value. Kautsky believed that he had accomplished this. He held that the law of value had been supplanted, if prices were no longer equal to value. There might still be money, still be exchange, still be buying and selling, still be different forms of ownership of the means of production, just so long as prices weren't necessarily equal to value.

. Theory had come full circle. If some socialist and anarchist theoreticians of the early 19th century had held that the workers could achieve a just society if only there were equal exchange and prices were equal to value, Kautsky argued that if prices weren't always equal to the value, then the law of value was gone and capitalism was overcome, even though the buying and selling of goods continued.

. For example, would the "wage system" still exist in the economy pictured by Kautsky? He argued "That is only superficially correct." Since labor-power would now be paid higher than its low value under capitalism, this was supposedly no longer the wage system. He also argued that the law of value would vanish because production would now be regulated consciously, by "a previous calculation of all modifying factors [which] will take the place of retroactive corrections through the play of supply and demand", although it isn't quite clear how this was to be done in his system, in which a variety of different systems of ownership (state, municipal, co-operative, and small-scale private ownership) of the means of production still existed. Instead of analyzing whether the continued buying and selling and the use of money would reflect the continuing existence of the law of value, Kautsky believed that money had lost its teeth and would no longer be a "measure of value". Indeed, he believed that the use of "token money" (paper money) rather than "metallic money" (gold and silver), allowed "the price of products" to "be determined independent of their value".

. This would seem to mean that Kautsky believed that calculations would not be made in labor-hours, as prices would deviate from (be independent of) value. But this isn't altogether clear. He believed that when the price of a product varied due to the vagaries of supply and demand, that this meant that the value of this product had changed.(21) Hence if price was kept constant and in proportion to the actual labor used to produce a product, as he seemed to believe that it should, it would, according to his way of speaking, be deviating from the value of the product. So he may have believed that calculating in labor-hours meant departing from value, not adhering to it. But certain other statements in The Day After the Revolution seem to contradict this.

. Whatever he thought about calculations in labor-hours, the main new thing about value in The Day After was Kautsky's attempt to present a mixed, multi-sector economy with money as having overcome the law of value. In essence, Kautsky anticipated Preobrazhensky's attempt in the 1920s to prove that the Soviet state sector, under NEP, really had overcome value, and that the financial accounting in the state sector was only a formal and superficial appearance.(22) Preobrazhensky held that a transitional economy was the union of two halves: an already socialist state sector, and the private sector. To present the Soviet state sector as already fully socialist, he had to explain away the prevalence of commodity production in the state sector, and present it as only formal. But all this brings us to the next stage of our story -- the Bolshevik revolution.

-- After 1917 --

. The Bolshevik revolution of 1917, and the world spread of Leninism, gave an immense impetus to communist thought on many different subjects: the role of the proletarian political party; the forms of proletarian political power; the peasant question; the united front; the nature of imperialism; the right to self-determination of nations and the anti-colonial struggle; the idea of a transitional economy; etc. The Russian workers were faced with the problem of actually running an economy, thus lending urgency to various problems of economic calculation. The practical economic work led to new theorizing, and one off-shoot of this was a new series of attempts to find the natural unit that would be the key to economic calculation. But this turned out to be a sterile off-shoot of communist theory: all of these attempts failed. Indeed, none of them got beyond abstract theorizing.

. Mid-1918 to 1920 was the period of the Civil War, during which the economical policy of so-called "War Communism" was followed. In the heat of emergency mass mobilizations to deal with the economic and military crises, it was believed that the transition to a fully socialist economy was near, and that the ruinous inflation of the currency was a sign that the use of money was being overcome. By 1919 and 1920 there were a series of proposals for the use of a "natural unit" to replace money; these were discussed at a meeting of economists about "Problems of a Moneyless Economy".(23) The chairman, an agricultural economist, A.A. Chayanov, outlined a plan whereby money would be replaced by keeping accounts of the amount of each product separately. He presumably envisioned using a multitude of distinct physical or natural units for labor, for the different raw materials, for the various sorts of machinery, etc. I am not sure, from the sketchy description available to me, whether his plan was entirely consistent. Nevertheless, it seems to have been a forerunner of what would later be called the method of "material balances", which will be discussed in the next section. But a number of other participants sought instead to replace money with only one or two natural units.

. M. Smit and S. Klepikov sketched a system whereby money was replaced by a system of five basic natural measures: for human effort; mechanical energy; heat; raw materials; and machines and tools. These were combined into two natural units, one for labor-hours, and the other for energy. Smit and Klepikov held that, "in the distant future", only one unit would be left, because there would be a fixed relationship between the labor-hour and an definite amount of mechanical energy. This plan was never elaborated, having been attacked for various faults, including that different sorts of energy could hardly be grouped together, as the same amount of energy was expensive to obtain in one form, and cheap in another (such as windmills).

. For his part, Kreve appears to have wanted to use the labor-content as the overriding natural unit. His basic unit, the trudovaya tsennost, was one hour of unskilled labor at the basic norm for the particular job it was being applied to. Skilled labor would be evaluated as a multiple of basic unskilled work. To apply this unit, Kreve noted, one had to correct the assessment of existing stocks of good so that they would be evaluated according to the labor needed to produce them in 1920, not when they were originally made. He also apparently believed that the replacement of money by such a unit would "drive the last stake" into capitalism's heart.

. K. Shmelev and S.G. Strumilin proposed the use of the tred (short for trudovaya editsa, or labor unit). Here too skilled labor was to evaluated as so many tred units. All prices in tred were to revised every so often. Strumilin also set forth another plan, which also used the tred, but included an attempt to sketch a method of determining the social usefulness of various economic outputs.

. A line of thought similar to the above proposals was briefly touched on by Bukharin in 1920. He wrote about the need for calculation in natural units, saying that in the transition period

"one must here take the natural form of things and of labor powers, make calculations in these units, and regard society itself as the organization of elements in their natural thing-like character."

Apparently he regarded that these natural units could be reduced to one or two units, a unit of "social labor" and a unit of "use effect". What would a unit of usefulness look like? It might be "energy magnitudes". Thus, while Smit and Klepikov proposed using the energy unit as a measure, along with the labor unit, of the economic cost of producing something, Bukharin regarded energy units as measures of how useful something was. He would use comparisons of energy units versus labor units as comparisons of usefulness versus the amount of labor needed to produce something.(24)

. But none of the plans for a labor unit ever came into effect. Meanwhile the advent of NEP in 1921 brought an end to the idea that full socialism could be achieved rapidly. Instead there was to be a gradual transition towards socialism, a transition during which there would still be commodity production, a multi-sector economy (state, co-operative, individual peasant, etc.), and the use of various capitalist economic methods. There were differences among the Bolsheviks over the nature of NEP, but it was generally accepted that money would remain during this period.

. Nevertheless, the search for the natural unit still exercised its fascination. In his book of 1926, The New Economics, the Soviet economist Preobrazhensky held that a socialist economy would be regulated "on the basis of direct calculation of labor-time", which would occupy the place that the law of value has under capitalism. Thus he took labor-time as the "natural unit" for a socialist economy.

. Preobrazhensky was not, however, advocating the immediate replacement of rubles with labor-time for calculations in the Soviet economy, or even in the state sector. Instead, he was simply trying to show that the state sector was socialist despite the existence of money transactions, buying and selling, and all the categories of commodity production (profit, rent, interest, stock, etc.)., and despite the declining influence of the working class in controlling and directing the Soviet state sector. Preobrazhensky aimed to show that commodity production in the Soviet state sector was just a surface appearance.

. For example, he argued that the state sector wasn't really subject to the law of value, because, in his view, the law of value only applied when prices were set spontaneously in the market, not when they set by state action. He held that all forms of economy, capitalist or socialist, were regulated by the "labor-expenditure", that is, the labor-content. But, Preobrazhensky said, this only amounted to regulation by the law of value, when the prices that measured the labor-content were set in an ordinary market. For him, it was this that made the labor-content, reflected in these prices, into a value. If the prices were calculated beforehand directly in labor-hours, the labor-content reflected in these calculated prices was supposedly no longer a value.

. Well, in fact, the Soviet state-sector didn't calculate directly in labor-hours. No matter. It could set its own prices, and that sufficed -- in his view -- to remove it from commodity production.(25) In this line of reasoning, he ignored the fact that while the Soviet state could apparently set prices as it pleased, it then had to suffer the consequences of these prices. So the prices weren't so arbitrary after all, and the fact that the state sector calculated in terms of profits, rents, interest, etc. wasn't simply an arbitrary, surface appearance either.

. By the latter part of the 20s and the decade of the 30s, the Bolshevik revolution died away, and a system of Stalinist state-capitalism was consolidated. Stalinism, however, maintained its pretense of loyalty to Marxism, and sought to clothe state-capitalism in socialist and Leninist colors. In the 30s, with industrialization, forced collectivization, and the five year plans, Stalinist economics believed that the Soviet Union -- although using money, cost accounting, etc.--had overcome the law of value. But in the 40s, official Stalinist economics came to the view that socialism could make use of the law of value to ensure rational pricing, arbitrary pricing being regarded as a major problem. Thus an influential article in a major Soviet journal in 1943 stated that

"Since the elimination of capitalism the socialist society, in the guise of its state, has taken over the law of value, and consciously uses its mechanism (money, trade, prices, etc.) in the interests of socialism, for the purposes of the planned guidance of the national economy."(26)

"Socialist" prices were supposed to generally correspond to value, although they could deviate from value for certain reasons, such as promoting the rapid development of heavy industry. The same idea appears in Stalin's 1952 pamphlet Economic Problems of Socialism in the U.S.S.R.. in the sections "Commodity Production Under Socialism" and "The Law of Value Under Socialism".

. From then on, when Soviet economists argued over how prices should be set, they often tried to justify various proposals in the name of equating prices to value, or to denounce proposals of their rivals as violations of the law of value. (However, these economists differed dramatically on how they interpreted value. Some displayed marvelous ingenuity in imitating Western theories of pricing under the cloak of loyalty to the Marxist theory of value.)

. Thus, for example, Strumilin, who in 1920 had proposed using the tred as a natural unit, later wanted to equate prices in rubles to value. He wrote in 1959 that "the definition of value remains an important task under socialism" and "the determination of the value of different goods is of the utmost importance for the rational planning of the prices of these goods." T. S. Khachaturov lamented the "considerable differences in the relationships between prices and value in different industries and for different articles." In 1960 the prominent mathematician L.V. Kantorovich advocated the use of prices obtained by linear programming, a field of mathematics in which he was one of the pioneers. These prices are called "shadow prices" elsewhere, and "objectively determined valuations" by Kantorovich; he specified that the inputs into the equations were supposed to be "social labor-time", but account was to be taken of "indirect as well as direct labor inputs", rents, etc. in order to obtain "the full social expenditures of labor" involved in production. A. I. Kats denounced him for these indirect inputs, saying that Kantorovich "ignores the Marxist theory of the expenditure of labor as the substance of social costs of production. This leads, in particular, to the totally unsound nature of his suggestions in the field of price formation." Meanwhile S. Pervushin, the editor-in-chief of the Soviet journal Planovoe Khoziaistvo, wrote that "Unfortunately a satisfactory solution has not yet been found for the problem of using the law of value and value categories in socialist economics." And he referred to the need for certain prices to be set in defiance of the law of value.(27) And so on every few years, with each new reform proposal generating a new round of discussion.

. But other people were still looking for the natural unit to replace money. Charles Bettelheim, for example, devoted his 1970 book Economic Calculation and Forms of Property to the contrast between the monetary calculation and calculation directly in labor-hours. He called monetary calculation "imaginary", while calculation directly in labor-hours was "real" economic calculation, or "social economic calculation (SEC)", as he called it. To carry out SEC, he regarded that money would be replaced by two units, a unit of labor-hours to measure the cost of production. and another unit to measure the social usefulness of a product.

. But, significantly, Bettelheim didn't see how this could concretely be done. With respect to the unit of social utility, he didn't know how this could be measured on a single numerical scale, and he wrote that

"we still have to elaborate the system of concepts and procedures that enable social utility -- of different labors and products, supplied in determinate conditions -- to be measured so that the distribution of labor (i.e., of social labor) between the different types of production can be regulated on the basis of this measurement."

Nor was it any better with obtaining the number of labor-hours which constituted the economic cost of producing a product. He wrote that the

"unit of measurement, and the nature of this measurement, . . . must be theoretically defined . . . Such a unit would no longer be a currency, and the magnitudes expressed in this unit would no longer be prices. As this point, the question of the possibility of formalizing the evaluation of social units, so that a real unit of measurement can be defined, remains open."(28)

. Thus Bettelheim called for a search for the theoretical concepts, the "theoretical space" as he called it, that would allow "social economic calculation". The irony is that Bettelheim, who devoted his book to dispensing with capitalist value, had not the slightest idea that his search for the units of SEC was the traditional quest for true value.

-- One, two, three, many natural units --
(the method of material balances)

. Earlier we mentioned that the Soviet economist Chayanov, in 1920, envisioned a plan whereby money would be replaced by, apparently, keeping track of each product separately. There would presumably be separate units of measurement for labor, and for various different categories of material goods and products. These would be natural units, since they would not be expressed in terms of money, but in terms of the physical amount of each thing. This foreshadowed the method of "material balances", which also measured each separate material good, such as wheat, or coal, or iron, in its own natural unit. Although it never replaced financial calculations, "material balances" became an established part of Soviet planning. Yet this was not the long-sought-for answer to the quest for the natural unit of economic calculation. It is useful to see why.

. First of all, what is a "material balance"? Let's start with using a balance to simply describe, not plan, an economy. One of the important sectors of the Soviet economy was the production of coal. A fully-detailed balance in coal would list the various places where coal was used in the economy (the places where coal is "distributed" to), and the amounts that are being used in each place. Thus there would be so much coal going for heating cities, for industry, etc. It would also list the amount of coal being produced at various mines (the "sources" of coal). The total amount of coal being produced would equal the total amount of coal being used.(29) Here we have a balance, and one that is convenient to do in a natural, or physical unit, such as metric tons of coal, because the balance deals with the actual physical uses of coal, and not the profits or losses of any enterprise.

. Thus here we have planning in a material unit, say, metric tons of coal. But of course this is only one part of the economy. There would also have to be a material balance for, say, wheat, Hence here we have a second natural unit for the economy, metric tons of wheat. Of course, to describe the economy more fully would require natural units for oil, construction materials, machinery, etc. All of a sudden, we have one, two, three, many natural units. Having had to search for one natural unit, one is now smothered under a plethora of natural units. In practice, a description of the economy by material balances might restrict itself to only the major material goods, or might group related goods together, but it is still clear that it involves many, many natural units. The more natural units are involved, the more accurate the description of the economy.

. But there is more to the method of material balances. The different balances for coal, wheat, machinery, etc. have to be mutually consistent. The balance for coal includes, for example, allowances for the coal used in producing machinery. The balance for machinery specifies how much machinery is to be produced, and this requires a definite amount of coal, and that has to be the same amount listed for that purpose in the balance for coal. Thus the description of an economy by material balances has to deal with the relationships between different sectors of the economy. Its figures reflect such facts as that the production of so much agricultural machinery requires so much coal, so much iron, so many laborers, so much wheat and housing for these laborers, etc. It doesn't just evaluate, say, a tractor as equal to so much money or even simply so much labor. It correlates the production of tractors with a list of all the factors that go into their production. (Naturally, these correlations can change from year to year. As production becomes more efficient, more tractors can be produced with less labor or less materials. For that matter, if a factory becomes run down, production could become less efficient and the tractor could require more labor and more materials to produce.)

. Of course, if the method of material balances were only used to describe an economy, it wouldn't be of that much interest. It is also used to plan changes in an economy. Let's imagine that a description of how the economy is running in a certain year has been obtained via the method of material balances. It might be thought desirable to plan that it produce more wheat in future years, perhaps because the population will increase, or there is to be more bread per capita, or more wheat is to be exported. A greater production of wheat would allow greater amounts to be allocated, in the material balance for wheat, to the various uses of wheat. But it would also require that the balance include more sources of wheat, such as a larger harvest of wheat from various farms or from more farms being created. This might require more agricultural machinery, or more fertilizer (whether natural or artificial), or the development of new farming communities (and hence more construction material, more labor, etc. etc.) This would require a change in the balances for machinery or fertilizer or construction materials.

. But when we consider these changes, such as the need for more agricultural machinery, this in turn requires a whole new series of changes, as more production of agricultural machinery requires either producing less of other machinery, or an increase in the use of coal and iron in the factories producing machinery, as well as allocating more laborers to these factories and more wheat for the consumption of these laborers. Hence there are yet more changes to be made in the material balances for coal, iron and even wheat.

. Thus a contemplated increase in the material balance for wheat would involve a series of changes, both increases and decreases, in the material balances for many other goods, and even react back on the material balance for wheat itself. The material balance for wheat can't be changed in isolation, but there has to be a coordinated change in the other material balances involved in the economy as a whole.

. In general, there is no simple, automatic way to make these coordinated changes in all the material balances. It can be a difficult mathematical problem. However, in practice one need only obtain an approximate solution; moreover, this solution can be based on seeing what changes have to be made in the material balances that have existed in the past, rather than seeking to write the material balances from scratch. This solution can then be used to push the economy in the planned direction by directing resources to this or that sector in accordance with the description given by the altered material balances. (At least, this can be done to a certain extent in those economies where the government has the ability to direct resources in this way, or in a communist society, where society as a whole really has this ability.) According to a study done in 1959, Gosplan (the Soviet State Planning Commission) seems historically to have used some relatively crude methods of making changes in the material balances.(30) Nevertheless, the long-run problems in Soviet planning have not come from the mathematical difficulties of the method of material balances, but from other sources.

. Thus calculations via the method of material balances can differ dramatically from those made by simply replacing the dollar with the labor-hour. Let's look at this further. A common economic problem is deciding which of two different ways of making a product to employ in an enterprise or factory. There might by two (or more) different processes possible for making this product: processes A and B. In a commodity economy, if process A is used, the product might cost, say, $9, and using process B, $8. Then financial calculation says to go with process B, on pain of going bankrupt. If the problem were approached by the use of the labor-content, one would compare how much labor is used by each of the two processes, and as well how much labor is embodied by the raw materials used by each of the two processes, and in keeping the machinery used in these two processes in good repair. One would then compare so many labor-hours for process A, versus so many labor-hours for process B. The process of production which involved less labor-hours would be the more efficient process. This is a familiar way of deciding the issue, similar to that used with financial calculation.

. But the method of "material balances" might inspire a very different way of making this decision. According to the spirit of this method, one must consider a product in relation to all its inputs, including raw materials, labor, machinery that is worn out during production, etc. Thus process A would be evaluated, not as a single measurement on a scale, but as a list of measurements, say, (3,1,4,10, . . .), representing 3 units of iron, 5 units of coal, 4 labor hours in the final fabrication, 10 units of machinery necessary during production, etc., while process B might be (2,6,11,2, . . .) (31) The problem is that process A uses more iron and requires much more machinery, while process B uses more coal and requires much more labor, so which is preferable? Unlike a comparison of two numbers, now the answer is no longer obvious. This is one of the problems in trying to use "material balances" to determine which process of production is better, and different ways of dealing with this problem have been proposed. But clearly, the comparison should depend on which input is in short supply, and determining how severe this shortage is. Unlike either financial calculation or calculation via the labor-content, in which saying a product costs $9 or embodies so many labor-hours seems to be expressing a statement simply about the product, a consistent use of material balances brings one up against the fact that the actual economic cost of producing something can't be taken in isolation, but always is related to what's happening in the rest of the economy.

. Thus, it makes a big difference whether there is one natural unit that governs the economy, or a multiplicity of them. The search for the natural unit of economic calculation has been, in essence, a search to put aside the multiplicity of natural units that appear when one deals concretely with the economy. This is why the method of "material balances" has, as far as I know, never been regarded by anyone as the answer to the search for the natural unit.

. The method of material balances was developed in the Soviet Union over time. With respect to industrial enterprises, immediately after the Bolshevik revolution of October 1917, attention was focused on taking control, and then ownership, of them away from the capitalists. There was not, at first, much that could be done in the way of overall planning, and already by mid-1918 the Civil War broke out. This led to a period of economic crisis.

. But in the face of the disorder, the galloping inflation, and the loss of many key areas for whole periods of the Civil War, production of certain key materials had to be maintained in order to avoid a total collapse. This necessity, plus the collapse of the currency, encouraged the emergency tracking of key materials in physical terms as well as a system of priorities. Definite physical amounts of grain had to be obtained and distributed to prevent hunger, definite amounts of coal had to be obtained and distributed to power stations to heat cities, and to enterprises in order to maintain production. These supplies could not be assured by simply setting aside money to buy them. Grain was requisitioned; emergency labor forces worked on priority assignments; necessities were rationed rather than sold; some services were provided free; etc. This experience, in which money often seemed irrelevant, encouraged the idea that communism itself might be close, so that the period became known as the "War Communism". This experience no doubt encouraged the economists at the 1920 meeting of "Problems of a Moneyless Economy" who dreamed of accounting in terms of natural units.

. Aside from the Soviet government, in wartime ordinary capitalist governments often have had to institute accounting for vital materials in physical form. Both World War I and World War II resulted in a proliferation of War Production Boards, Ministries of Supply, and similar institutions in all the major combatant countries. For example, in order for the U.S. to supply its war machine with sufficient rubber for tires and other uses in World War II, the U.S. government couldn't rely on simply setting aside a sufficient amount of money. Indeed, Japanese advances in Asia cut off the U.S. from its main pre-war suppliers of natural rubber. The U.S. had to search for new sources of natural rubber, as well as rushing the development of synthetic rubber. Thus the U.S. government resorted to rationing key materials like rubber, directing them to war industries, and searching for new physical supplies of them.. This planning in physical terms didn't supplant commodity production, of course, but just supplemented it; the war industries continued to get rich. Such war planning in physical terms having being used by regimes of many different types, it shows that the use of a form of "material balances" by no means shows that a country is socialist, transitional, ruled by a workers' government, or even ruled by a liberal regime.

. In the case of the Soviet government, it continued its interest in planning after the Civil War crisis passed. True, it was soon realized that there would be no immediate transition to a fully socialist economy, and that War Communism would have to be replaced by a slower and more gradual transition to socialism. So with the advent of NEP in 1921, Soviet industry was put back on a financial accounting basis. But the Soviet government sought to provide a central direction to this industry, and to increase the power of the working class over it. The tragedy of NEP was that working class control of the economy and government gradually died out and the Bolshevik revolution faded away, leading to the consolidation of the Stalinist state-capitalist regime in the 30s.

. But the Soviet Union continued developing national planning of the economy, and this was of a type not previously seen. By 1923-24 the Soviet Central Statistical Department developed a balance of the national economy, which apparently marked the start of the method of material balances and was a real spur to national planning. It was a type of overall balance for the entire economy which had not been made in Western countries, and the Soviet planning debates of the 20s represented a major development in economic theory.

. Originally, the material balance for each product was presented on a separate balance-sheet, with two columns, one for the sources of the product, and one for where it was distributed. The collection of all the separate balances constituted the balance for the entire economy. But eventually they might be combined into the checkerboard pattern used for input-output tables. Such an table has been described as follows:

. "A checkerboard type cross reference table that shows what happens to the output of each producing branch of the economy, and what each consuming sector of the economy consumes. The producing branches (such as agriculture, iron and steel, electric power) may be listed vertically down the left margin, and one can then read horizontally across to see how much of the total output of each branch goes to each consuming sector. Listed horizontally across the top, then, are the various consuming sectors which consist of the same producing branches (since in the process of production, goods must necessarily be consumed) plus such additional consuming sectors as households and government. Reading vertically down a column, one can find out how much each consuming sector uses of the output of each producing branch. If, for instance, one million tons were listed in the cell formed by the 'iron and steel' row (producing branch) and the 'coal' column (consuming sector) this would indicate that one million tons of the total output of iron and steel go to the coal industry, i.e., that in the process of producing the nation's coal output, this tonnage of iron and steel is 'consumed' by the coal industry."(32)

. During the 30s, state control of the economy expanded dramatically with industrialization, forced collectivization and the first five year plans. One might have expected that the role of "material balances" would have expanded dramatically. But, while plans for economic allocation may have been made in material terms, no serious attention was given to keeping the economy in balance. While a certain amount of imbalance is no doubt inevitable in any period of rapid growth and completely new undertakings, what existed went far beyond that. Certain economic targets had priority and were to achieved at all costs, while other economic sectors lagged far behind, and agriculture suffered repeated crises. Factories competed fiercely with each other for raw materials and other supplies, and there was a war of executive against executive. This was the anarchy of production on an immense scale, and the resulting pressures on society were reflected not just in the bloody Stalinist repression of all opposition among the working masses but even in a murderous political struggle inside the ruling class itself.

. Later more attention was paid to the issue of economic imbalances. As we have seen earlier, from the early 40s on, there was a good deal of emphasis on reforming the price structure and equating prices and values. This was supposed to deal with imbalances. Eventually there was also a development of the mathematical techniques of planning, the utilization of computers, discussion of linear programming and "input-output" techniques, and so forth. This, too, was done in connection with reforming prices. For example, the mathematician Kantorovich, in his proposals for implementing the method of material balances via linear programming, aimed at finding proper prices. But, as we have seen, the logic of the method of material balances equates a product not to a single price or number, but to the list of all the inputs needed to make that product. As a result, there is no natural way to determine prices, and every economist and mathematician in the Soviet Union had a different approach. The innumerable price reforms never solved the imbalances in the Soviet economy, and each economist would use this to promote a new system of pricing as supposedly superior to the previous one.

. Let's examine an often-denounced problem in the Soviet economy, namely, a factory fulfills its planned output by producing goods of the wrong sort. As one account puts it:

"Examples can be cited in very large numbers, drawing on material published not only in the USSR but also Hungary, Poland and Czechoslovakia, . . . A plan expressed in tons encourages the production of heavy commodities; in any choice involving weight, the 'weightier' variant is bound to be favoured, since this facilitates the fulfilment of the plan. . . . For instance, factories making prefabricated cement blocks, prefer to make large blocks, which is the easiest means of fulfilling the a plan in terms of tons, though, as it happens, the result is a shortage of small blocks . . . The humorous journal Krokodil once pictured, in a cartoon, a factory which fulfilled its entire month's output programme for nails by the manufacture of one gigantic nail, hanging from an overhead crane the whole length of the workshop."(33)

. Problems like these are often taken to show that accounting in physical terms is a disaster. Here, however, the problem wasn't that the factory didn't receive the necessary supplies, nor that the planning bodies had forgotten that the economy needs a proper assortment of nails and cement blocks. The problem was that the enterprise -- to be more precise, the managers of the enterprise -- had their own economic interest, separate from and antagonistic to that of other enterprises and of the economy as a whole. The enterprise was quite capable of producing the needed nails, and the management could figure out what was needed, but it was in its economic interest to do something else. It didn't matter whether they could obtain accurate information about what type of nails were needed, they would produce those nails that served their own interest. Nor could the managers of other enterprises, who suffered from the lack of proper nails, apply too much pressure to ensure a proper supply of nails, because they were managers too, and it was in their class interest to maintain the state-capitalist system in which they, as well as the managers of the nail factories, could follow their own small-group interests. Meanwhile the workers were an exploited class, who had no say in this type of problem and no control over what the managers did.

. There are many apologists of Soviet state-capitalism who insist that, as the Soviet executives did not own their enterprise in the Western sense, they did not compete among themselves and did not have separate interests. Yet the problems illustrated by the joke about the gigantic nail showed that the Soviet managers and executives did in fact have such separate interests: they enriched themselves and climbed in the bureaucracy by behavior that harmed the country as a whole as well as harming other managers and executives, who ended up with a real shortage of materials. No matter how the targets of the plan were expressed, Soviet managers would find some way to distort them, because they were just as much out for themselves as a Western executive and his firm are out for themselves. Suppose, to avoid the problem of one big nail, the Soviet ministries demanded that the plan for nails be fulfilled, not by weight, but by the number of nails. What would happen?

"If a plan for nails were expressed in quantity (e.g. thousands of nails) they would tend to be small, . . . Highly original plan-measurement criteria were devised in some industries; for example, central-heating boilers were assessed for this purpose in terms of the area of heating surface (of the boiler); consequently, when a new model was devised which heated more efficiently with a smaller heating surface, no one would touch it, as it would worsen their success indicators."(34)

. The problem wasn't that output was planned in physical terms, rather than financial terms. Indeed, when the output targets were expressed in financial terms, that didn't help at all.

"Output targets in roubles evade such difficulties as these, but at the cost of creating others, In nearly all instances, the money measure is applied to gross value of output. . . . This encourages a number of distortions. In the first place, an advantage is derived from using dear materials. . . . It may appear simple to overcome some of weaknesses, for instance by measuring plan-fulfilment in terms of goods actually completed and sold . . , or to measure value-added only. Both these methods have been discussed and sometimes tried. However, they have defects of their own. . . . As for value-added, this method is now applied in the Soviet clothing industry, and it has indeed increased the range of cheaper garments produced. But it has the opposite weakness of encouraging any activity which adds to the value of work done within the enterprise, while useful forms of sub-contracting may well be avoided lest the value of work done with that enterprise should be lowered."(35)

. Thus the problem of factories producing the wrong assortment of products, or using wasteful production methods, stemmed from the class structure of Soviet society, from the fact that it was a state-capitalist society with an exploiting ruling class, and not from some supposed inability of an economy to be planned in physical terms. No plan could specify every last detail of production, nor would it be desirable for such a thing to occur: it would squash the initiative of enterprises at the base, and their ability to innovate. If a society is such that local initiative always conflicts with social objectives, then this will undermine any system of planning.

. But if the Soviet-bloc version of "material balances" wasn't responsible for all the problems of the state-capitalist economies, it wasn't socialist planning either. In the Soviet bloc the method of material balances always went in parallel with financial calculation. As well, the objectives of the planning were set by the Soviet bourgeoisie. Indeed, the methods by which the economy was planned, and the plans implemented, were based on the passivity of the working class and the power over them of a new class of managers, executives and bureaucrats. What Soviet "material balances" has in common with the future economic calculation of a classless society, is that they both have to keep track of society's production in material terms.(36) And to do so, both the Soviet version of "material balances" and future communist planning required and will require, the use of not one, but many separate natural units. The experience of the method of "material balances" verifies that there is no single natural unit of economic planning. (to be continued)


(1) However, the article does not argue that, simply because Marx and Engels said these things about value, labor-time, and economic calculation, therefore they are true. All views, including those of Marx and Engels, have to be subjected to criticism and examination. They wrote many profound things, which still serve as the basis of a materialist worldview, and of any scientific conception of socialism, but not everything they said was correct. Hence, the impossibility of finding a natural unit of economic calculation follows not from a textual analysis of different writings, but from an economic consideration of what a classless economy would actually be like, verified by a study of the economic experience of the last century. Marx and Engels's writings are important insofar as they aid such a theoretical and economic investigation. In this case, it appears to me that Marx and Engels turn out to be, as in so many other cases, correct. Moreover, no matter whether readers of this article agree with my presentation of what Marx and Engels meant, I think they will find that examining the disputed extracts concerning labor-hours and the future society will help them realize some of the issues at stake. Finally, as for me, I learned the point about the impossibility of there being a natural unit of economic planning by studying Marx and Engels's views about value and the future society, and so it is only fair that it be attributed to them, rather than presented as some new invention of mine. It appears to me to be a consequence of their view about the historical (rather than eternal) nature of currently important economic categories, such as value. (Return to text)

(2) There are other reasons as well to have a term such as "labor-content". As is pointed out in Engels's supplement to the third volume of Capital (Capital, Vol. III, Supplement, I, "Law of Value and Rate of Profit", pp. 899-900, Progress Publishers, Moscow), the prices of goods tend to average around the labor-content in an early period of commodity production, the period of "simple commodity-production". But as capitalism develops, and an equalization of the rate of profit among capitalists takes place, non-monopoly prices tend to oscillate around what Marx calls the "price of production", which deviates in a precise way from the labor-content. This deviation is based on how much the various spheres of production differ in what Marx calls "the organic composition of capital", which is, roughly speaking, a measure of how labor-intensive each sphere of production is. (More precisely, it is the ratio in the particular sphere of production of the amount of "variable capital", used in employing labor, to the amount of "constant capital", used for raw materials, machinery, etc.) Would one then say that exchange-value in this stage of capitalism has been modified, and is now numerically equal to the price of production, or that it is stays the same as before, and remains numerically equal to the labor-content? If one says that the exchange-value has been modified, then one preserves the idea that actual prices tend to oscillate around the exchange value, but one now has a distinction between the exchange-value and the labor-content. If one says that the exchange-value remains numerically equal to the labor-content, then the prices will no longer oscillate around the exchange value, but instead will oscillate around, say, the "market-value", equal to the price of production, and this market-value will be a modification, according to a definite law, of the exchange-value. Different authors, even if they adhere to the law of value, will no doubt answer this terminological question differently. By use of a term such as labor-content, they can at least indicate clearly what terminology they are using for value, exchange-value, etc. However, in this article I will ignore the modification in the law of value caused by the equalization of the rate of profit, except at the few places when it becomes relevant to the points under discussion. (Text)

(3) G.D.H. Cole, Socialist Thought: The Forerunners, 1789-1850, Ch. IX. Owen and Owenism--Earlier Phases, p. 95. Owen also advocated utopian plans for communistic communities such as New Harmony, where production took place on a communal basis and material goods were not commodities. In New Harmony, at first labor accounts were used to apportion each member a certain amount of the commune's goods depending on how much labor had been performed. Thus "a credit was to be set against each name at the public store for the amount of useful work done; and against this credit a debit was entered for goods supplied. At the end of the year the balance would be placed to the credit of the member; but he was not at liberty to withdraw any part of it in cash, without the consent of the committee. He could, however, leave the Society at a week's notice, and withdraw his balance." Later, still according to Owen's ideas, outright communist distribution was used at New Harmony. "Each man was to give of his labour according to his ability and to receive food, clothing and shelter according to his needs." (Frank Podmore, Robert Owen: A Biography, pp. 293, 300-302) Marx is presumably referring to Owen's ideas about labor accounts for distribution inside a communal society, such as originally at New Harmony, when he says that ". . . Owen's 'labor-money'. . . is no more 'money' than a ticket for the theater. Owen presupposes directly associated labor, a form of production that is entirely inconsistent with the production of commodities. The certificate of labor is merely evidence of the part taken by the individual in the common labor, and of his right to a certain portion of the common produce destined for consumption." (Marx, Capital, vol. I, the first footnote in Chapter III, section 1) This is correct concerning its role at New Harmony and concerning Owen's general communistic plans. By way of contrast, the labor notes used by the Owenite labor exchanges and co-operative stores actually served as money, and they circulated even among some non-Owenite businesspeople. They were a medium of economic exchange between people, stores, and businesspeople who had separate economic interests, just as ordinary money is. Indeed, Owen also proposed that the Bank of England switch to labor notes. Of course, the Labor Exchanges and Co-operative Stores were, for Owen, only a step towards future communistic communities, and he hoped that they would help raise the funds needed for the establishment of these communities. (Text)

(4) Gray, Lectures on Money, p. 169, as cited by Marx in A Contribution to the Critique of Political Economy, Ch. 2. Money or Simple Circulation, Sec. 1. The Measure of Value. Subsection B. Theories of the Standard of Money, p. 85, International Publishers, 1970. (Text)

(5) The Poverty of Philosophy, Preface to the First German Edition, pp. 13-14, and Ch. 1, Sec. 2, p. 66, Norman Bethune Institute edition, Canada. (Text)

(6) Theories of Surplus Value ("Volume IV" of Capital), Part (Volume) III, Chapter XXI "Opposition to the Economists (Based on the Ricardian Theory)", Sec. 2, p. 260, Progress Publishers, Moscow, 1971. (Text)

(7) Marx, Ibid. Owen, as a utopian socialist, is something of an exception in that, while his influence spread the labor-money idea, he also advocated the abolition of capitalist relations and commodity production. (Text)

(8) George Woodcock, Anarchism: A History of Libertarian Ideas and Movements, Ch. 14. "Various Traditions: Anarchism in Latin America, Northern Europe, Britain, and the United States", p. 457. The idea of the exchange of products of equal labor, and the exchange of a product for a labor note (paper certificate) denoting a certain amount of time, might seem to be different plans, but they are closely related. In practice, to achieve the exchange of "labor for labor", it is convenient to use the intermediary of issuing labor notes. (Text)

(9) Proudhon went so far as to describe the entire practice of the trend of "mutualism", which he was known for, as various forms of equal exchange. He saw even mutual aid in this light. Thus he wrote that mutualism was "service for service, product for product, loan for loan, insurance for insurance, credit for credit, security for security, guarantee for guarantee. It is the ancient law of retaliation, an eye for an eye, a tooth for a tooth, a life for a life, as it were turned upside down and transferred from criminal law and the vile practices of the vendetta to economic law, to the tasks of labor and to the good offices of free fraternity. On it depend all the mutualist institutions: mutual insurance, mutual credit, mutual aid, mutual education, reciprocal guarantees of openings, exchanges and labor for good quality and fairly priced goods, etc." ( Proudhon, On the Political Capacity of the Working Classes, pp. 124-6, as cited in Selected Writings of Pierre-Joseph Proudhon: Edited with an introduction by Stewart Edwards, Translated by Elizabeth Fraser, pp. 59-60, emphasis as in the original.)

. Also strong in Proudhon's thought was the emphasis on contractual relations between people and among groups. It was equal exchange and "rule by contract" that was to replace not just any form of government, but any form of the people deciding their common affairs directly. He supported "the notion of commutative justice, established by the primitive fact of exchange" and said that "Translate the legal terms contract and commutative justice into the language of affairs, and you have COMMERCE" and "Instead of laws we would have contracts. No laws would be passed, either by majority vote or unanimously." (Proudhon, The General Idea of Revolution in the 19th Century, pp. 187-9, 302-3, as cited in Selected Writings, pp. 96, 99, emphasis as in the original.) (Text)

(10) System of Economic Contradictions: or, the Philosophy of Misery, translated by Benj. R. Tucker, Ch. II, Sec. 2, pp. 107-8, emphasis as in the original. Proudhon's defense of equal exchange, contractual relations, the necessity of economic competition, and so forth fits in with his praise of the free-market prophet Adam Smith. He regarded Smith as the economist who gave labor his due, unlike later ones, who supposedly were the only ones to justify capital. Proudhon wrote that "This force, which Adam Smith has glorified so eloquently, and which his successors have misconceived (making privilege its equal),--this force is LABOR." (System of Economic Contradictions, p. 95) He also believed that Smith had felt instinctively that equal exchange was the revolutionary solution to the social problem. Proudhon wrote, with respect to his own theory of "constituted value", that this had been "dimly seen by Adam Smith . . . But this idea of value was wholly intuitive with Adam Smith, and society does not change its habits upon the strength of intuitions; . . ." (Ibid., p. 106) Thus, in this respect, Proudhon felt that he was marching further on a road embarked upon by Adam Smith. (Text)

(11) Proudhon, On the Political Capacity of the Working Classes, p. 114, as cited in Selected Writings, p. 63. (Text)

(12) Woodcock, Ibid., p. 459. (Text)

(13) Proudhon, The Solution of the Social Problem, pp. 259-80, and The Theory of Property, p. 37, cited in Selected Writings of Pierre-Joseph Proudhon, pp. 140, 76. (Text)

(14) Marx, The Poverty of Philosophy, ch.1, sec. 2, p. 49. (Text)

(15) I could not find Duhring's own book, so the description of his future society that I give is based entirely on Engels's book Herr Eugen Duhring's Revolution in Science (Anti-Duhring). See Part III, Chapters III and IV. The quotes from Duhring that I use in this paragraph are from Chapter IV; the quote from Engels in the next paragraph is from Ch. III, the quotes from Duhring are from Ch. III and IV. (Text)

(16) Perhaps it might appear impossible to ban competition between communes and yet have them exchanging goods, and for the economic communes to possess the local resources, which were, nevertheless, owned by the all-embracing trade communes. But consider the old Soviet state-capitalist system.

. Prior to Gorbachov's perestroika, most enterprises were told by the ministries involved who to sell their goods to, and who to buy them from. There was thus no direct competition among the enterprises in this buying and selling. But under the khozraschet or self-financing system, each enterprise was a separate legal and financial entity, and was supposed to strive to make a profit. But since they were part of the state sector, they were, in some overall sense, owned by the state.

. Similarly, in Duhring's system, each economic commune was also an independent economic entity, with its own right to administer, control and profit from its own territory and production facilities. But all the productive facilities being overall owned by the trade communes, the trade communes had the right to regulate the relations between the economic communes. The economic communes could not directly buy and sell goods to other economic communes. They were supposed to sell their goods to the trading communes, which would presumably pool the goods from the various economic communes, and buy the supplies they needed from the trading communes, This buying and selling would be according to the rules of equal exchange. It would amount to indirect exchange with other economic communes, but regulated by the trading authorities, similar to Soviet enterprises having their buying and selling directed by the ministries. Since the trading communes would regulate the pool of goods from the various economic communes, there would be no direct competition between economic communes. It was, however, up to each economic commune whether it flourished under this trade, or shriveled up, just as under khozraschet it was up to each Soviet enterprise to make a profit.

. Now in fact, in the Soviet system, competition developed in many ways. The private interests of the executives running the various enterprises, and of those in the ministries, resulted in a fierce under-the-table competition among them, in enterprises competing in gray markets for the means of production, in competition among the ministries, and so forth. Moreover, this competition was not minor or secondary, but one of the most important features of the Soviet economy. Without recognizing the existence of this competition, it is impossible to understand many of the key problems afflicting the Soviet economy. (See my article "The anarchy of production beneath the veneer of Soviet revisionist planning" in Communist Voice, vol. 3, #1, March 1, 1997.) Similarly, with respect to Duhring's system, Engels predicted that, although competition between the economic communes was formally eliminated by the role of the trading communes, various features characteristic of competition would appear. Thus, the experience of the Soviet economy provides a verification, in a different situation, of the basic idea behind Engels's claim. (Text)

(17) See the end of Part III, Chapter IV of Anti-Duhring. (Text)

(18) Kautsky, originally a supporter of the Marxist trend in the Second International, gradually lost his revolutionary fervor and, during and after World War I, betrayed revolution and emerged as an opponent of communism. But meanwhile, he had written some works of which Lenin wrote "that such works of his will remain a permanent possession of the proletariat in spite of his subsequent apostasy." (The Proletarian Revolution and the Renegade Kautsky, Ch. "The Constituent Assembly and the Soviet Republic", p. 54, Chinese pamphlet edition, emphasis as in the original) (Text)

(19) Engels to Kautsky, 20 Sept. 1884, as cited in Charles Bettelheim's Economic Calculation and Forms of Property, translated by John Taylor, Monthly Review Press, 1975, p. 30. (Text)

(20) See Karl Kautsky, The Social Revolution, Translated by A. M. and May Wood Simons, which includes two essays, "Reform and Revolution" and "The Day After the Revolution", both of which were originally lectures. The quotes given in the text are from the sections entitled "The Expropriation of the Expropriators", "The incentive of the Laborer to Labor", and "The Organization of the productive process". Further material on the mixed nature of the system outlined by Kautsky is contained in the section "The Remnants of Private Property in the Means of Production". Unfortunately, the Simons's translation seems fairly crude. This is a problem when seeking to understand passages that depend on subtle distinctions in Kautsky's wording.

. The popularity of Kautsky's The Social Revolution is remarked on in Gary P. Steenson's "Not One Man! Not One Penny!": German Social Democracy, 1863-1914, which comments that "Two books came out of Kautsky's part in the revisionism debate: the very polemical Bernstein and the Social-Democratic Program: An Anti-Critique (1899) and The Social Revolution (1902). The latter was his most comprehensive discussion up to that time of the path from capitalism to socialism . . . The Social Revolution was one of his most successful books, selling thousands of copies and going through multiple printings very quickly." (pp. 204-5) (Text)

(21) Kautsky wrote that "The value of each product is determined not by the labor time actually applied to it but by the socially necessary time for its production." This appears to be the usual Marxist definition of value, which contrasts labor of the ordinary skill and intensity with labor that is either especially clumsy or especially efficient, but was the labor actually applied to the product. But Kautsky meant not only this, but also something further, thus giving a different interpretation to the term "socially-necessary labor" than the usual Marxist definition. Kautsky regarded the socially-necessary time as the amount of time which it would take (with labor of the ordinary skill and intensity) to produce the precise amount of the product which it would take to satisfy the market, no more and no less.

. He gave an example with regard to the production of trousers and suspenders. Suppose, he said, that society needed trousers that would take 10,000 labor days to produce, and suspenders that require 1,000 labor days. In his view, if only 80% of the required trousers were produced, taking 8,000 labor days, their value would still be the 10,000 labor days that would be socially necessary to fulfill the demand for trousers. Hence, Kautsky said, the value of individual trousers will rise 25% higher than otherwise, and, he says, the price will rise correspondingly. Similarly, if triple the necessary number of suspenders are produced, taking 3,000 labor hours, their value would be only the 1,000 labor-hours needed to produce the amount of suspenders that would satisfy the market. Hence, Kautsky says, the value of "individual suspenders" will be one-third of what they otherwise would be, and their price would be correspondingly reduced. Thus, instead of under or over-supply meaning that the price deviates from the value, it would mean that both the price and the value would go up and down according to the vagaries of supply and demand; moreover, they would go up or down in exactly the same proportion, so that price and value remained equal.

. By way of contrast, Marx held that, in the case that the quantity of the mass of individual commodities of the same type didn't equal the market demand for them, the price will deviate from the value. He wrote that: "Should their quantity be smaller or greater, however, than the demand for them, there will be deviations of the market-price from the market-value." (Capital, Vol. III, Ch. X, p. 185). Also, "the oscillations of market prices, rising now over, sinking now under the value or natural price, depend upon the fluctuations of supply and demand." (Wages, Price and Profit, Ch. VI, p, 40, Foreign Languages Press, Peking, 1970).

. However, Marx did hold that the socially-necessary labor of the total quantity of a mass of commodities of the same type might differ from the sum of the socially-necessary labor contained in each separate commodity. He wrote: "Lastly, suppose that every piece of linen in the market contains no more labor-time than is socially necessary. In spite of this, all these pieces taken as a whole, may have superfluous labor spent upon them" if there is overproduction of linen. (See Capital, vol. 1, Part 1, Chapter III, Section 2a, p. 120, Kerr edition. I doubt, however, that he held that the socially-necessary labor contained in the linen would be greater than the labor spent in producing it in the case of underproduction.) Thus, in Marx's exposition, in the case of overproduction, the value of the total quantity of linen is presumably reduced, similar to what Kautsky said. But this only applied to the total quantity of linen, not to each individual item. So, in the case of overproduction, the value of the total quantity of linen was less than the sum of the individual values of each item of linen, while in Kautsky's exposition, the value of each individual item of linen is proportionally reduced. (Text)

(22) See "Preobrazhensky: theorist of state-capitalism" parts one and two, in Communist Voice, vol. 4, #2 (April 20, 1998) and Vol. 4, #3 (August 1, 1998). (Text)

(23) Alec Nove, Socialism, Economics and Development, Part Two, Section 4, pp. 53-59. Nove's account of this meeting is based on the 1928 book Denezhnaya politika sovetskoi vlasti by the Soviet economist L. Yurovsky, who was an advocate of the use of money. Nove himself, insofar as he thinks there is any possibility of socialism, is a market socialist. So unfortunately, my knowledge of this meeting is filtered at third hand through the medium of two market socialists (Nove and Yurovsky), who have their own axes to grind about the plans of the participants. (As for Yurovsky, two years after writing his book, he suffered possibly murderous repression from the then-developing Stalinist regime. He was arrested and vanished.) (Text)

(24) Nicolai Bukharin, Economics of the Transformation Period, with Lenin's Critical Remarks, Bergman Publishers, pp. 52, 100, italics as in the original. (Text)

(25) This would also imply that even the monopolies and state institutions of modern capitalism itself might not be subject to the law of value, and sure enough, Preobrazhensky drew the conclusion that the law of value was "partially abolished" in monopoly capitalism (The New Economics, p. 140). Indeed, with respect to Germany in World War I, he wrote that the development of state capitalism and war planning meant that "Production which formally remained commodity production was transformed de facto into planned production in the most important branches. Free competition was abolished, and the working of the law of value in many respects was almost completely replaced by the planning principle of state capitalism." (Ibid., p. 153). (Text)

(26) Anonymous, "Some Problems of the Teaching of Political Economy", Pod Znamenem Marksizma (Under the Banner of Marxism), #7-8, July-August 1943, as translated by Emily G. and Vladimir D. Kazakevich in an International Publishers pamphlet of 1944, pp. 31-21. The parenthetical remark is as in the original. (Text)

(27) The Soviet Economy: A Collection of Western and Soviet Views, edited by Harry G. Schaffer, pp. 402-3, 404-5, 406-7, 408, 413-4, and Benjamin Ward, "Kantorovich on Economic Calculation", in Readings on the Soviet Economy, edited by Franklyn D. Holzman. Kantorovich had promoted the use of linear programming for economic planning as early as his 1939 book Mathematical Methods of Organizing and Planning Production, which, however, had been ignored. (Text)

(28) Charles Bettelheim, Economic Calculation and Forms of Property, Monthly Review Press, pp. 6, 12. This is a 1975 translation of his 1970 Calcul economique et formes de propriete. Perhaps he didn't think it was easy to calculate the labor-content of a product, but more likely he was influenced by the various proposed modifications made to the labor content by Soviet economists in their proposals for pricing. He didn't like that these economists thought in terms of better prices, but he apparently thought that they had good reason to believe that the labor-content had to be modified to serve as an accurate guide to planning. (Text)

(29) See Herbert S. Levine, "The Centralized Planning of Supply in Soviet Industry", p. 163, in Holzman, Readings on the Soviet Economy. Strictly speaking, the total amount of coal used in a year, plus the reserves at the end of the year, plus the amount exported would have to equal the total amount produced in a year, plus the reserves at the start of the year, plus the amount imported. Wastage and theft aside, these amounts should balance.

. It is of course possible that the original planned balance doesn't correspond to what happens. If, for example, insufficient coal is produced, then a factory that was supposed to he so busy that it would require a large amount of coal, might actually get a small amount of coal. Cities might go cold or factories might shut down. But even in this case, there will be a balance between the actual amount of coal supplied and the amount actually used for various purposes. (Text)

(30) Levine, Ibid., in a study based on discussions with Soviet economists in 1959. Gosplan sought to avoid having to make "second-round" corrections in material balances. That is, it would accept that the change in the material balances for one good would affect the material balance for other goods (the first-round corrections), but it sought to avoid these first-round changes in the material balances having a further second-round affect on other material balances, which would then have third-round effects, and so on. So if a first-round change apparently required, say, increasing the supply of some essential material, Gosplan sought instead to adjust the material balance for this material by reducing the size of reserve stocks, by increasing imports, and by demanding that various enterprises, although they used this material as an input, fulfill their output quotas despite a shortage of this input. Thus Gosplan avoided demanding that the production for this material be increased, as an increase in such production would require additional inputs, and thus require adjustments of yet more material balances.

. Now, there may be nothing wrong with, say, calling on reserve stocks, if such stocks are sufficient. But these stocks often weren't sufficient, especially as the plans were often intentionally "taut" plans, that is, plans without any reserve for error. And so it seems that Gosplan frequently resorted to demanding that enterprises try to fulfill their production quota with supplies that, according to the plan, weren't sufficient.

. Of course, Gosplan may have felt justified in demanding the apparently impossible because it felt that enterprises were hiding stocks of vital materials. Demanding the impossible was lauded as the practice of vyyavlat' reservy (causing reserves to appear). These fantasy figures, the false reports from enterprise to ministry, and the resulting demands for the impossible from the ministry, are signs of the anarchy of production that existed under the surface of planning in the Soviet Union. (See "The anarchy of production beneath the veneer of Soviet revisionist planning" in the March 1, 1997 issue of Communist Voice. For vyyavlat' reservy in particular, see page 18, col. 1, which cites a passage from Nove, The Soviet Economic System, Ch. 4, Industrial Management and Microeconomic Problems, p. 97.) (Text)

(31) In mathematical terminology, one might say that the method of material balances regards the inputs not as a scalar quantity ("single number"), but as a vector ("list of numbers") in a multi-dimensional space of high dimension. (Text)

(32) The Soviet Economy, edited by Harry G. Shaffer, Glossary, p. 450. (Text)

(33) Alec Nove, The Soviet Economy: An Introduction, Third printing, 1963, pp. 157-8. (Text)

(34) Ibid., pp. 159-160. (Text)

(35) Ibid., pp. 158-9. (Text)

(36) I talk of "the Soviet-bloc version of 'material balances'" to avoid reducing the question to an argument over words. The problem isn't the term "material balances", but the actual practices in state-capitalist society.

. Perhaps someone will say that the term "material balances" can refer to any methods of economic accounting that keeps track of the physical ("material") amount of goods rather than using money accounts or accounts in some other single unit such as the labor-content. In that sense, material balances will cover a wide range of different planning systems, including communist planning.

. But "material balances" is probably used more often to refer to Soviet-bloc methods, including their mathematical techniques for input-out analysis. These methods are by no means inevitable if there is to be planning in physical terms. In the text, I have so far referred mainly to the elitist and bureaucratic way in which they were applied; the Soviet-bloc methods were adapted to planning by the state-capitalist bourgeoisie, with the masses being passive. However, the class relationships underlying how the Soviet-bloc bourgeoisie looked at economic problems affected even their technical calculations and mathematical models for the economy. It has been mentioned that the Soviet use of material balances always served as an adjunct to financial calculations, or even as a way of setting prices. As well, the computer calculations for economic planning via linear programming and input-output analysis, that were at one time expected to revolutionize Soviet planning, and that are also used in a different form in the West, actually involved many assumptions that are only partially true. For example, I have pointed out that the logic of the method of material balances is that it measures the economic cost of producing something as not a single number but a list of numbers, indicating the amount of each input needed to produce something. The method of linear programming eventually applied in the Soviet Union and in the West to handle planning problems involving such lists of numbers implicitly assumed that such economic relationships are linear: in order to produce twice as much, you need twice as much raw materials, twice as much labor, etc. But this is a simplification. Sometimes when twice as much is produced, there are economies of scale, so less than twice the inputs are needed. Sometimes producing twice as much would be beyond the capacity of existing factories, so that it would require building more factories. In that case, it would take much more than twice as much inputs in order to produce twice as much. And what about taking account of the state of morale of the workforce, which can change the amount of inputs needed even if the amount of production needed remains constant? A linear relationship between input and output is only an approximation, reasonably accurately in a certain range of production. This doesn't mean that linear programming has no use: approximations can be of great value in economic planning, provided one realizes the limits in which such approximations are valid. But it does show that the linear and mechanical picture of the economy, that was the most sophisticated end product of the Soviet-bloc version of material balances, is simply one attempt at planning in physical terms, and not the only possibility. (Text)

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