CHAPTER II THE ORGANIZATION OF PRODUCTION UNDER SOCIALISM
§ 1 the Socialization of the Means of Production
Under socialism, all means of production are owned by the community, which decides how to use them and benefits from the products. Modern socialists, particularly followers of Marx, emphasize the term "society" to describe the community gaining control of these means. This term can be confusing because it has three different meanings: the idea of social interrelationships, a group of individuals, and a personified society. Marx often mixes these meanings in his arguments, which can obscure important issues regarding socialism.
Marx limits the definition of "state" to dismiss its negative connotations and promote a vision of a community-managed production system without addressing the potential authoritarian nature of such a system. This language avoids the term "state," as it may alienate individuals who value freedom and democracy. However, whether referred to as "state" or "community," the organization of this system must have a clear structure.
The socialist community must have a single, ultimate organ of control overseeing all economic and governmental functions to ensure unity of purpose. This could be a powerful leader or a democratic assembly, but the means of organizing this power is not the main focus. Lastly, the discussion assumes that the socialist community is isolated, without external economic relations, which simplifies the analysis of its functioning.
§ 2 Economic Calculation in the Socialist Community
In a socialist community, economic calculation is said to be impossible because there are no prices for goods and services. In a market economy, different departments can keep track of costs, measure their success, and make informed decisions about their operations. However, in socialism, where there is no private property and no market prices, these departments cannot accurately assess their performance or value.
Some people think that if different industries could exchange materials and services under one authority, a pricing system could emerge. However, this idea conflicts with the core principle of socialism, which is about collective ownership, not private ownership. The labor theory of value suggests that once society owns the means of production, all labor becomes social labor. This theory implies that calculating economic value based on labor hours would be straightforward. However, this approach has significant problems.
One major issue is that it does not consider the different skills involved in various jobs. The labor theory treats all labor as the same, which is incorrect. Different types of labor produce different qualities of goods, so equating them is misleading. Also, trying to use labor alone for economic calculations ignores the different materials needed to make products, which is essential for determining value accurately.
In conclusion, while the labor theory of value has often been seen as a reason for socialism, it does not effectively help with economic calculations in a socialist community. A functioning socialist economy needs a clear way to determine value, but relying only on labor as a measure has proven inadequate and problematic.
§ 3 Recent Socialist Doctrines and the Problems of Economic Calculation
The main problem with Socialism is economic calculation, which makes it hard to implement effectively. For a long time, people have discussed Socialism without addressing this issue, but it is crucial to its success. While many have fought for Socialism, it often leads to disorder rather than a stable community. The Russian Bolsheviks and other socialist systems depend on market prices from capitalism to make decisions, which means they aren't truly solving the calculation problem. Socialist businesses can only operate because they get help from capitalist systems. Even though some writings may romanticize Socialism, without a solid way to manage the economy, it is unlikely to succeed and could even harm society.
§ 4 the Artificial Market as the Solution of the Problem of Economic Calculation
Some younger socialists propose that creating an artificial market for means of production could solve the problem of economic calculation in a socialist community. They argue that older socialists were wrong to believe that socialism could only be achieved by eliminating the market and pricing for higher-order goods. They insist that, like capitalism, socialism must also have a market to prevent chaos. By having this market, they believe that socialists could calculate economics as easily as capitalist entrepreneurs do.
However, these advocates misunderstand that a true market and its pricing functions are closely linked to a society based on private property. In capitalism, the driving force for market prices comes from capitalists and entrepreneurs seeking to maximize their profits by meeting consumer demands. If the profit motive is eliminated, the market cannot function effectively. Therefore, the market is essential to capitalism and cannot simply be replicated in socialism.
Proponents of the artificial market think that industrial managers could be directed to act like capitalist entrepreneurs, suggesting that the managers currently work for shareholders in capitalism, and can similarly be responsible for the community under socialism. They believe a decentralized form of socialism is possible without central control.
To properly evaluate this view, it's important to recognize that managers in capitalism are appointed by shareholders who risk their own capital. The real economic calculation problem exists within a constantly changing economy, not a stable one. Economic calculation becomes necessary when production needs to shift to meet new consumer demands. This transition relies on capitalists buying and selling capital and judging investments—not just on managers’ decisions.
If socialists suggest that the state can simply direct capital towards the most profitable ventures, this could lead to misallocating resources based on managers’ overly optimistic views. Under capitalism, market mechanisms decide where capital should flow. The capitalist balances potential profit with the risk of loss, adjusting investments accordingly. Therefore, the socialist state would struggle to manage capital effectively, as this role involves making speculative judgments.
In conclusion, the socialist state would need to control capital completely, resulting in the elimination of the market. Attempts to minimize the significance of economic calculation in socialism overlook its importance. While production decisions about what to make are relatively straightforward, determining the most efficient use of production resources requires economic calculations, which necessitate market-established money prices. Ultimately, the only viable economic systems are either socialism or a market economy.
§ 5 Profitability and Productivity
Economic activity in a socialist community works under similar conditions as any economic system, including capitalism. It involves both labor and tools for production, often called capital. While socialist production uses capital, it doesn't operate the same way as capitalist production, which focuses on making money. Instead, socialist production aims to meet the community's needs.
Both systems need to direct their production to satisfy the most urgent needs first, which can lead to profits. Profits in this context mean getting more value from what is produced than what it costs. The difference between producing for profit and producing for needs is important but sometimes confusing. Sometimes, profitable actions in capitalism are not productive, and vice versa.
Some argue that activities like speculation create a conflict between profitability and productivity. However, speculation is important for balancing supply and demand, and in a socialist system, the community would need to handle the benefits of speculation. Also, looking at specific costs, like advertising, without seeing the whole picture can be misleading. It’s crucial to consider the complete economic process instead of just individual stages.
§ 6 Gross and Net Product
Every entrepreneur in a capitalist system aims for the largest net product, which refers to the total returns from production minus costs. However, it is argued that economic activity should focus on maximizing gross product, which is the total output without considering costs. This view is considered misguided, as it often overlooks the importance of net product. For example, if a production process employs many workers but generates little net profit, then society may not benefit overall, especially if resources could be better used elsewhere.
Production should not be extended indefinitely simply to increase gross product if it does not lead to a positive net product. If resources, including labor, are used inefficiently, urgent needs in other areas may remain unaddressed. This principle holds true in both capitalist and socialist systems. A rational socialist community would also stop producing when the costs of additional output are not justified by benefits.
There is an ongoing debate regarding the preference for gross or net product. Historically, different economists have provided arguments supporting both views. For instance, Adam Smith suggested that different production lines should be assessed based on the amount of labor they employ, while Ricardo countered that welfare increases through a larger net product, not merely gross product. Yet, this perspective faced criticism.
Some argue that achieving a large gross product is beneficial for society and aligns with individual interests. They suggest that farmers should focus on increasing gross product for the greater good, regardless of individual business interests. Others assert that labor is unique and can be used without costs, suggesting that reducing gross product is harmful. However, this idea is flawed because it ignores the reality that labor needs can be met if workers are released to pursue more productive activities.
Ultimately, the principle of net product should guide economic activity in both capitalist and socialist societies. Effective management of resources, including manpower and materials, is crucial to ensure that societal needs are met efficiently, which refutes the notion that gross product should be prioritized over net product.
§ 1 the Socialization of the Means of Production
Under socialism, all means of production are owned by the community, which decides how to use them and benefits from the products. Modern socialists, particularly followers of Marx, emphasize the term "society" to describe the community gaining control of these means. This term can be confusing because it has three different meanings: the idea of social interrelationships, a group of individuals, and a personified society. Marx often mixes these meanings in his arguments, which can obscure important issues regarding socialism.
Marx limits the definition of "state" to dismiss its negative connotations and promote a vision of a community-managed production system without addressing the potential authoritarian nature of such a system. This language avoids the term "state," as it may alienate individuals who value freedom and democracy. However, whether referred to as "state" or "community," the organization of this system must have a clear structure.
The socialist community must have a single, ultimate organ of control overseeing all economic and governmental functions to ensure unity of purpose. This could be a powerful leader or a democratic assembly, but the means of organizing this power is not the main focus. Lastly, the discussion assumes that the socialist community is isolated, without external economic relations, which simplifies the analysis of its functioning.
§ 2 Economic Calculation in the Socialist Community
In a socialist community, economic calculation is said to be impossible because there are no prices for goods and services. In a market economy, different departments can keep track of costs, measure their success, and make informed decisions about their operations. However, in socialism, where there is no private property and no market prices, these departments cannot accurately assess their performance or value.
Some people think that if different industries could exchange materials and services under one authority, a pricing system could emerge. However, this idea conflicts with the core principle of socialism, which is about collective ownership, not private ownership. The labor theory of value suggests that once society owns the means of production, all labor becomes social labor. This theory implies that calculating economic value based on labor hours would be straightforward. However, this approach has significant problems.
One major issue is that it does not consider the different skills involved in various jobs. The labor theory treats all labor as the same, which is incorrect. Different types of labor produce different qualities of goods, so equating them is misleading. Also, trying to use labor alone for economic calculations ignores the different materials needed to make products, which is essential for determining value accurately.
In conclusion, while the labor theory of value has often been seen as a reason for socialism, it does not effectively help with economic calculations in a socialist community. A functioning socialist economy needs a clear way to determine value, but relying only on labor as a measure has proven inadequate and problematic.
§ 3 Recent Socialist Doctrines and the Problems of Economic Calculation
The main problem with Socialism is economic calculation, which makes it hard to implement effectively. For a long time, people have discussed Socialism without addressing this issue, but it is crucial to its success. While many have fought for Socialism, it often leads to disorder rather than a stable community. The Russian Bolsheviks and other socialist systems depend on market prices from capitalism to make decisions, which means they aren't truly solving the calculation problem. Socialist businesses can only operate because they get help from capitalist systems. Even though some writings may romanticize Socialism, without a solid way to manage the economy, it is unlikely to succeed and could even harm society.
§ 4 the Artificial Market as the Solution of the Problem of Economic Calculation
Some younger socialists propose that creating an artificial market for means of production could solve the problem of economic calculation in a socialist community. They argue that older socialists were wrong to believe that socialism could only be achieved by eliminating the market and pricing for higher-order goods. They insist that, like capitalism, socialism must also have a market to prevent chaos. By having this market, they believe that socialists could calculate economics as easily as capitalist entrepreneurs do.
However, these advocates misunderstand that a true market and its pricing functions are closely linked to a society based on private property. In capitalism, the driving force for market prices comes from capitalists and entrepreneurs seeking to maximize their profits by meeting consumer demands. If the profit motive is eliminated, the market cannot function effectively. Therefore, the market is essential to capitalism and cannot simply be replicated in socialism.
Proponents of the artificial market think that industrial managers could be directed to act like capitalist entrepreneurs, suggesting that the managers currently work for shareholders in capitalism, and can similarly be responsible for the community under socialism. They believe a decentralized form of socialism is possible without central control.
To properly evaluate this view, it's important to recognize that managers in capitalism are appointed by shareholders who risk their own capital. The real economic calculation problem exists within a constantly changing economy, not a stable one. Economic calculation becomes necessary when production needs to shift to meet new consumer demands. This transition relies on capitalists buying and selling capital and judging investments—not just on managers’ decisions.
If socialists suggest that the state can simply direct capital towards the most profitable ventures, this could lead to misallocating resources based on managers’ overly optimistic views. Under capitalism, market mechanisms decide where capital should flow. The capitalist balances potential profit with the risk of loss, adjusting investments accordingly. Therefore, the socialist state would struggle to manage capital effectively, as this role involves making speculative judgments.
In conclusion, the socialist state would need to control capital completely, resulting in the elimination of the market. Attempts to minimize the significance of economic calculation in socialism overlook its importance. While production decisions about what to make are relatively straightforward, determining the most efficient use of production resources requires economic calculations, which necessitate market-established money prices. Ultimately, the only viable economic systems are either socialism or a market economy.
§ 5 Profitability and Productivity
Economic activity in a socialist community works under similar conditions as any economic system, including capitalism. It involves both labor and tools for production, often called capital. While socialist production uses capital, it doesn't operate the same way as capitalist production, which focuses on making money. Instead, socialist production aims to meet the community's needs.
Both systems need to direct their production to satisfy the most urgent needs first, which can lead to profits. Profits in this context mean getting more value from what is produced than what it costs. The difference between producing for profit and producing for needs is important but sometimes confusing. Sometimes, profitable actions in capitalism are not productive, and vice versa.
Some argue that activities like speculation create a conflict between profitability and productivity. However, speculation is important for balancing supply and demand, and in a socialist system, the community would need to handle the benefits of speculation. Also, looking at specific costs, like advertising, without seeing the whole picture can be misleading. It’s crucial to consider the complete economic process instead of just individual stages.
§ 6 Gross and Net Product
Every entrepreneur in a capitalist system aims for the largest net product, which refers to the total returns from production minus costs. However, it is argued that economic activity should focus on maximizing gross product, which is the total output without considering costs. This view is considered misguided, as it often overlooks the importance of net product. For example, if a production process employs many workers but generates little net profit, then society may not benefit overall, especially if resources could be better used elsewhere.
Production should not be extended indefinitely simply to increase gross product if it does not lead to a positive net product. If resources, including labor, are used inefficiently, urgent needs in other areas may remain unaddressed. This principle holds true in both capitalist and socialist systems. A rational socialist community would also stop producing when the costs of additional output are not justified by benefits.
There is an ongoing debate regarding the preference for gross or net product. Historically, different economists have provided arguments supporting both views. For instance, Adam Smith suggested that different production lines should be assessed based on the amount of labor they employ, while Ricardo countered that welfare increases through a larger net product, not merely gross product. Yet, this perspective faced criticism.
Some argue that achieving a large gross product is beneficial for society and aligns with individual interests. They suggest that farmers should focus on increasing gross product for the greater good, regardless of individual business interests. Others assert that labor is unique and can be used without costs, suggesting that reducing gross product is harmful. However, this idea is flawed because it ignores the reality that labor needs can be met if workers are released to pursue more productive activities.
Ultimately, the principle of net product should guide economic activity in both capitalist and socialist societies. Effective management of resources, including manpower and materials, is crucial to ensure that societal needs are met efficiently, which refutes the notion that gross product should be prioritized over net product.