There is no aspect of the problem of Russia about which so much confusion has been spread as whether the economy is moved by the law of value or not. The main reason for this confusion lies in the lack of clarity as regards the definition of the law of value which leads to mistakes in the effort to locate it in the body-economy. Many of the Marxists who have dealt with Russia have ‘found’ the source of activity of the law of value even where it does not exist, while others have not found it even where it does exist. Even though we shall repeat some of the ABC of Marxism, it is necessary to sketch the essence of the law of value as a prelude to determining whether it acts in the Russian economy and, if so, how. In order to avoid a number of the confusions prevailing about the law of value, we shall formulate the law as far as possible in the words of Marx himself.
Under capitalism, and only under capitalism, “all, or even a majority of the products, take the form of commodities.”  For products to become commodities it is necessary that there should exist a social division of labour. But this alone is not sufficient. Inside primitive tribes there was a division of labour without commodities being produced. The same thing applies to the latifundia based on slave labour and self-sufficiency. Within the capitalist factory too there is a division of labour without the fruit of one’s labour being a commodity. Only on the boundary between primitive tribes and latifundiae, or between one capitalist factory and another, are products exchanged, thus receiving the form of commodities. As Marx said: “Only such products can become commodities with regard to each other, as result from different kinds of labour, each kind being carried on independently and for the account of private individuals.” 
Value is the common characteristic of commodities on the basis of which exchange is realised. Only as commodities have they exchange value. Exchange value is the form of expression of the social relations between producers of commodities, of the social character of the labour of every producer. It is, in fact, the only expression of the social character of labour in a society of independent producers. Marx says:
Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer’s labour does not show itself except in the act of exchange. In other words, the labour of the individual asserts itself as a part of the labour of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers. 
The only form of appearance of value is the process of exchange itself.
When we say that a commodity is value we mean that it is materialised abstract labour, that it is the result of a certain portion of the total productive labour of society. “Magnitude of value expresses a relation of social production, it expresses the connection that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it.” 
Why is exchange value the only expression of “the connection that necessarily exists between a certain article and a portion of the total labour time of society required to produce it”? Why is this relation not expressed directly instead of through the medium of things? The reqson is that the only social connection between independent producers that there can be is through things, through the exchange of commodities.
The law of value in a society of independent producers determines: (a) what will be the exchange relation between different commodities, (b) the total volume of commodities of one kind which will be produced in comparison with commodities of another kind, and therefore, (c) the division of the total labour time of society among different enterprises.
One aspect of (a) is the selling and buying of labour power. the law of value determines the relation of exchange between labour power and other commodities, and through this the division of the labour day or the worker into the portion of “necessary labour”, in which he reproduces the value of his own labour power, and the portion of “surplus labour”, in which he produces surplus value for the capitalist.
One aspect of (b) is the proportion of social labour devoted to the production of means of production and the production of means of consumption. This is, of course, dependent on (a).
In order to get a clear picture of the activity of the law of value, let us quote Marx on the relation between the division of labour which is expressed in the appearance of values, of commodities, and the division of labour which is not thus expressed, that is, between the division of labour in capitalist society as a whole and the division of labour within an individual capitalist factory. He writes:
Division of labour in society is brought about by the purchase and sale of the products of different branches of industry, while the connection between the detail operations in a workshop, are due to the sale of the labour-power of several workmen to one capitalist, who supplies it as combined labour-power. The division of labour in the workshop implies concentration of the means of production in the hands of one capitalist; the division of labour in society implies their dispersion among many independent producers of commodities. While within the workshop the iron law of proportionality subjects definite numbers of workmen to definite functions, in the society outside the workshop, chance and caprice have full play in distributing the producers and their means of production among the various branches of industry. The different spheres of production, it is true, constantly tend to an equilibrium: for, on the one hand, while each producer of a commodity is bound to produce a use-value, to satisfy a particular social want, and while the extent of these wants differs quantitatively, still there exists an inner relation which settles their proportions into a regular system, and that system one of spontaneous growth; and, on the other hand, the law of the value of commodities ultimately determines how much of its disposable working-time society can expend on each particular class of commodities. But this constant tendency to equilibrium, of the various spheres of production, is exercised, only in the shape of a reaction against the constant upsetting of this equilibrium. The a priori system on which the division of labour, within the workshop, is regularly carried out, becomes in the division of labour within the society, an a posteriori, nature-imposed necessity, controlling the lawless caprice of the producers, and perceptible in the barometrical fluctuations of the market-prices. Division of labour within the workshop implies the undisputed authority of the capitalist over men, that are but parts of a mechanism that belongs to him. The division of labour within the society brings into contact independent commodity-producers, who acknowledge no other authority but that of competition, of the coercion exerted by the pressure of their mutual interests. 
Thus the action of the law of value brings order into disorder by its continual disturbance of the equilibrium, by the continuous movement of demand and supply, by competition. Therefore, despite the lack of central deciding authority within a society of commodity producers, a certain order is created by the law of value alone, and certain proportionalities are reached in the production of different products, in the division of the total labour time of society between the different branches of the economy, etc. Within the individual factory, on the other hand, it is not impersonal anarchy that prevails, but the despotic will of the capitalist which decides the division of labour in the process of production and the quantity of different goods to be produced.
Now in all the different forms of society – from the primitive communism of the ancient past to the future communist society – the needs of society demand a certain proportionality in the production of different products, and therefore a certain division of the labour time of society among the different branches of the economy. But every form of society has a special mode in which this division of the total labour time is carried out. As Marx writes in a letter to Kugelmann on 11 July 1868:
Every child knows that if a country ceased to work, I will not say for a year, but for a few weeks, it would die. Every child knows too that the mass of products corresponding to the different needs require different and quantitatively determined masses of the total labour of society. That this necessity of distributing social labour in definite proportions cannot be done away with by the particular form of social production, but can only change the form it assumes, is self-evident. No natural laws can be done away with. What can change in changing historical circumstances is the form in which these laws operate. And the form in which this proportional division of labour operates, in a state of society where the interconnection of social labour is manifested in the private exchange of the individual products of labour, is precisely the exchange value of these products. 
The necessary condition for exchange value to be the form of the division of the total labour time of society between the production of different products is that the activity of people in the process of production should be ‘purely atomic’, so that the relations between them are “independent of their control and conscious individual action”. This means that there is completely free competition between independent producers, between the owners of different commodities, including the sellers of labour power.
As the existence of value is conditioned by the non-existence of a conscious regulation of production, the concept of value itself assumes that the price of a commodity is not identical with it, except as an exception, but oscillates around it. In reality, as Marx explains in the third volume of Capital, this statement needs modification: the price of a commodity oscillates not round its value but round its price of production. The relation of exchange between two commodities is therefore not congruent with the labour time ratios incorporated in them. But as the price of production itself is derived – by means of the tendency towards an equal rate of profit – from the total value produced, under conditions of free competition prices are derived, even if not directly, from labour time ratios.
The appearance of monopolies changes this picture. The price of one commodity rises relative to another, so that the exchange relations not only do not conform to their labour time ratios, but not even to their prices of production. Monopoly, by altering the exchange relations between different commodities, also alters the exchange relation between the commodity labour power arid other commodities, i.e. it changes the relation between wages and profits. Monopoly restricts the production of certain commodities in order to raise their price, so that the relation between the quantity of commodities produced by different industries is not exactly the same as that which would have existed under conditions of free competition. Thus monopoly also alters the division of the total labour time of society among the different branches of the economy.
The first Marxist who dealt extensively with the question of monopoly was Hilferding. His book Finance Capital is perhaps the most important book on Marxist economics since Capital itself. In one chapter he deals with the price determination of capitalist monopoly. He explains why it is impossible to draw any general law which will explain what is the quantitative influence of monopoly on the relations of exchange between commodities. He writes:
What is undetermined and immeasurable under the rule of monopolies is demand. How this reacts on the raising of prices cannot be ascertained. Monopoly prices can be determined empirically, but their level cannot be determined theoretically. Classical economy [in this Hilferding includes Marx] conceives prices as the form of appearance of anarchical social production, their level as dependent on the social productivity of labour. The objective price law is realised only through competition. When the monopolist associations abolish competition, they remove with this the only means by which an objective price law can be realised. Price ceases to be an amount determined objectively, and becomes a problem of calculation for those who determine it with will and consciousness; instead of a result it becomes an assumption, instead of being objective, subjective, instead of being inevitable and independent of the will and consciousness of the actors it becomes arbitrary and accidental. The realisation of the Marxian theory of concentration – the monopolistic merger – seems to lead to the invalidation of the Marxian theory of value. 
Just as it is impossible to determine theoretically what will be the relations of exchange between commodities under conditions of monopoly, so is it impossible to determine what quantities of different commodities will be produced, and how the total labour time of society will be divided between different branches of the economy.
But it is possible to estimate what the tendency of the above factors will be under monopoly conditions in comparison with what they would have been under conditions of free competition. Under conditions of equilibrium, the exchange value of monopoly commodities will rise in relation to non-monopolised commodities, the quantity of monopolised commodities produced will be smaller relkative to non-monopolised commodities, and the proportion of the total labour time of society absorbed into the monopolised industry will likewise be smaller. The exchange relations of the commodities, the quantity produced and the division of the total labour time of society under conditions of monopoly are thus modifications of the same factors under free competition. The law of value under conditions of monopoly is partially negated, but in essence it continues to exist: the division of the total labour time of society is derived, even if with certain deviations, from the law of value.
Competition continues, even if it is not absolutely free, and therefore, despite certain changes, it is still valid that “the behaviour of men in the social process of production is purely atomic. Hence their relations to each other in production assume a material character independent of their control and conscious individual actions.” 
The competition between different monopoly groups, in the same branch or in different branches, makes the exchange relations between different commodities, even if they are not congruent with labour time rations or cost of production ratios, not entirely independent of them. Even if the general division of labour in society is not absolutely independent of the conscious actions of individuals or groups (such as monopolies), they can change the division of labour from what it would have been under absolute free competition only within relatively limited boundaries. Notwithstanding the “planning” of monopolies, therefore, anarchival character of the division of labour among the different enterprises in society continues to exist. The division of labour between monopolistic groups thus continues to be different from the division of labour within the factory, “not only in degree, but also in kind”. We see then that monopoly means a partial negation of the law of value but on the basis of the law of value itself. As Spinoza said, “Determinatio est negatio.” The partial negation of the law of value borders on its total negation. We would be correct in describing capitalist monopoly as a border case of the activity of the law of value.
Dies the intervention of the capitalist state in the regulation of the price of commodities, its appearance as the buyer of an important part of the products of the economy, as the allocator of raw materials and regulator of capital investment negate the law of value entirely, or only partially negate it? Let us first re-quote Lenin on this question:
When capitalists work for the defence, i.e. for the government, it is obviously no more pure’ capitalism, it is a special form of national economy. Pure capitalism means commodity production. Commodity production means work for an uncertain and free market. But the capitalist ‘working’ for the defence does not work for the market at all, he fills the orders of the government, and money is invariably advanced to him by the treasury. 
This does not mean that the supply of products by capitalist enterprises to the state is outside of the law of value, of the automatism of the market. When in Nazi Germany the state began to buy half the total national product, when it concentrated in its hands the allocation of raw materials, regulated the flow of capital into the different branches of the economy, fixed the prices of commodities, and regimented the labour market, it did not leave the exchange-relation of different commodities, the relative quantity of different goods produced and the division of the total labour time of society among the different industries, to be regulated by the blind, automatic activity of the market. But the Nazi state did not take all the decisions as regards production. The law of value was not negated altogether, but only partially – it was negated on the basis of itself.
In seeing whether the Russian economy is subordinated to the law of value or not, we shall look into two aspects of the problem. First we shall consider the Russian economy as a closed unit, abstracted from the world economy; we shall see in how far such an abstraction is permissible, and what importance it has. Then we shall examine the mutual relations between world economy and Russian economy. As far as the first aspect is concerned, the main problem to be tackled is whether the division of labour among the enterprises in Russia itself is basically, in essence, the same as exists within one workshop in capitalist society, or whether it is like the division of labour in the interior of society as a whole. As far as the second aspect is concerned, the problem to be tackled is whether the relations between Russian economy and world economy make for the existence of the law of value as the regulator of production in Russia.
At first sight it seems the relations between the different enterprises in Russia are the same as among different enterprises in the traditional capitalist countries, which is the opposite of the relations within each enterprise. But this is only formally the case. The fundamental criterion in a society of private producers which distinguishes between the division of labour within the workshop and the division of labour inside society as a whole is that in the former the ownership of the means of production is concentrated in one hand. The workers are subordinated to one will which decides the quantity to be produced, etc. In society as a whole there is no deciding authority, but only the “blindly working average” to determine the proportionality of workers employed in different enterprises, the quantity of commodities produced, etc. This criterion certainly does not distinguish between the division of labour within the factory and among the factories in Russia. Both are submitted to the planned regulation of production. The difference between the division of labour in, let us say, a tractor factory and the division of labour between it and the steel plant supplying it is a difference only in degree, not in kind. It is a technical-administrative difference, but not a difference in the working of the laws of the economy. The division of labour within Russian society is therefore in essence a species of the division of labour in the interior of a workshop.
Formally, the distribution of products among the different branches of the economy is made through the medium of exchange. But as the ownership of all the enterprises is vested in one body, the state, we cannot really speak of exchange of commodities. the above quoted passage from marx makes this clear: “Only such products can become commodities with regard to each other, as result from different kids of labour, each kind being carried on independently and for the account of private individuals [or] groups of individuals.”
In a society of private producers where the only connection between them is exchange, the medium regulating the division of labour in society as a whole is the monetary expression of their exchange value, in other words, their price. As in Russia there is a direct connection between the enterprises through the medium of the state which directs production in nearly all of them, price is not the only expression of the social character of labour or regulator of production.
If in a traditional capitalist country the demand for shoes exceeds the supply, the blind action of the market will raise the price of shoes relative to the price of other commodities; the result will be increased profits in the shoe industry, into which capital and workers will flow, and an increase in the portion of the total labour time of society devoted to shoe production. The law of value works towards an equalisation of supply and demand, a situation in which price is equal to value, or more correctly, is equal to price of production. If a similar situation existed in Russia, the demand for shoes exceeding the supply, the result would be a rise in the price of shoes either officially or on the black market. But there would be no increase in the production of shoes, in the labour time of society directed to their production.
let us take another example. In the traditional capitalist countries the proportionality between the production of means of production andthe production of means of consumption is achieved (and also disrupted) by the activity of the law of value. If the supply of shoes is lower than the demand, while the supply of machinery is higher than the demand, the price of shoes will rise while the price of machinery will decline; a stream of capital and workers will flow from one branch to another, until the proportionality between the two departments is restored. In Russia the state owns both departments of industry. A high rate of profit in the production of means of consumption will not attract a stream of capital and workers into this department and out of that of means of production. Here the proportionalities existing between the two departments are not derived from the blind activity of the Russian internal market.
The relationship between the production of the two departments is directly dependent on the relationship between accumulation and consumption, between C and V. While in the traditional capitalist countries the competition between different factory owners causes them to accumulate and increase the organic composition of capital, in Russia, as all the factories are owned by one authority this factor does not exist. Accumulation and technical improvement in russia are not adopted,as they are in traditional capitalist countries, as a defence-attack measure of one enterprise against another.
We have seen that the price is not the medium through which Russian production and the division of labour in society as a whole are regulated. The regulator here is the government plan. Price appears only as one of the weapons the state in its regulation of production. It is not the motor, but the transmission belt.
This does not mean that the price system in Russia is arbitrary, dependent on the whim of the bureaucracy. The basis of price here too is the costs of production. If price is to be used as a transmission belt through which the bureaucracy directs production as a whole, it must fit its purpose,and as nearly as possible reflect the real costs, that is the socially necessary labour absorbed in the different products. Notwithstanding this, however, there is a fundamental difference between this price and the price of commodities in traditional capitalism. The latter expresses the autonomy of the economy (which is broadeest under free competition, more canalised under monopoly); the former expresses its non-existence. The difference between these two kinds of price will probably become clearer if we make an analogy with another historical period, the Pharaonic.
As we have said, in every society the total labour time must be divided among tghe production of different products, and in every society labour time is the real cost of production. Pharaoh had to distribute his slaves between the production of food and luxury items, the construction fo the irrigation system, the building of the pyramids, etc. His calculation was direct: a certain number of slaves were devoted to one work, a certain number to another. As the process of production was relatively simple, there was no necessity for additional checks beyond seeing that the number of slaves was apportioned according to plan. In Stalinist Russia, as in Pharaonic Egypt, the state directly makes an almost  complete plan of the division of the total labour time of society, but as the process of production is much more complicated than it was a few thousand years ago, simply to check the number of workers engaged in the different branches is not sufficient for the economy to run according to the plan. Certain proportions must be fixed between the employment of machinery and workers, between the quantity produced and the raw material and fuel used, etc. For this it is necessary to have a measure common to all costs of production and all the fruits of production. The bureaucracy has adopted the price system to serve as this common measure. The difference between the division of labour under Pharoah without a price system, and the division of labour between the enterprises under Stalin with a price system is a difference in degree, but not in essence. Similarly, whether Ford directs all his enterprises as one administrative unit, or he breaks them up into smaller units which make it easier to calculate and direct, so long as the same will directs production, the difference between the two is only in degree.
One thing in Russia seems to fulfil all the requirements of a commodity. This is labour power. If it is a commodity, the means of consumption that the workers receive in exchange for their labour power are also commodities, being products produced for exchange. We should therefore have, if not a highly developed circulation of commodities, a huge truck or barter system comprising all the consumption of the workers. But, first of all, Marx argues: “The circulation of commodities differs from the direct exchange of products (barter), not only in form, but in substance.” 
Under the circulation of commodities:
... exchange ... breaks through all local and personal bounds inseparable from direct barter, and develops the circulation of the products of social labour ... it develops a whole network of social relations spontaneous in their growth and entirely beyond the control of the actors. 
Is labour power in Russia really a commodity, as it is under traditional capitalism? Marx explains that labour power becomes a commodity only when two conditions exist: firstly, the labourer must sell his labour power as he has no other means of subsistence; secondly, the labourer can sell his labour power as he is the untrammelled owner of it, i.e., he is free to do so. The freedom of the worker on the one hand, his bondage on the other, are shown by the “periodic sale of himself, by his change of masters, and by the oscillations in the market price of labour power”. 
Marx therefore says that in order for labour power to become a commodity it is necessary
... that the owner of the labour power should sell it only for a definite period, for it he were to sell it rump and stump, once for all, he would be selling himself, converting himself from a free man into a slave, from an owner of a commodity into a commodity. He must constantly look upon his labour-power as his own property, his own commodity, and this he can only do by placing it at the disposal of the buyer temporarily, for a definite period of time. By this means alone that he can avoid renouncing his rights of ownership over it. 
If there is only one employer, a “change of masters” is impossible, and the “periodic sale of himself” becomes a formal thing only. The contract also becomes only a formality when there are many sellers and only one buyer. (That even this formal side of the contract is not observed in Russia is clear from the system of fines and punishments, the “corrective labour”, etc.) “Oscillations in the market price of labour power” take place in Russia, perhaps more so than in other countries. But here too the essence contradicts the form. We shall elaborate this point somewhat, as it will throw light on the central point we intend to prove, that in the economic relations within Russia itself, one cannot find the autonomy of economic activity, the source of the law of value, acting.
In traditional capitalist economy, where there is competition between the sellers of labour power, between the buyers of labour power, and between the sellers and the buyers, the price of labour power is a result of anarchic activity. If the rate of accumulation is high, there is extensive unemployment, which under normal conditions raises the nominal wages. This increases the demand for means of consumption whose production duly increases, raising the real wages. (Under normal conditions of free competition this is a absolutely true; less true under conditions of monopoly.) This rise of real wages reflexly influences the rate of profit, which influences the rate of accumulation, and so on recurrently. As against this, in Russia the total amount of real wages and salaries is fixed in advance in the quantity of means of consumption planned. It may happen, of course, that because of defects in the planning and its realisation, the quantity of money distributed as wages and salaries is larger than the total price of the means of consumption produced. If the difference is not taken by the state, it will cause a rise in prices (either on the official market or the black market) but not a rise is real wages. The only way it could cause a rise in real wages is by the rise in prices in a certain branch of teh economy causing the state to increase the production of that branch. But the state does not do this.  (There is a point below which real wages cannot fall for any length of time. This is the physical minimum, which applies to Russia as much as to any other society, whether based on slave labour, serf labour, or wage labour. The fact that real wages are not distributed equally among the Russian workers is, in connection with the problem we are discussing, of secondary importance to the fact that the total real wages are directly fixed by the state.)
Hence if one examines the relations within Russian economy, abstracting them from their relations with the world economy, one comes to the conclusion that the source of the law of value as motor and regulator of production is not to be found. In essence the laws prevailing in the relations between the enterprises and between the labourers and the employer-state would be no different if Russia were one big factory managed directly from one centre, and if all the labourers received the goods they consumed directly, in natura. 
Abstracting Russian economy from world economy, it is logical that Hilferding should write:
A capitalist economy is governed by the laws of the market (analysed by Marx) and the autonomy of these laws constitutes the decisive symptom of the capitalist system of production. A state economy, however, eliminates precisely the autonomy of economic laws. It represents not a market but a consumers’ economy. It is no longer price but rather a state planning commission that now determines what is produced and how. Formally, prices and wages still exist, but their function is no longer the same; they no longer determine the process of production which is now controlled by a central power that fixes prices and wages. Prices and wages become means of distribution which determine the share that the individual receives out of the sum total of products that the central power places at the disposal of society. They now constitute a technical form of distribution which is simpler than direct individual allotment of products which no longer can be classed as merchandise. Prices have become symbols of distribution and no longer comprise a regulating factor in the economy. While maintaining the form, a complete transformation of function has occurred. 
At the same time he says:
In Germany, too, the state, striving to maintain and strengthen its power, determines the character of production and accumulation. Prices lose their regulating function and become merely means of distribution. The economy, and with it the exponents of economic activity are more or less subjected to the state, becoming its subordinates. 
From this he draws the conclusion that Russia is neither capitalist nor socialist, but “represents a totalitarian state economy, i.e. a system to which the economies of Germany and Italy are drawing closer and closer”. 
Let us now find out what importance the analysis of the internal relations in Russia has when abstracted from the influence of world economy.
The abstraction has solved one fundamental question: that the source of the activity of the law of value is not to be found in the internal relations of the Russian economy itself. In other words it has brought us so far nearer solving the problem of whether Russian economy is subordinated to the law of value by showing us where not to look for its source.
This point has great importance. Nearly all those who say that Russian economy is not subordinated to the law of value (such as Hilferding, Bruno R, Shachtman) do so on the basis of the relations within the Russian economy as abstracted from world economy. Some of the few who say that Russian economy is subordinated to the law of value ‘find’ its source in the internal relations.
After eliminating the internal relations in Russian economy as the source of the law of value, we must now examine the relations between the Russian and the world economy. It is here that we do find the source of the activity of the law of value to which Russian economy as a whole is subordinated, and to which, therefore, the internal relations of the economy are also subordinated.
We have said that the relations between the Stalinist state and the total labour time of Russian society are the same as between the factory owner and the amount of labour that he acquires through buying the labour power of a certain number of workers. The division of labour is thus consciously, and not anarchically, realised in Russia. We have yet to set, however, why the Russian state carries out a certain division of the total labour time of Russian society, and not another sort of division. The division of labour in Russia, done independently of competition with other countries, would be absolutely arbitrary. In reality Stalin decides on the division of labour inside Russia in the same way as the individual capitalist decides on the division of labour in his factory. But the decision itself is derived from powers over which he has no control whatsoever – it is derived from the autonomy of world economy, from world competition.
The rate of exploitation, which is the ratio between surplus labour and necessary labour (s/v) is not dependent on the arbitrary will of the Stalinist bureaucracy, but is dictated by the pressure of world capitalism, which compels Russia to undertake a quick accumulation. The same applies to the rise in the organic composition of capital (c/v), and therefore also to the division of the total labour time of Russian society between the two departments of production-the department of means of production and the department of means of consumption (Dept I/Dept II). Thus now, on an international scale, the basic feature of capitalism appears: “Anarchy in the social division of labour and despotism in that of the workshop are mutual conditions the one of the other.”
Russia would achieve the same result as regards the tendencies of s/v, c/v and Dept I/Dept II if the pressure of international competition took the form of direct commercial competition or military pressure. If Russia made an effort to flood the world market with its products, or other countries flooded the Russian market with their products, the commercial competition ensuing would drive the Russian bureaucracy to cut the costs of production by cutting wages relative to the productivity of labour, or even absolutely (increasing s/v), advancing the technique (increasing c/v), and increasing Dept I/Dept II.
If the international division of labour did not exist, and there were no commercial competition, but competition revealed itself purely in the field of military preparedness and war, the results would be exactly the same.
Hitherto Russia’s backwardness has ruled out any question of flooding foreign markets with Russian goods. On the other hand, Russian markets are kept from being flooded with foreign goods by the monopoly of foreign trade which only military might can smash. The combination of these two facts till now relegates the commercial struggle to a place of secondary importance , and gives the military struggle pride of place.
The circumstance that the internal competition takes mainly a military form brings about a very interesting result. Because of it the law of value expresses itself in its opposite – the striving after use values. Let us elaborate on this point.
As value is the only expression of the social character of labour in a society of independent producers, a capitalist tries to strengthen his competitive position by increasing the sum of values he owns. As value expresses itself in money, it makes no difference to the capitalist whether he invests his million pounds in shoe production and receives £100,000 profit, or whether he invests it in cannon production and receives £100,000 profit. To get the profit, his product must be sold, therefore it must have use value, but what the use value is is of no account to the capitalist. The aim is value, the means to the aim use value. In the formula of the circulation of capital, M1–C–M2, C appears only as a bridge between M1 and M2 (M2, if everything runs smoothly for the capitalist, being larger than M1.
If there were extensive trade between Russia and other countries, the Stalinist bureaucracy would aim at the production of such commodities as would fetch a high price on the world market, and the purchase of the cheapest commodities possible. It would then strive, as individual capitalists do, to increase the sum of values at its disposal by producing one or another use value, indifferent to which is produced, as long as it serves its end. But if the competition with other countries is mainly military, the state as a consumeris interested not in values for their own sake, but in certain definite use values, such as tanks, aeroplanes, etc. Value expresses the existence of competitive relations between independent producers. The results of Russia’s standing in competition are expressed by the elevation of use values to an end, the end being victory in this competition. Use values, therefore, while being an end, still remain a means.
This dialectical transformation of means into end, while subordinating the means-end fundamentally to the same end, takes place in the traditional capitalist countries also, although in a more veiled manner. Whereas it makes no difference to the individual Krupp whether he invests his capital in the production of guns or butter, that is, he cares not what use value he produces as long as it brings him the maximum profit, to the state of the Krupps, the use value of the product is very important. The relations of seller and buyer are preserved between Krupp and the state, the former being interested only in value while the latter is interested only in use value. But reality the relations of exchange are purely formal. The state is no more than the organisation of the Krupps as a collective, and, it does not give another commodity in exchange for the guns, but pays for them from the taxes and loans extracted from the whole German economy. Although formally the relation of exchange remains, in essence a certain technique of distributing the war effort over the whole economy is practised. (This would have been absolutely clear if the state, instead of collecting taxes and taking loans in order to buy the guns from Krupp’s factory, had produced the guns itself.) The slogan “Guns before butter” means that the competitive relations between the capitalist powers have reached the stage where the international division of labour is disrupted, where competition through selling and buying is replaced by direct military competition. Thus use values become the aim of capitalist production precisely because they are notits aim.
Russia’s striving for certain use values in the form of guns, in order to strengthen its position in international competition, does not advance its economy nearer to a socialist economy, which is also motivated by a striving for use values, but on the contrary, makes it its extreme opposite. Obviously, if an increasing rate of exploitation, an increasing subordination of the workers to the means of production, is accompanied only by a greater production of guns, but not of butter, the mode of production will not be less oppressive of the Russian masses, but on the contrary, much more.
From what has bee said above in this chapter, it follows that if world production were imder one authority, that is, if the Stalinist bureaucracy could unite the world under its rule, and the masses suffered such a régime, we should have a system of exploitation free of the law of value and all the implications thereof. Bukharin comes to this conclusion in his book, Imperialism and World Economy. He explains that if the national state organises the national economy, commodity production nevertheless remains “in the first place [in] the world market”. The economy is, therefore, state capitalist. But if “the organisation of all world economy in one gigantic state trust” took place (which Bukharin does not believe is possible):
... we would have an entirely new economic form. This would be capitalism no more, for the production of commodities would have disappeared; still less would it be socialism, as the domination of one class over the other would have remained (and even grown stronger). Such an economic structure would, most of all, resemble a slave-owning economy wherethe slave market is absent. 
There is no ground to assume that such a system could exist. If history proves us mistaken, we can only conclude that Marxism was wrong, and that the contradictions within the capitalist system do not lead to socialism, but to a new class system. We should have to contradict Marx’s statement that “the bourgeois relations of production are the last antagonistic form of the social process of production”, that they are “the closing chapter of the prehistoric stage of human society”. To know whether out of the renewed slavery of ‘bureaucratic collectivism’ a communist society will arise or not, one could not then look to Marxian political economy, which analyses the contradictions of capitalist society. Out of the new conditions a new science will have to be developed, even though its roots be embedded in dialectical historical materialism.
Up to now, however, Marxism has not been refuted, but has affirmed itself more surely with every historical development. The revolutionary potentialities of the proletariat in its striving to be the bearer of human history are yet far from being exhausted. We are far from “the organisation of all world economy as one gigantic state trust”.
As all truth is concrete, the truth about Russia must be seen in the actual tendencies present within it and in its relations to the world. Such an analysis has shown that even if the form of activity of the law of value in Russian economy is very complicated and frill of deep internal contradictions, the law of value is nevertheless the central decisive factor in the movement of Russian economy.
Engels writes in Anti-Dühring, “In the value form of the commodity there is already concealed the whole form of capitalist production, the opposition between capital and labour, the industrial reserve army, the crisis”. 
Now, we have dealt with the connection between the law of value and the “opposition between capital and labour”. But we have not yet dealt with its connection with “the industrial reserve army, the crisis”. The complicated form which the activity of the law of value takes in Russia warns us in advance against a simplification of the analysis of the industrial reserve army and the crisis (a simplification that has been the disease of the majority of those who have characterised Russia as state capitalist).  The analysis of the law of value and Russian economy dealt with in this chapter will serve as an introduction to the analysis in the following chapter of the capitalist crisis and Russian economy.
1. K. Marx, Capital, op. cit., vol.I, p.188.
2. Ibid., p.49; or “groups of individuals”, ibid., p.84.
3. Ibid., p.84.
4. Ibid., p.114.
5. Ibid., pp.390-391.
6. K. Marx and F. Engels, Selected Correspondence, op. cit., p.246. Thus the only difference between the division of labour time into necessary labour and surplus labour in different societies is in the form in which this division is carried out. Marx said, “The essential difference between the various economic forms of society, between, for instance, a society based on slave labour and one based on wage labour, lies only in the way in which this surplus labour is extracted from the actual producer, the labourer” (K Marx, Capital, op. cit., vol.I, p.286).
7. R Hilferding, Das Finanzkapital, Vienna 1910, p.286.
8. K. Marx, Capital, op. cit., vol.I, p.105.
9. V.I. Lenin, Collected Works, vol.XX, book II, p.236.
10. The word ‘almost’ is used to remind us that there are some border cases in which the control of the state is not complete. The labour time of the kolkhoznik on his private plot is an example of this, likewise the labour of the artisan. But even if these are not consciously planned by the state, they are not absolutely free from a certain control. Through the lever of prices, taxes and especially the state’s planning of the main field of production, these peripheral activities are also consciously drawn into certain channels.
11. K. Marx, Capital, op. cit., vol.I, p.126.
13. Ibid., p.633.
14. Ibid., pp.186-187.
15. In the Nazi economy, as we have said, the quantity of means of consumption produced was regulated by the state; the freedom of selling labour power abregated; the division of the total labour time of society between different branches of industry determined not by the automatism of the market but by the state’s allocation of orders and the raw materials required, by its prohibition of the investment of capital in certain branches and its diversion of the stream of capital into other branches. Nevertheless not all autonomic relations between different enterprises in Germany was abolished.
Seeing that state orders as a factor in determining (a) the exchange of relation between commodities, (b) the relative quantity produced, and (c) the distribution of the total labour time of capitalist society is different only in degree from the Nazi economy or even from a capitalist state which is the repository of the means of production, Bukharin was quite right when he denoted by the term ‘state capitalism’ both a capitalist war economy and the stage in which the capitalist state becomes the repository of all the means of production. We, on our side, in order to avoid any confusion, use the term ‘state capitalism’ only to denote the latter.
16. There is one important result of this: while the relations in traditional capitalism are befogged by what Marx calls the fetishism of commodities, which makes all commodity owners appear equal, the class antagonisms in Russia are crystal clear. Hence the bureaucracy is compelled from the beginning to use the most brutal terroristic measures of suppression.
17. R Hilferding, State Capitalism and Totalitarian Economy (1940), published in Left, September 1947.
20. The following are the figures for import and export (in million pre-World War One gold roubles).
Thus during the period of the Five-Year Plans, when industrial production multiplied many times, imports and exports declined very much.
21. N. Bukharin, Imperialism and World Economy, London 1929), p.157. I find it necessary to remark here that Shachtman in his article in the New International of February 1948, The Nightfall of Capitalism, cites the same extract from Bukharin, but gives it an opposite meaning to that intended by Bukharin. He deletes the words “the organisation of all world economy as one gigantic state trust”. He excludes the entire sentence about the world market and he only quotes the end of the passage, so that the impression is gained that Bukharin tried to prove the theoretical impossibility of state capitalism, which is exactly the opposite of what Bukharin intended to prove. We hope this is an accidental error. If not, it reminds one strongly of the blurb writer who ‘quoted’ a critic. The critic said, “This cannot be called a really good book.” The blurb read: “...a really good book”.
22. F. Engels, Anti-Duhring, op. cit., p.341.
23. We shall deal with the concepts of these tendencies extensively in a later document, in which we shall analyse in particular detail the position of R.H. Johnson and F. Forrest.
Last updated on 6.1.2004