Tony Cliff

State Capitalism in Russia

Chapter 7:
Russian economy and the Marxian law of value and theory of capitalist crisis
(Part 1)



According to Marx and Engels the fundamental law of capitalism, as distinct from all other economic systems, the law from which all the other laws of capitalism derive, is the law of value. “The value form of products therefore already contain in embryo the whole capitalist form of production, the antagonism between capitalists and wage workers, the industrial reserve army, crises.” [1] The law of value is, therefore, the basic law of Marxian political economy.

In the introduction to their text-book of political economy, two leading Soviet economists, Lapidus and Ostrovitianov, asked, “does political economy study all productive relations between people?” and they answer:

No. Take for example the natural economy of the primitive patriarchal peasant which satisfies all its needs from within and enters into no exchange relations with other peasants. Here we have a peculiar type of relations of production. They consist, let us say, in a collective organisation of labour ... in certain subordination of all to the head of the family ... Notwithstanding the tremendous difference between peasant natural economy and communist economy, they have one common feature: both are organised and directed by conscious human will ... There are, no doubt, certain laws regulating the unorganised relationship of capitalist society. But these laws are spontaneous, independent of the conscious and directed will of the participants in this process of production ... And it is these elementary, spontaneous laws ... that are the subject of political economy. [2]

Next they asked: “In what ways and to what extent do the capitalist laws of political economy influence the Soviet economy? What is the relation between spontaneous activity and planned activity in the economy of the Soviet Union? What is the specific weight of these elements, and what is their tendency of development?” [3] They come to the conclusion that political economy applies only to spontaneous processes and not to a planned economy such as socialism, and that it applied in Russia only to the extent that the Russian economy was not yet socialist but merely in a transition stage towards socialism. All other Soviet economists concurred with this argument at the time.

At that time Soviet economists unanimously replied in the negative to the question of whether the law of value has a place in socialism. Any traces of its existence in the Soviet Union were explained as the outcome of her transitional position, of her not yet having fully arrived at socialism.

Thus Lapidus and Ostrovitianov wrote:

If the question were posed before us: Is Soviet economy capitalist or socialist, we should, of course, reply, that to answer, “capitalist” or “socialist” is impossible, since the peculiarity of the Soviet economy consists ... in the very fact that it is of a transitional nature, passing from capitalism to socialism. In exactly the same way we should have to answer anyone who demands from us: – either or – whether the law of value operates fully here, or whether it has ceased altogether to operate and has been replaced by conscious regulation. To assert that ‘either the one or the other’ is correct, is impossible, because neither one postulate nor the other is correct, but a third: that we are living through a process of transition from the one to the other. The law of value has not yet withered away but continues to operate in our conditions; but it does not operate in the same form in which it operates in the capitalist system, since it is passing through the process of withering away. [4]

The same argument was used by Preobrazhensky: “The law of value and the element of planning whose basic attribute is expressed in socialist accumulation, are struggling with one another” in the transition period form capitalism to socialism, and with the victory of the latter “the law of value will wither away”. [5]

Another economist, Leontev, wrote: “The law of value is the law of motion of capitalist commodity production”, the germs of all the “contradictions of capitalism are inherent in value”. [6]

The Soviet economists could draw extensively on the works of Marx and Engels in support of their arguments. The extract from Anti-Dühring, quoted above, confirms their viewpoint. Elsewhere in the same book, Engels ridicules Dühring’s conception that the Marxian law of value applies to socialism: under socialism, he writes, “people will be able to manage everything very simply, without the intervention of the famous ‘value’.” [7]

It would be sheer absurdity, he argued, “to set up a society in which at last the producers control their products by the logical application of an economic category [value] which is the most comprehensive expression of the subjection of the producers by their own product.” [8] Or to quote Marx: “Value is the expression of the specifically characteristic nature of the capitalist process of production.” [9]

On yet another occasion, on criticising A. Wagner’s Allgemeine oder Theoretische Volkswirtschaftslehre, Marx ridicules “the presupposition that the theory of value, developed for the explanation of bourgeois society, has validity for the ‘socialist state of Marx’.” [10] Such arguments as these were almost axiomatic for all Soviet economists during the first decade and a half after the revolution.

After a decade of almost complete silence of the question, a bombshell was dropped in 1943. The theoretical organ of the Party, Pod Znamenem Marksizma, published a long, unsigned article entitled Some Questions of Teaching Political Economy, which made a complete break with the past. [11] The reader was informed that “the instruction of political economy in our colleges has been renewed after a lapse of several years. Before this interruption, the teaching of political economy, as well as the existing textbooks and the curricula, suffered from serious defects.” “With respect to the economic laws of socialism, many fundamental mistakes and faults often crept into the curricula and textbooks of political economy.” The main mistake “of the former teaching”, the article alleged, was “in denying the operation of the law of value in socialist society”. All Soviet economists immediately toed the new line.

This volte face can be explained by a new readiness of the authorities to declare openly then much that in the past had been accepted in practice but publicly denied as characteristic of Russian life, such as Great Russian chauvinism, the glorification of Tsarist traditions, and many other things of a similar character.

It does seem, however, that the Soviet economists have become so involved in contradictions with the writings of Marx and Engels that the problem has to be tackled over and over again. Even as late as February 1952, Stalin himself found it necessary to write:

It is sometimes asked whether the law of value exists and operates in our country, under the socialist system.

Yes, it does exist and does operate. [12]

Contrary to all Marxian teaching on the subject, Stalin states: “Is the law of value the basic economic law of capitalism? No. ” [13] Marx states that where labour power is a commodity, the natural, inevitable result of its sale is the appearance of surplus value, of exploitation; Stalin finds it convenient to declare that while the law of value prevails in Russian economy, there is no sale of labour power and therefore no surplus value. He writes: “Talk of labour power being a commodity, and of ‘hiring’ of workers sounds rather absurd now, under our system: as though the working class which possesses means of production, hires itself and sells its labour power to itself.” [14] (The tacit, if untenable, assumption of Stalin’s argument, of course, is that the state that owns the means of production and buys labour power is actually “owned” and controlled by the workers and not by an omnipotent bureaucracy.) Furthermore, he writes: “I think that we must ... discard certain other concepts taken from Marx’s Capital – where Marx was concerned with an analysis of capitalism – and artificially pasted on to our socialist relations. I am referring to such concepts, among others, as ‘necessary’ and ‘surplus’ labour, ‘necessary’ and ‘surplus’ product, ‘necessary’ and ‘surplus’ time.” [15]

It is, of course, of the utmost importance to discover the true relationship between the Marxian law of value and Russian economy, while remembering that Marx saw a close connection between this law and all the contradictions of capitalism.



The marxian law of value

Marx’s theory of value may be explained briefly as follows.

Under capitalism, and only under capitalism, “all, or even a majority of the products, take the form of commodities.” [16] For products to become commodities a division of labour must exist within society. But this alone is not enough. There was a division of labour within primitive tribes, but commodities were not produced. Nor were they in the system of society based on the ancient Roman latifundia with their slave labour and self-sufficiency. Within any one capitalist factory, too, there is a division of labour, without the fruit of each worker’s labour becoming a commodity. Only between primitive tribes, between latifundia or between one capitalist factory and another, are products exchanged, and thus take the form of commodities. Marx writes: “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” [17], or “groups of individuals”. [18]

Value is defined as the characteristic common to all commodities on the basis of which they are exchanged. Only as commodities do products have exchange-value; exchange-value being an expression of the social relations between producers of commodities, that is, of the social character of the labour of every producer. It is, in fact, the only expression of labour in a society of independent producers. Marx writes: “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.” [19]

When he writes that a commodity is value, Marx is asserting 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.” [20]

Why is exchange value the only expression of this connection, and why cannot this relation by expressed directly, instead of through the medium of things? The answer is that the only social connection between independent producers that there can be is through things, through the exchange of commodities.

In a society of independent producers the law of value determines:

  1. the exchange relation between different commodities,
  2. the total quantity of commodities of one kind which will be produced compared with commodities of another kind, and therefore,
  3. the division of the total labour time of society among different enterprises.

Hence it determines the exchange relation between labour power as a commodity and other commodities, and so the division of the working day into time spent on “necessary labour” (in which the worker reproduces the value of his own labour power) and “surplus labour” (in which he produces surplus value for the capitalist). The law of value also controls the proportion of social labour devoted to the production of producer and consumer goods, that is, the relation between accumulation and consumption (a corollary of a. above).

Marx contrasted the division of labour in capitalist society as a whole (which is expressed in the appearance of values) and the division of labour within a single factory (which is not):

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. [21]

Thus in spite of the lack of central planning within a society of commodity-producers, the law of value creates order out of disorder, by the continuous change in demand and supply produced by competition. A certain equilibrium is established in the production of different goods, in the division of the total labour time of society between the different branches of the economy and so on. Within the individual factory, on the other hand, it is not impersonal anarchy. but the conscious will of the capitalist which determines the division of labour and the quantity of different goods to be produced.

It is quite obvious that in all the different forms of society, from the primitive communism of the ancient past to the future socialist society, there must be a certain division of the labour time of society among the different branches of the economy in order to produce suitable quantities of the goods which are needed. But the way in which this division is carried out has varied with every form of society. “Every child knows,” wrote Marx,

that a country which ceased to work, I will not say for a year, but for a few weeks, 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 distribution 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. [22]

The necessary condition for exchange value to be the manifestation of the division of the total labour time of society between the production of different goods, is that the activity of people in the process of production should be ‘purely atomic’, there must be free competition between independent producers and between the owners of different commodities, including the sellers of labour power. The relation between the members of society in the course of production must not be determined by conscious action.



The applicability of the law of value to capitalist monopoly

In Capital, Marx took as the norm of capitalism a system of absolutely free competition. The only marxian economist who discussed in detail the law of value in relation to monopoly capitalism was Rudolf Hilferding in his book, Das Finanzkapital (Vienna, 1910). He states that it is impossible to deduce from Marx’s theory of value any general law by which to explain the quantitative effect of monopoly on the exchange relations between different 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. [23]

It is equally 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 commodities produced by monopolies will rise in relation to others, fewer of them will be produced compared with non-monopoly commodities, hence the proportion of the total labour time of society absorbed by monopolised industry will be smaller. It can be asserted that under conditions of monopoly the exchange relations between commodities, the quantities produced and the division of the total labour time of society are modifications of the same factors as they would appear under free competition. The law of value is partially negated, but appears in modified form in essence to continue to exist. Competition, even though it is not absolutely free, exists, and therefore, Marx’s thesis is still correct, viz., 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.” [24]

Because of the competition between different monopolies either in the same branch or in different branches of the economy, the relations of exchange between commodities are related to, even if not exactly equivalent to, the labour time spent on their production or their derived cost of production ratios. Although the division of labour within society as a whole is not absolutely independent of the conscious actions of individuals or groups (such as monopolies) this division can be varied only within relatively narrow limits from what it would have been under completely free competition. In spite of “planning” by monopolies, the division continues to be arbitrary and quite different from the division of labour within a factory, “not only in degree, but also in kind”. Monopoly capitalism means a partial negation of the Marxian law of value but on the basis of the law of value itself. But “determinatio est negatio”. The partial negation of the law of value borders on its total negation.



State monopoly capitalism and the law of value

How does the law of value operate when the state intervenes in the economic system by regulating the price of commodities, buying a substantial part of the products of the national economy, allocating raw materials, and regulating capital investment?

According to Lenin,

When capitalists work for the defence, i.e., for the government treasury, it is obviously no more “pure” capitalism, but a special form of national economy. Pure capitalism means commodity production. Commodity production means work for an unknown and free market. But the capitalist “working” for the defence does not “work” for the market at all. He fills the order of the government, and in most cases for money that had been advanced to him by the treasury. [25]

Does this mean that the supply of products to the state by capitalist enterprises is outside the law of value? In Nazi Germany where the state bought more than half the total national product, 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 was not left to the blind, automatic activity of the market to regulate the exchange relations of different commodities, the relative quantities of different goods produced and the division of the total labour time of society among the different industries. It is true that the Nazi state did not take all the decisions regarding production, but it did take the more decisive ones. In the Nazi economy the state fixed the quantity of consumer goods produced; there was no freedom in selling labour power, and the division of the total labour time of society among the different branches of industry was determined not by the automatism of the marker, but by the state’s allocation of orders and raw materials and by its control over capital investment. A very narrow field remained for the autonomous activities of different entrepreneurs within Germany.

As Hilferding wrote: “In Germany ... 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.” [A]

The term “state capitalism” can denote both a capitalist war economy and the stage in which the capitalist state becomes the repository of all the means of production. Bukharin, for example, used it to denote both. Although, as will be seen, there is no basic qualitative difference between the two as regards their effect on (a) the exchange relation between commodities, (b) the relative quantities produced, and (c) the distribution of the total labour time of society, we think that it will be preferable to distinguish between the two in order to avoid confusion. The term “state capitalism” will be used only to denote the stage in which the capitalist state becomes the repository of the means of production, while a capitalist war economy will be termed “state monopoly capitalism”.

State monopoly capitalism is, in the last analysis, at the mercy of blind economic forces, and is not governed by the conscious will and decisions of any man or men. For example, government orders are allocated according to the relative strengths (expressed in production capacity) of the different companies tendering for them. Hence each company has to try and achieve a certain rate of capitalist accumulation. They are driven to raise profits at the expense of wages. They create an increased demand for means of production relative to the demand for means of consumption, and so on. In Germany, under Nazi rule, the division of the total national product between the different social classes, and the distribution of the total labour time between the production of consumer and capital goods, was not determined by an arbitrary decision of the government, but by pressure of competition. The same resulted from the competitive pressure – economic and military alike – of the Powers against which Germany fought.

Notwithstanding, therefore, the distortions of competition and of the law of value under state monopoly capitalism, this law is, in the last analysis, all-decisive.



The Marxian law of value and the Russian economy viewed in isolation from world capitalism

At first sight the relationship between the different enterprises in Russia appears to be the same as that between different enterprises in the traditional capitalist countries. But this is only formally so. In a society of private producers the essential different between the division of labour within society as a whole, is that in the former the ownership of the means of production is concentrated in the hands of one man or one body of men, while in capitalist society as a whole there is no centre of decisions, but only the “blindly working average”, which determines how many workers shall be employed in different enterprises, what commodities shall be produced, and so on. No such distinction exists in Russia. Both individual enterprises and the economy as a whole are subordinated to the planned regulation of production. The difference between the division of labour within, say, a tractor factory and the division of labour between it and the steel plant which supplies it, is a difference in degree only. The division of labour within Russian society is in essence a species of the division of labour within a single workshop.

Formally, products are distributed among the different branches of the economy through the medium of exchange. But as the ownership of all the enterprises is vested in one body, the state, there is no real exchange of commodities. “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” [26] or “groups of individuals”. [27]

In a society of private producers, connected with one another only through exchange, the medium regulating the division of labour in society as a whole is the monetary expression of exchange value – price. In Russia there is a direct connection between the enterprises through the medium of the state which controls production in nearly all of them and so price ceases to have this unique significance of being the expression of the social character of labour, or regulator of production.

If the demand for shoes exceeds the supply in a traditionally capitalist country, the price of shoes will automatically rise relatively to the price of other commodities; profits in the shoe industry will increase, capital and labour will pour into it and more of the total labour time of society will be spent in shoe production. The law of value tends to equalise supply and demand, a situation in which price is equal to value, or more correctly, is equal to price of production. [B]

If in Russia the demand for shoes exceeded the supply, although there would be a rise in the price of shoes either officially or on the black market, there would be no increase in the production of shoes, nor, therefore, in the labour time devoted to their production.

To take another example. In the traditional capitalist countries, the ratio between the production of producer and consumer goods is determined by the law of value. If the supply of shoes is below demand and the supply of machinery is above, the price of shoes will rise and the price of machinery will decline; capital and labour are transferred from one branch of the economy to the other until the correct balance is restored. But in Russia the state owns both sections of industry, and, therefore, a high rate of profit in the production of consumer goods will not attract capital and labour into that section and out of the other, and vice versa, because the ratios existing between them are not derived from the uncontrolled mechanism of the Russian internal market.

The relationship between the production of the two departments (the production of producer goods, and of consumer goods) is directly dependent on the relationship between accumulation and consumption. While in the traditionally capitalist countries competition between different factory owners causes them to accumulate and increase the organic composition of capital, in Russia this factor does not exist as all the factories are owned by one authority. Here accumulation and technical improvement are not undertaken as measures of defence against an attack in the competitive war with other enterprises.

We have seen that the price is not the medium through which Russian production and the division of labour in Russian society as a whole are regulated. It is the government which regulates. Price is only one of the weapons the state uses in this activity. It is not the motor, but the transmission belt.

This does not mean that the price system in Russia is arbitrary, depending purely on the whim of the bureaucracy. The basis of price here, too, is the cost of production. (The large-scale use of subsidies on the one hand, and the turnover tax on the other, do not contradict this.) Nevertheless there is a fundamental difference between this price system and the type operating in traditional capitalism. The latter expresses the autonomous activity of the economy (which is freest under free competition, less so under monopoly); the former is a sign that the economy is not self-propelled at all. The difference between these two kinds of price will probably be clearer if an analogy is made with a less complex society, for instance, that of the Pharaohs in ancient Egypt.

Pharaoh had to calculate how to divide the total labour time – which is the real cost of production in any society – of his slaves among the needs of his society. His method of doing so was direct. A certain number of slaves was put to the production of food, a certain number to the production of luxury goods, others to the construction of the irrigation system, yet others to the building of the pyramids, and so on. As the process of production was relatively simple, there was no necessity for any checks beyond seeing that the number of slaves was distributed according to the plan. In Russia, too, the state directly makes an almost [C] complete plan of the division of the total labour time, but as the process of production is much more complicated than it was a few thousand years ago, it is not sufficient simply to check the number of workers engaged in the different branches, for the economy to run according to the plan. Certain ratios must be fixed between the employment of machinery and workers, the use of machinery of one sort or another, the quantity produced, the raw material and fuel used, and so on. For this task it is necessary to have a measure common to all costs and all products. Price serves as this common measure. The difference between the division of labour without a price system under the Pharoahs, and that with a price system under Stalin is a difference in degree, but not in essence. Similarly, whether Ford directs all his enterprises as one administrative unit, or breaks them up into smaller units in order to make it easier to calculate and direct, the difference is only in degree, so long as the same will directs production.

There is one thing in Russia that appears on the surface to fulfil the requirements of a commodity: labour power. If it is a commodity, then the consumer goods that the workers receive in exchange for their labour power are also commodities, being produced for exchange. We should then have, if not a highly developed circulation of commodities, a huge truck or barter system comprising the total consumption of the workers. But Marx argues that “The circulation of commodities differs from the direct exchange of products (barter), not only in form, but in substance.” [28] He goes on to point out that with 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.” [29]

In order to see whether labour power in Russia is really a commodity, as it is under traditional capitalism, it is necessary to see what specific conditions are necessary for it to be so. Marx states two conditions for this: first, that the labourer must sell his labour power as he has no other means of subsistence, being “free” of the means of production; secondly, that the labourer can sell his labour power as he is the sole owner of it, that is, 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”. [30] 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. [31]

If there is only one employer, a “change of masters” is impossible, and the “periodic sale of himself” becomes a mere formality. 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”, and so on.)

There is no doubt that “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. The point needs some elaboration. In the traditional capitalist economy, where there is competition between sellers of labour power, between buyers of labour power, and between sellers and buyers, the price of labour power is determined by the resulting anarchy. If the rate of accumulation is high, there is extensive employment, which, under normal conditions, raises the nominal wages. This increases the demand for consumer goods, the production of which duly increases, raising the real wages. (Under normal conditions of free competition this is a true picture of development; monopolies distort it somewhat.) This rise of real wages adversely influences the rate of profit, which, in turn, slows the rate of accumulation, and so on. In contrast to this, in Russia the total amount of real wages and salaries is fixed in advance by the quantity of consumers’ goods planned. It may – and usually does – happen, that because of defects in the working out an realisation of the plan, the quantity of money distributed as wages and salaries is larger than the total price of the consumers’ goods produced. If the difference is not taken by the state, it will cause a rise in prices (either on the official marker or the black market) but not a rise is real wages. The only way it could cause a rise in real wages would be by causing the state to increase the production of that branch which experiences a rise in prices. The Russian state, however, 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 Russian workers is, apropos the problem under discussion, of secondary importance to the fact that the total real wages are directly fixed by the state.)

Hence if one examines the relations within the Russian economy, abstracting them from their relations with the world economy, one is bound to conclude that the source of the law of value, as the motor and regulator of production, is not to be found in it. 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 kind.



The Marxian law of value and the Russian economy viewed in its relation with world capitalism

The Stalinist state is in the same position vis-à-vis the total labour time of Russian society as a factory owner vis-à-vis the labour of his employees. In other words, the division of labour is planned. But what is it that determines the actual division of total labour time in Russian society? If Russia had not to compete with other countries, this division would be absolutely arbitrary. But as it is, Stalinist decisions are based on factors outside of control, namely the world economy, world competition. From this point of view the Russian state is in a similar position to the owner of a single capitalist enterprise competing with other enterprises.

The rate of exploitation, that is, the ratio between surplus value and wages (s/v) does not depend on the arbitrary will of the Stalinist government, but is dictated by world capitalism. The same applies to improvements in technique, or, to use what is practically an equivalent phrase in Marxian terminology, the relation between constant and variable capital, that is, between machinery, building, materials, etc., on the one hand, and wages on the other (c/v). The same therefore applies to the division of the total labour time of Russian society between production of the means of production and of means of consumption. Hence when Russia is viewed within the international economy the basic features of capitalism can be discerned: “anarchy in the social division of labour, and despotism in that of the workshop are mutual conditions the one of the other ...”

If Russia tried to flood the world market with her products, or if other countries flooded the Russian market with theirs, the Russian bureaucracy would be forced to cut the costs of production by reducing wages relatively to the productivity of labour or absolutely (increasing s/v), improving technique (increasing c/v), or increasing production of producer goods relative to consumer goods. The same tendencies would manifest themselves if world capitalism took the form of military pressure instead of normal, commercial competition.

Up to now, Russia’s economy has been too backward for her to be able to flood foreign markets with her goods. Her own markets are protected against the possibility of being flooded with foreign goods by virtue of the state’s monopoly of foreign trade which can only be destroyed by military power. Hence the commercial struggle has so far been of less [D] importance than the military. Because international competition takes mainly a military form, the law of value expresses itself in it opposite, viz. a striving after use values. This point requires elaboration. In so far as value is the only expression of the social character of labour in a society of independent producers, a capitalist tries to strengthen himself against his competitors by increasing the total values which he owns. As value is expressed in money, it makes no difference to him whether he invests, say a million pounds in shoe production and receives a profit of £100,000 or in the production of armaments and receives a profit of £100,000. As long as his product has some use value, he is not concerned with what particular use value it is. In the formula of the circulation of capital, Money–Commodity–Money (M1–C–M2), C only appears as a bridge between M1 and M2 (M2, if everything runs smoothly for the capitalist, being larger than M1).

Import and export of USSR in current prices [32]

























If Russia traded extensively with countries outside her empire, she would try to produce commodities which would fetch a high price on the world market, and to buy the cheapest possible commodities from abroad. Thus she would be aiming, like a private capitalist, at increasing the sum of values at her disposal by producing some use value or another, regardless of what use it would be. (This factor has great bearing on Russia’s trade with her satellites. [33])

But as competition with other countries is mainly military, the state as a consumer is interested in certain specific use values, such as tanks, aeroplanes, and so on. Value is the expression of competition between independent producers; Russia’s competition with the rest of the world is expressed by the elevation of use values into an end, serving the ultimate end of victory in the competition. Use values, while being an end, still remain a means.

A similar process takes place in the countries of traditional capitalism also, although in a less obvious way. It makes no difference to the individual armament manufacturer whether he invests his capital in the production of guns or butter, provided he makes a profit. But the state to which he belongs is extremely interested in the use value of his products. His relations with the state are those of seller and buyer, the former being interested only in value and the latter in use value. But in fact these relations of exchange are only formal. The state does not offer another commodity in exchange for armaments. It pays for them out of taxes and loans levied on the whole economy. In other words, the burden of armaments is spread more or less over the whole economy. (This becomes crystal clear when the state, instead of collecting taxes and raising loans in order to buy arms from private firms, produces them itself.) The slogan ‘guns before butter’ means the stage where the international division of labour is disrupted, and competition through buying and selling is replaced by direct military competition. Use values have become the aim of capitalist production.

Further evidence of this is the difference between technical advance in war and in peace. In a war economy there is virtually no limit to the market, nor any need to cut costs of production in the interests of commercial competition. The overwhelming need is to increase the quantity of goods available. Hence during World War II technical improvements were introduced which had been opposed in peacetime by the monopolies and cartels.

The fact that the Russian economy is directed towards the production of certain use values does not make it a socialist economy, even though the latter would also be directed towards the production of (very different) use values. On the contrary, the two are complete opposites. The increasing rate of exploitation, and the increasing subordination of the workers to the means of production in Russia, accompanied as it is by a great production of guns but not butter, leads to an intensification, not a lessening of the oppression of the people.

The law of value is thus seen to be the arbiter of the Russian economic structure as soon as it is seen in the concrete historical situation of today – the anarchic world market.




A. R. Hilferding, State Capitalism or Totalitarian Economy, Left, September 1947. Written in 1940.

B. The relation between the value and price of production is a very complicated one, and cannot be dealt with here. (See Capital, Vol. III, Part II.)

C. “Almost”, because there are some border cases in which the control of the state is not complete. The labour time of the kolkhoz member 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 quite free of control. Through the levers of prices, taxes, and especially the state’s planning of the main field of production, these peripheral activities are also drawn into channels desired by the state.

D. Thus during the period of the Five-Year Plans, when industrial production multiplied many times, imports and exports both declined in a most phenomenal manner.



1. F. Engels, Anti-Dühring, op. cit., p. 341.

2. I. Lapidus and K. Ostrovitianov, Political Economy in Connection with the Theory of Soviet Economy, Moscow-Leningrad 1928, pp. 8-9.

3. ibid., p. 10.

4. ibid., pp. 131–132.

5. E.A. Preobrazhensky, New Economic , op.cit., pp. 28–29, 36–37.

6. A. Leontiev, Political Economy. A Beginner’s Course, London 1943, p. 76. For the same ideas see A. Leontiev and E.L. Khmelnitskaia, Outlines of Transition Economics (Russian), Leningrad 1927, especially p. 132.

7. F. Engels, Anti-Dühring, op.cit., p. 340.

8. ibid., p. 341.

9. Marx and Engels Archives (Russian), Moscow 1933, Vol. II (VII) pp. 6–7.

10. ibid., Vol. V, p. 59.

11. Pod Znamenem Marksizma, No. 7–8, 1943, translated in full in American Economic Review, September 1944. Quotations are taken from that translation.

12. Stalin, Economic Problems of Socialism in the USSR, op.cit., p. 23.

13. ibid., p. 42.

14. ibid., p. 22.

15. ibid., p. 21.

16. K. Marx, Capital, Vol. I, p. 188.

17. ibid., p. 49.

18. ibid., p. 84.

19. ibid.

20. ibid., p. 114.

21. ibid., pp. 390–391.

22. Marx and Engels, Selected Correspondence, op.cit., p. 246.

23. R. Hilferding, Das Finanzkapital, Vienna 1910, p. 286.

24. K. Marx, Capital, Vol. I, p. 105.

25. V.I. Lenin, Works (Russian), Vol. XXV, p. 51.

26. K. Marx, Capital, Vol. I, p. 49.

27. ibid., p. 84.

28. ibid., p. 126.

29. ibid.

30. ibid., p. 633.

31. ibid., pp. 186–-187.

32. Foreign Trade of the USSR for 20 Years, 1918–1937, Statistical Handbook (Russian), Moscow 1939, p. 10.

33. See Y. Gluckstein, op.cit., pp. 62–67.


Last updated on 20 September 2018