Duncan Hallas

Socialist Economics

(October 1972)

Book Review, International Socialism (1st series), No.53, October-December 1972, pp.40-41.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

Socialist Economics
edited by Alex Nove and D.M. Nuti
Penguin 70p

According to one well known definition, the subject matter of economic science is the “relationship between ends and scarce means which have alternative uses”. The central problem, on this view, is the allocation of resources between the various possible lines of production, an optimum allocation being defined as one that maximises the satisfaction of the ultimate consumers.

The body of economic thought developed around this theme can be properly described as an ideology in the strict sense of a systematic false consciousness. This ideology, which probably reached the peak of its influence in the 1920s but which is still very much alive, has a powerful inner logic. It was refined and elaborated with loving care by several generations of academic economists and was taught, and is still taught today as “micro-economics”, to many generations of students. Of course, once the distinction between macro and micro-economics has to be conceded, much of the logical beauty and power of the original self-regulating model is lost.

That model, like the elaboration of the theory of predestination by Calvinist theologians, was a considerable intellectual achievement. Its solution to the central problem it posed was freedom of choice for all consumers in a market served by competing enterprises, in short an idealised “Laissez-faire” capitalism. This, it was argued, would produce the resource allocation that invariably yielded optimum satisfaction. Consumer sovereignty, expressing itself through the market, gave the best result possible in this imperfect world. The humblest purchaser. voting with his pennies, influenced the output decisions (and hence the investment decisions) of the mightiest enterprise. Providing always that the state refrains from interfering in the economy and that private monopolies, including those “labour monopolies” called trade unions, are not allowed to interfere with the free-market allocation of resources, then the greatest possible satisfaction for the greatest number is guaranteed at each given level of total output.

By a heroic imaginative leap, the generality of bourgeois economists of the early twentieth century managed to identify their “invisible hand” model with the actual capitalist societies that allocated the resources to endow their chairs. To be fair it must be conceded that they did so with greater or lesser reservations. Most of them, moreover, were content to claim that capitalism was the best possible system. Some enthusiasts went further. It was the only rational system possible.

“Thus in the socialist commonwealth”, wrote von Mises in 1920, “every economic change becomes an undertaking whose success can neither be appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism, is the abolition of rational economy.” For without consumer sovereignty and freely competing entrepreneurs to respond to it “any economic system of calculation would become absolutely impossible”. And to those critics who pointed to the existence of the Soviet Republic, von Mises retorted “reference to the conditions that have developed in Russia and Hungary under Soviet rule proves nothing ... What is happening under the rule of Lenin and Trotsky, is merely destruction and annihilation.”

The extremism of von Mises’ presentation of his case notwithstanding. the point was a substantial one. Neo-classical economics was indeed an ideology but like all influential ideologies it incorporated responses to actual problems. The problem of “rational” resource allocation is a real one in modern economies, whether capitalist or socialist. For it was preposterous to suppose that the text book economic theory actually described, or represented a legitimate abstraction from the capitalist reality of 1920. Still less so today. Consumer sovereignty would never produce a Concorde. As a matter of fact it would probably never have produced an aircraft industry of any size let alone a space programme. War and preparation for war ensured the diversion of vast real resources from the notional “free market” into these unlikely fields. In other words the state had and has a decisive influence on capital accumulation and in a socialist society the corresponding problem appears, at any rate in the transitional period. Nor can the other major “distorting influence” in modern capitalism, the existence of giant “monopolies” that create rather than simply respond to markets, be separated from the role of the state. When Lenin spoke of “the fusion of monopoly capitalism and the state” he was pointing to the dominant trend in twentieth century capitalism, important countervailing trends notwithstanding.

Now if resource allocation is not actually decided by the consumers’ pennies – and it is not so decidedly in the main, either in Russia or in the USA or anywhere else – how is a “rational” allocation possible? And if the accumulation process under capitalism (and its equivalent is an economy transitional to communism) is not a consequence of consumer sovereignty – and it is not – what does determine the level and nature of accumulation? In particular, what are or should be the criteria that guide the planners in a “socialist” economy? These twin themes, economic growth and the optimal allocation of resources to achieve a given end in a statised economy form the substance of Nove and Nuti’s Socialist Economics. It consists of 24 excerpts from the work of a wide-range of economists including Barone, von Mises, Lange, Dobb, Preobrazhensky, Kalecki, Liberman, Kantorovitch and the editors themselves. This a valuable and interesting collection, much of which can be understood by the reader without mathematical equipment. Having said this it is necessary to add that a marxist must disagree fundamentally with the editors’ assumptions.

Nove and Nuti define a socialist economy by four main features: “public ownership” of the decisive means of production, centralised control of the rate of accumulation, the existence of a market for consumer goods and for labour (i.e., a wages system) and managed pricing. This leads them to list 14 “socialist countries” from Albania through Cuba, China and Russia to Yugoslavia. Actually, on these four criteria, it is hard to see why, for example, Egypt or Syria should be excluded from the “socialist camp” but this is a minor point. The major one is that these criteria do not define socialism as Marx understood the term and as marxists understand it today. As is well known, Marx believed that socialism implied “abolition of the wages system”. Why? Because wage labour implies “capital”, which is “the domination of past, accumulated, materialised labour over immediate living labour”. (Wage Labour and Capital). Possibly Nove and Nuti would dismiss the objection as a mere semantic quibble. Yet, for marxists, socialism is “the emancipation of the working class”, which, of course, involves its emancipation from the compulsions of economic growth. Has this been achieved in the “socialist camp”?

The editors quote Rosa Luxemburg’s remark that “the realisation of socialism will be the end of economics as a science” and go on to reject the notion. This is logical, given their identification of bureaucratic state capitalism with socialism. For an economic science implies that the decision makers, whoever they are, are constrained to act in certain ways. The whole conception of an economic law depends on this contraint. Without constraint the result is indeterminate. And this indeterminancy is precisely the situation under socialism. Luxembourg was merely applying to the economic context Engel’s leap “from the realm of necessity to the realm of freedom”. Nove and Nuti confuse socialism with totalitarian despotism devoted to economic growth at all costs.

In spite of this, their book is a useful contribution to the discussion of the problems of a society in transition from capitalism to socialism. The conquest of power by the working class is necessarily an abrupt process. The conquest of “the realm of necessity” is necessarily a much slower one, even under the most favourable conditions. And in this transitional period economic laws retain their effect, although with diminishing force as time goes on. Central to Marx s analysis of capitalism is the conception that, contrary to the neo-classical view, consumption is subordinated to accumulation so long as the wage-labour/capital relationship exists. The gradual transformation to accumulation subordinated to consumption is the essential economic feature of the transition period. It corresponds to the erosion and ultimate disappearance of the wages system. Such a transformation requires, in Lenin’s words, “the most active co-operation of at least several advanced countries”.

It is here that Lange’s famous reply to von Mises has relevance. Lange assumed an arbitrary rate of accumulation which in principle results from a collective democratic decision and is revised at intervals. Given this rate “freedom of choice in consumption and freedom of choice in occupation are maintained and ... the preference of consumers, as expressed by their demand prices, are the guiding criteria in production and in the allocation of resources.” In short, the methods of neo-classical micro-economics are applied to the allocation problem in the period transitional to socialism. Of course the system is not truly self regulating. A “macro” decision about the rate of economic growth is superimposed and no doubt many other “distortions” would arise in practice. But the vast bureaucratic apparatus of price management, priorities and coercion is avoided. We are worlds away from Stalin’s “catch up and outstrip”, of course, but then the economic conditions requiring the sacrifice of consumption to accumulation are incompatible with working class rule for any length of time. We are back at the impossibility of “socialism in one country” – and a backward one at that.

Lange’s solution presupposes the existence of money and a wages system. As these wither the rational allocation problem re-emerges. Can it be solved by a notional pricing system, by “detailed planning based on mathematical models”? Kornai, in a contribution called Mathematical Programming as a Tool of Socialist Economic Planning describes this idea as “a naively optimistic belief in the computer ... Only those who are themselves engaged in the practical application of mathematical planning methods will know how far, such models are from perfection.” No doubt techniques will improve but even allowing for this the problem is probably insoluble, with a market mechanism, so long as economic growth is a major consideration. For of course, as von Mises himself conceded, there is no difficulty if the economy is static. “Here the same events in economic life are ever recurring ... we might at all events conceive of a socialist production system which is rationally controlled from an economic point of view.” Which takes us to the heart of the matter. From a political point of view socialism is the destruction of the bureaucratic state, from the social point of view socialism is the destruction of the class system, from the economic point of view socialism is the destruction of the compulsion to economic growth. As this is achieved the allocation problem declines into a question of marginal readjustments. For these, mathematical planning methods will surely he adequate.


Last updated on 19.10.2006