Chris Harman

Dialectically speaking

Market magic?

(November 1988)

From Socialist Worker Review, No.114, November 1988, p.9.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

TODAY VIRTUALLY any publication you pick up, from Moscow News to the Daily Mirror, insists there is no alternative to the market.

In his book The Economics of Feasible Socialism, the Glasgow based Sovietologist, Alec Nove, uses a number of arguments to explain the need for the market system. I will only look at one of them here.

The problem with talking about “democratic planning”, Nove says, is that it ignores the complexity of a modern economy. Many thousands of different goods are produced, using hundreds of thousands of different components. And every change in consumer preferences necessitates new combinations of goods and components. Efficient planning of the economy would involve choosing the correct combination of literally millions of alternatives and then coordinating the production of tens of millions of people. Such coordination would be incompatible with any notion of democratic workers’ control from below.

By contrast the market provides a non-authoritarian means of relating different acts of production and consumption.

The prices which people are prepared to pay for goods act as signals which tell individual firms what to produce and what not to produce.

If too many of any particular product are being turned out, then prices will fall and firms switch to producing something else. If too few, prices will rise and so will output. In this way supply and demand continually come together to ensure the unplanned coordination of the activities of thousands of firms and millions of workers.

Many a seemingly convincing argument conceals a central, logical flaw. This is no exception.

It assumes that firms “respond” to “price signals” which tell them what people want. But production is always a process taking place in time. “Price signals” do not tell you what will be wanted when production is finished, but what was wanted before it began.

This time factor creates immense problems, even with the simplest forms of commodity production like the growing of grain by a mass of small farmers. If there is bad weather one year and the crop suffers, then prices do indeed rise. This cannot, however, cause more production of grain that year. In the real world (as opposed to the world of the market theorists) the farmers have to wait until the following spring to sow their next crop. They may respond to “price signals” by sowing a bigger area than previously. But unless, by coincidence, one year of bad weather is followed by a second such year, the only result will be to produce more grain than consumers demand.

Such “cycles” of rising and falling output have always bedevilled markets in foodstuffs, however much people like Nove choose to ignore them. They have always failed to coordinate in an efficient way what is produced with what is needed – unless you accept as “efficient” an alternation of high prices which cause many poor “consumers” to go hungry and low prices which cause many farmers to go bust.

The cycles get worse when you move to a world of giant capitalist firms.

Industrial production does not begin just a few months ahead of final consumption. It depends upon making a huge investment in fixed capital, on building factories and installing machinery over several years. Since there is a “free market” there can be no coordination between rival firms. So invariably rival producers respond to the “signals” of high prices by undertaking these long term investments all at the same time.

For a period, the mass of rival producers are all chasing each other to get hold of hundreds of different raw materials, hundreds of thousands of different components and millions of workers with a wide range of skills. Prices rise all round, encouraging more and more people and firms to join in the chase – until suddenly, the new investments come on stream, turning out more goods than are needed and throwing the whole economy into a crisis of overproduction.

If an equilibrium is eventually reached between production and consumption, it is not by a smooth fitting of supply and demand, but by a violent convulsion which lays waste vast stocks of potentially productive plant and equipment. In the process, massive numbers of people are subject to wage cuts and redundancies that deny them any participation in the world of “consumer choice”.

Precisely because the price mechanism does not let firms know what to produce in advance, modern capitalism is caught between the massive waste which results from allowing the market to proceed unhindered to the point of crisis, and the massive waste which results from trying to fix the market.

Of all these things, Nove has nothing to say. But he does claim that there is no alternative, that a workers’ democracy could not operate more efficiently. Is he right?

The point is not that the associated producers would be able to foresee all needs and all links in the production process. But they would be quite capable of working out what their main needs are likely to be, if only because they can calculate what is needed in the same way that capitalism does – by seeing what was needed in the past – and then adjust it according to their own democratically expressed preference.

Supply can be made to correspond at least roughly to demand without the absurd piling up of rival means of production leading to inevitable overproduction and crisis, as with the so-called “free market”. And this in turn would do away with the wild fluctuations in investment and output which makes pre-planning so difficult under capitalism.

This is not a formula for utopia. Marx never claimed it would be. He saw the transition to full socialism as a long process. It would begin with workers taking over and continuing to produce on the basis of the system of production established under capitalism. They would use their power to eliminate some of the waste and anarchy – as well as some of the gross inequalities of capitalism. But the full transition to a new mode of production would take years or even decades.

Last updated on 15 April 2010