Rudolf Hilferding

State Capitalism or Totalitarian State Economy

First Published: in the Socialist Courier, April 25 1940;
Source: The Modern Review, June 1947, pp. 266-71;
Transcription/Markup: Steve Palmer;
Proofread: by Andy Carloff 2010.
Copyright: This work is in the public domain.

The concept of "state capitalism" can scarcely pass the test of serious economic analysis. Once the state becomes the exclusive owner of all means of production, the functioning of a capitalist economy is rendered impossible by destruction of the mechanism which keeps the life-blood of such a system circulating. A capitalist economy is a market economy. Prices, which result from competition among capitalist owners (it is this competition that "in the last instance" gives rise to the law of value), determine what and how much is produced, what fraction of the profit is accumulated, and in what particular branches of production this accumulation occurs. They also determine how in an economy, which has to overcome crises again and again, proportionate relations among the various branches of production are re-established whether in the case of simple or expanded reproduction.

A capitalist economy is governed by the laws of the market (analyzed 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.

Both the "stimulating fire of competition" and the passionate striving for profit, which provide the basic incentive of capitalist production, die out. Profit means individual appropriation of surplus products and is therefore possible only on the basis of private ownership. But, objects Mr. Worrall, did Marx not consider accumulation as an essential ear-mark of capitalism and does not accumulation play a decisive role in the Russian economy? Is that not state capitalism?

Mr. Worrall has overlooked one slight detail; namely, that Marx refers to the accumulation of capital, of an ever-increasing amount of the means of production which produce profit and the appropriation of which supplies the driving force to capitalist production. In other words, he refers to the accumulation of value which creates surplus value; i. e., a specifically capitalist process of expanding economic activity.

On the other hand, the accumulation of means of production and of products is so far from being a specific feature of capitalism that it plays a decisive part in all economic systems, except perhaps in the most primitive collecting of food. In a consumer economy, in an economy organized by the state, there is not accumulation of values but of consumers' goods-products that the central power wants in order to satisfy consumers' need. The mere fact that the Russian state economy accumulates does not make it a capitalist economy, for it is not capital that is being accumulated. Mr. Worrall's argument is based on a gross confusion between value and use value. And he really believes that a socialist economy could do without accumulation!

But what then (and here we come to the basic question) is that central power that rules over the Russian economy? Trotsky and Worrall reply: "Bureaucracy." But while Trotsky refuses to consider the bureaucracy as a class (according to Marx a class is characterized by the place it occupies in the process of production), Worrall makes an amazing discovery. Soviet bureaucracy in its structure (which unfortunately he does not analyze) differs "basically" from any other bourgeoisie, but its function remains the same-the accumulation of capital. The fact that, despite great structural differences, the function can remain unchanged is, of course, a miracle that cannot occur in nature but- seems (according to Worrall) possible in human society.

In any case, Worrall accepts this as evidence that Russia is dominated by a bourgeois class and thus by state capitalism. He clings obstinately to his confusion of capital and the means of production and seems unable to conceive of any form of accumulation other than capitalist accumulation. He fails to understand that accumulation (i. e. the expansion of production) in any economic system is the task of the managers of production; that even in an ideal socialist system this accumulation can result only from the surplus product (which only under capitalism takes the form of surplus value), and that the fact of accumulation in itself does not prove the capitalist nature of an economy.

But does the "bureaucracy" really "rule" the economy and consequently the people? Bureaucracy everywhere, and particularly in the Soviet Union, is composed of a conglomeration of the most varied elements. To it belong not only government officials in the narrow sense of the word (i. e. from minor employees up to the generals and even Stalin himself) but also the directors of all branches of industry and such functionaries as, for example, the postal and railway employees. How could this variegated lot possibly achieve a unified rule? Who are its representatives? How does it adopt decisions? What organs are at its disposal?

In reality, the "bureaucracy" is not an independent hearer of power. In accordance with its structure as well as function, it is only an instrument in the hands of the real rulers. It is organized as an hierarchy and subordinated to the commanding power. It receives but does not give orders. Any functionary, as Trotsky justly puts it, "can be sacrificed by his superior in the hierarchical system in order to decrease any kind of dissatisfaction." And these are the new masters of production, the substitute for capitalists? Stalin thoroughly exploded this myth when, during the last purges, he ordered shot, among others, thousands of industrial managers.

It is not the bureaucracy that rules, but he who gives orders to the bureaucracy, And it is Stalin who gives orders to the Russian bureaucracy. Lenin and Trotsky with a select group of followers who were never able to come to independent decisions as a party but always remained an instrument in the hands of the leaders (the same was true later with the fascist and national-socialist parties) seized power at a time when the old state apparatus was collapsing. They changed the state apparatus to suit their needs as rulers, eliminating democracy and establishing their own dictatorship which in their ideology, but by no means in practice, was identified with the "dictatorship of the proletariat." Thus they created the first totalitarian state - even before the name was invented. Stalin carried on with the job, removing his rivals through the instrument of the state apparatus and establishing an unlimited personal dictatorship.

This is the reality which should not be obscured by construing alleged domination by a "bureaucracy" which is in fact subordinate to the government to the same extent as are the rest of the people. This is true even though some modest crumbs from the master's table may be doled out to it - without, of course, a guarantee that other crumbs are to follow and at the price of constant danger to their very lives. Their material share does not constitute any important portion of the social product. Nevertheless, the psychological effect of such a differentiation may be quite considerable.

Important economic consequences flow from this fact. It is the essence of a totalitarian state that it subjects the economy to its aims. The economy is deprived of its own laws, it becomes a controlled economy. Once this control is effected, it transforms the market economy into a consumers' economy. The character and extent of needs are then determined by the state. The German and Italian economies provide evidence of the fact that such control, once initiated in a totalitarian state, spreads rapidly and tends to become all-embracing as was the case in Russia from the very beginning. Despite great differences in their points of departure, the economic system of totalitarian states are drawing close to each other. 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. The economy loses the primacy which it held under bourgeois society. This does not mean, however, that economic circles do not have great influence on the ruling power in Germany as well as in Russia. But their influence is conditional, has limits and is not decisive in relation to the essence of policy. Policy is actually determined by a small circle of those who are in power. It is their interests, their ideas as to what is required to maintain, exploit, and strengthen their own power that determines the policy which they impose as law upon the subordinated economy. This is why the subjective factor, the "unforeseeable," "irrational" character of political development has gained such importance in politics.

The faithful believe only in heaven and hell as determining forces; the Marxist sectarian only in capitalism and socialism, in classes - bourgeoisie and proletariat. The Marxist sectarian cannot grasp the idea that present-day state power, having achieved independence, is unfolding its enormous strength according to its own laws, subjecting social forces and compelling them to serve its ends for a short or long period of time.

Therefore neither the Russian nor the totalitarian system in general is determined by the character of the economy. On the contrary, it is the economy that is determined by the policy of the ruling power and subjected to the aims and purposes of this power. The totalitarian power lives by the economy, but not for the economy or even for the class ruling the economy - as is the case of the bourgeois state, though the latter (as any student of foreign policy can demonstrate) may occasionally pursue aims of its own. An analogy to the totalitarian state may be found in the era of the late Roman Empire, in the regime of the Praetorians and their emperors.

Of course, from a social democratic viewpoint the Bolshevik economy can hardly be called "socialist," for to us socialism is indissolubly linked to democracy. According to our concept, socialization of the means of production implies freeing the economy from the rule of one class and vesting it in society as a whole-a society which is democratically self-governed. We never imagined that the political form of that "managed economy" which was to replace capitalist production for a free market could he unrestricted absolutism. The correlation between the economic basis and the political structure seemed to us a very definite one: namely, that the socialist society would inaugurate the highest realization of democracy. Even those among us who believed that the strictest application of centralized power would be necessary or inevitable for the period of transition, considered this period only temporary and bound to end after the suppression of the propertied classes. Together with the disappearance of classes, class rule was also to vanish - that class rule which we considered the only possible form of political rule in general. "The state is withering away ..."

But history, this "best of all Marxists," has taught us differently. It has taught us that "administering of things," despite Engels' expectations, may turn into unlimited "administering of people," and thus not only lead to the emancipation of the state from the economy but even to the subjection of the economy to the state.

Once subjected to the state, the economy secures the continued existence of this form of government. The fact that such a result flows from a unique situation primarily brought about by war does not exclude a Marxist analysis, but it alters somewhat our rather simplified and schematic conception of the correlation between economy and state and between economy and politics which developed in a completely different period. The emergence of the state as an independent power greatly complicates the economic characterization of a society in which politics (i.e. the state) plays a determining and decisive role.

For this reason the controversy as to whether the economic system of the Soviet Union is "capitalist" or "socialist" seems to me rather pointless. It is neither. It represents a totalitarian state economy, i.e. a system to which the economies of Germany and Italy are drawing closer and closer.