A Textbook issued by the Economics Institute of the Academy of Sciences of the U.S.S.R




The Necessity for Commodity Production in Socialist Society, its Characteristics

Commodity production is made necessary in socialist society by the existence of two basic forms of socialist production—State and collective farm. In State enterprises both means of production and output are public property. In collective farms, means of production (such as draught and productive livestock, agricultural implements, farm buildings and seeds), and the output collectively produced, are group or co-operative collective farm property. The basic and decisive means of production in agriculture (land and the M.T.S. machines) are State property. Since the output of State enterprises belongs to the Socialist State, and collective farm output belongs to the collective farms, exchange of goods through purchase and sale is the necessary form of economic connection between industry and agriculture. Here, as in all purchases and sales the seller loses his right of ownership to the commodity, and the purchaser becomes its owner.

Lenin pointed out that “the economic essence of socialism is exchange of the products of large-scale (‘socialised’) industry for peasant products" (Lenin, Plan of the pamphlet “On the Tax in Kind", Works, 4th Russian edition, vol. XXXII, p. 308), and that commodity exchange is a check on the correctness of the relationship between industry and agriculture, the working class and peasantry. Lenin’s statements remain “true for the whole of the first phrase of communism. The Soviet State acquires food for the urban population and raw material for industry mainly from collective farms and their members through regular commodity exchange, through compulsory purchase at fixed prices and voluntary purchase by contract, at higher prices. Collective farms and their members in their turn can obtain the money they need to acquire the output of industry only by selling their own marketable output to the State, to co-operatives, and on the collective farm market.

Thus agricultural produce and raw materials acquired from the collective farm sector by the State and the co-operatives by compulsory purchase or by contract are commodities; and so are agricultural products sold by collective farms and their members in collective farm markets. Industrial products (mostly consumer goods) produced by State enterprises and purchased by collective farms and their members, are also commodities. In as much as manufactured and agricultural consumer goods are commodities, the urban population also acquires them through purchase and sale. In this case there is a transfer of commodities from State and co-operative ownership, or from the private ownership of collective farmers, to the private ownership of the workers and other employees.

In socialist economy commodity production is commodity production of a special kind, without private ownership of the means of production, without capitalists. In the main it is carried on by united socialist producers (the State, collective farms, the co-operatives). The means of production are socially owned, and the system of hired labour and the exploitation of man by man is abolished; these decisive economic conditions confine commodity production in socialist economy within definite limits. It cannot turn into capitalist production, and serves socialist society.

In socialist society commodity production is not as unlimited and universal in its scope as it is under capitalism. The area of operation of commodity production and circulation is limited mainly to consumer goods. Labour-power is not a commodity. The land and natural resources are State property and cannot be bought or sold. State enterprises cannot be bought and sold, and may be transferred from one State organisation to another only by special permission: this includes works, factories, mines, arid power stations, and their fixed productive stocks (machinery, buildings, installations, etc.). They are therefore not commodities, not objects of sale or purchase.

Means of production produced in the State sector (such as machines, machine tools, metal, coal, oil, etc.) are chiefly distributed among State enterprises. The national economic plans provide for the allocation to each enterprise of definite material funds appropriate to its production programme. The enterprises producing these funds supply them to the consuming enterprises on the basis of contracts between the two parties. When means of production are transferred to a particular enterprise the Socialist State remains their full owner. Directors of enterprises who receive means of production from the Socialist State in no way become their owners; they are simply agents of the State, invested with the function of utilising the means of production in accordance with State plans. The main agricultural machines, such as tractors and combine harvesters, are not sold to the collective farms but are concentrated in the machine and tractor stations, which are State enterprises and serve the collective farms with the assistance of these means of production.

The means of production bought by the industrial co-operatives collective farms and collective farmers: motor vehicles, equipment for the social farming of the collective farm, cement, iron bricks coal timber for building, the simplest agricultural machines and tools are all commodities. The means of production sold to foreign States are also commodities. In these cases, purchase and sale, an exchange in the ownership of the commodities, takes place.

Thus, the means of production manufactured by State enterprises and distributed within the State sector are essentially not commodities. Since, however, consumer goods, agricultural raw materials and part of the means of production are commodities, while socialist economy represents a single whole in which all parts are interconnected, the means of production, which circulate inside the State sector, also retain the commodity form. This is reflected in the fact that the means of production are expressed in the money form of value, which, is necessary for the realisation of economic accounting, stock-taking and calculation.

Use-Value and Value of a Commodity in Socialist Economy

Products which are made and realised as commodities in socialist society have a use-value, created by concrete labour, and a value, created by abstract labour. In other words, a commodity, has a two-fold character in socialist society determined by the two-fold character of the labour embodied in the commodity.

The two-fold character of labour in socialist society, radically differs from the two-fold character of labour in simple commodity production and in capitalist economy. The contradictions between private and social labour which are typical of commodity production based on private property do not exist in socialist society. As stated above, labour in a socialist economy is not private but directly social labour. Society plans the process of production, the distribution of labour among different branches of the national economy and among particular enterprises. In view of all this, commodity fetishism is overcome in socialist economy, and social relations between men do not assume the deceptive form of relations between things.

But in socialist economy there are differences in the directly social nature of labour in State enterprises and that in the collective farms, which arise from the differences between the two forms of socialist ownership of the means of production. In State enterprises labour is socialised on a national scale, by virtue of which the product of labour, too, belongs to the whole of society in the shape of the Socialist State. In the collective farms labour is socialised within the limits of the given agricultural artel, by virtue of which the products of labour, too, are the property of the artel. In addition, collective farmers use their labour on their personal auxiliary plot, which is of subordinate importance. Labour in the subsidiary husbandry is private labour; it is not directly social labour.

The differences in the degree to which labour is socialised in State enterprises and collective farms, and the existence of commodity connections between State industry and the collective farms, due to the two forms of social ownership, make it impossible to express and compare directly, in the form of labour-time the social labour expended in producing the output of the State and collective farm sectors. This makes necessary the indirect reduction of the social labour expended on the production of industrial and collective farm output to a common expression and measure, by utilising value and its forms. This is effected by reducing the various concrete forms of the labour of workers and collective farmers to their equivalent in abstract labour, which creates the value of a commodity.

The Socialist State in the process of planned management of the national economy takes into account both aspects of a commodity, its use-value and its value. The State requires that its enterprises should produce particular forms of output—particular use-values. Use-value is of interest to the capitalist only as a bearer of value and surplus-value, but in socialist economy the creation of use-values and the improvement of the quality of output have an independent and very great importance, for production is carried on in the interests of the fullest possible satisfaction of the growing needs of the whole of society.

In socialist economy the value of a commodity is also of very substantial importance. The State plans production in money indices as well as in physical indices. Here the systematic reduction of the value of commodities which are produced, and the reduction of prices on this basis, plays a great part in ensuring the maximum satisfaction of the needs of society.

In socialist economy the antagonistic contradiction between use-value and value with which is linked the possibility of crises of overproduction, does not exist. At the same time a non-antagonistic contradiction between use-value and value can arise under socialism as well. Socialist economy makes it fully possible to fulfil production plans in both monetary and physical terms.

However, this possibility is not always realised. In the practical work of economic construction, the contradiction between use-value and value is revealed, for example, in cases of excessive amount of a commodity, when a commodity cannot be sold because of its low quality, because it does not correspond to the demand, and so on, or in cases where individual enterprises in a drive to turn out the more profitable sorts of articles fail to fulfil the plan as regards range and quality of production. Contradictions of this kind are revealed and resolved in the course of the planned management of economy.

In socialist economy there is a distinction between complex (skilled) and simple labour, and complex labour is expressed in terms of simple labour. The relation between complex and simple labour is taken into account in planning production, in fixing output standards, and in planning wages (when the payment for different skills, etc., is fixed).

The magnitude of the value of commodities produced and realised in socialist economy is determined by the quantity of socially-necessary labour-time expended on producing them. Socially-necessary labour-time means the average labour-time expended by the enterprises which produce the bulk of output in the branch concerned.

The socially-necessary time is a quantity which has an objective existence. The socially-necessary labour-time expended on producing a unit of a commodity determines the social value of the commodity. The time actually expended in producing a unit of a commodity in particular enterprises is the individual labour-time which determines the amount of the individual value of a commodity in each of these enterprises. Under capitalism socially-necessary time is formed blindly, behind the backs of the commodity producers. In socialist economy the State, basing itself on objective economic conditions and on the requirements of the economic laws of socialism, plans the growth of labour productivity and the reduction of production costs, and fixes standards for the expenditure of labour and materials in each enterprise. In this planned way it uses its influence to reduce the quantity of socially-necessary time used in producing a commodity.

Under capitalism the contradiction between individual and socially-necessary labour-time is antagonistic in character. Enterprises at a more advanced technical level receive surplus profit, keep their technical improvements secret, and thus defeat, ruin and destroy their competitors. In socialist economy the contradiction between the individual time expended at particular enterprises and the socially-necessary labour-time is not antagonistic in character. “Commercial secrecy" is unknown in socialist economy: in consequence, it is possible for the technical achievements of more advanced enterprises to be quickly spread to all enterprises in the branch of the economy concerned, and thus socialist economy as a whole is improved.

Progressive standards of expenditure of labour and materials the fixing of which takes into account the experience of more advanced enterprises, are an important means by which the Socialist State exercises a planned influence on the quantity of socially-necessary time. They pave a great mobilising importance, as they encourage economic managements and the mass of working people to seek out methods by which production can be rationalised, new technology brought into use, labour productivity raised and output costs lowered. After these progressive standards have been reached by a majority of enterprises (producing the greater part of the total output), they begin to coincide with socially-necessary labour outlays and cease to be progressive. However, the more advanced enterprises have meanwhile again reduced labour outlays on production. On the basis of the experience of the more advanced enterprises, new progressive standards of labour outlays are fixed; and, by achieving these, socially-necessary time is again reduced.

All this helps to speed up technical progress and the rapid development of the productive forces of socialist society.

The Nature of the Operation of the Law of Value in Socialist Economy

The law of value continues to operate in socialist economy to the extent that commodity production and circulation still exist. The economic structure of socialism confines the operation of the law of value within strict limits. The means of production in town and country are socialised, and the sphere of operation of commodity production and circulation is restricted. The role of the law of value is limited by these factors, by the operation of the economic laws of socialism, primarily the law of planned development of the national economy, by the planning of the national economy, and in general by all the economic activity of the Socialist State.

The law of value in socialist economy cannot be the regulator of production. As already shown, the regulator of socialist production is the law of planned, proportional development.

In building enterprises and even in establishing whale branches of production, the Socialist State is guided not by the urge to make profit but by the requirements of the basic economic law of socialism and the law of planned development of the national economy. If the law of value functioned as the regulator of production, the most profitable branches and light industrial enterprises would be the first to develop in socialist society, and heavy industrial enterprises, which were very important from the paint of view of the interests of national economy but which temporarily might be unprofitable, would have to close down. However, in the U.S.S.R. enterprises which are at first unprofitable, or show only a small profit, are not closed dawn if they are necessary to the national economy: they are continued and subsidised, although at the same time steps are taken to make them profitable.

In contradistinction to capitalism, where the law of value operates as a blind farce dominating man, the operation of the law of value in socialist economy is known, taken into account and utilised by the State in the practice of planning the national economy.

The sphere of operation of the law of value in socialist economy covers primarily the circulation and exchange of commodities (mainly consumer goods). In this sphere the law of value retains the function of a regulator to a certain limited extent. The regulating role of the law of value in the sphere of commodity circulation is revealed first and foremast through prices.

When planning prices, the Socialist State takes into account and uses the influence of the law of value. The problem of securing a sound economic basis for the planning of prices is of great importance for the development of the national economy.

“In the problem of prices all the main economic and therefore, the political problems of the Soviet State intersect: Questions of establishing correct relations between the peasantry and the working class, and of achieving an inter-connected and inter-dependent development of agriculture and industry . . . questions of securing real wages and of strengthening the chervonets,[1] ... all these came up against the problem of prices." (Resolution of the Central Committee of the C.P.S.U. (B), February 1927. The C.P.S.U. in Resolutions and Decisions of its Congresses, Conferences and Central Committee meetings, Pt. II, 7th Russian edition, 1953, p. 225.)

In fixing prices, the State takes as its starting paint that it is necessary far enterprises to make a certain amount of profit, and it takes into account the quantity of particular commodities and their importance in the economy; and it uses prices to. stimulate the production of particular goods and to regulate the demand far them. The Soviet State consistently follows a policy of reducing prices of consumer goods in the interests of improving the welfare of the people.

In fixing the prices of consumer goods, the State takes into account bath their value expressed in money terms and the supply and demand of these commodities. If the supply-and-demand situation were ignored, demand would fall sharply for goods with especially high prices, and would be artificially raised for goods with very low prices.

The regulating function of the law of value appears most fully on the collective farm market, where prices are formed on the basis of supply and demand; price movements, moreover, influence the size and structure of commodity turnover on the collective farm market. But the Socialist State has a tremendous economic influence on this market, since the bulk of all commodities are sold in the State and co-operative trading system at fixed planned prices.

The regulating action of the law of value in the sphere of commodity circulation is kept within strict limits. In State and co-operative trade there is no “free play of prices". The Socialist State’ fixes the prices of commodities with certain deviations. from the value of the commodities. In doing so it proceeds primarily from the fact that the basic economic law of socialism makes it necessary to ensure a constant expansion of industry on the basis of the high techniques for the purpose of satisfying the growing requirements of the whole of society. The State uses the price mechanism to fix proportions in the distribution of means among the branches that follow from the requirements of planned development of the national economy. The State, for example, by means of an appropriate price policy uses part of the incomes created by some branches to produce a rapid rise of other branches.

The operation of the law of value is not limited to the sphere of commodity circulation. The law of value also influences socialist production.

Through prices, the law of value influences collective farming output. The level of prices and the relationship between them, in accordance with which the collective farms and collective farmers sell their output, exert a substantial influence in materially stimulating the production of particular agricultural products. It is wrong, for example, to fix the same State purchase price for a ton of cotton and a ton of grain, failing to take into account the fact that the value of cotton is considerably greater than the value of grain. On the other hand, it is wrong to fix grain prices too low, as this would undermine the material interest of the collective farm and its members in producing grain, and would harm the development of grain-farming.

Thus, for example, economically sound State purchase prices were fixed for cotton and other industrial crops, and this promoted an increase in their production. On the other hand low State prices over a certain period of time for compulsory purchases and purchases by contract of potatoes, vegetables, milk, meat and grain, hindered their production. The State prices paid for these products were considerably increased in 1953-5, and this was a very important incentive to their increased production.

The influence of the law of value on the light and food industries is connected with the fact that the consumer goods which these branches produce are commodities. The value of manufactured consumer goods includes the value of the raw material produced as a commodity by the collective farms. Part of the newly-created value of consumer goods is used to replace outlays on money wages, and the remainder forms the income of the enterprise, received in money form. In addition in the process of producing manufactured consumer goods: means of labour; such as lathes, machines and factory buildings, are worn out. These are not actually commodities; but since all the other elements entering into the value of manufactured consumer. goods are expressed in a money form of value, the means of labour, too, must be expressed and calculated in money.

Although the means of production manufactured in the State sector and circulating within it are, essentially, not commodities, nevertheless in so far as they retain the commodity form they also possess the value form. In this sense one speaks of the value of the means of production, their cost of production, price, etc. Here it should be borne in mind that these categories conceal the relations of production of the State socialist sector which, in essence, do not have a commodity character.

“The fact of the matter is that in our socialist conditions economic development proceeds not by way of upheavals, but by way of gradual changes, the old not simply being abolished out of hand, but changing its nature in adoption to the new, and retaining only its form: while the new does not simply destroy the old, but infiltrates into it, changes its nature and its functions, without smashing its form, but utilising it for the development of the new." (Stalin, Economic Problems if Socialism in the U.S.S.R., p. 59.)

In socialist society the value form of the means of production is of great economic importance for the national economy.

The law of value influences the production of means of production through consumer goods, which are needed to replace the expenditure of labour-power. Consumer goods are commodities, and workers can get them only by buying them with money from their wages. Hence the money form of value has also to be used in the production of means of production, to keep account of all the other elements which, combined with wages, are included in the industrial output costs.

The influence of the law of value on the production of the means of production and consumer commodities is manifested through the system of economic accounting, which is based on payment in money form for expenditure of labour, and which stimulates an increase in the productivity of labour, and lower costs and greater profitability of production. Knowledge of the operation of the law of value and ability to use it assists economic workers to manage production rationally, to improve methods of work consistently, and to find and make use of hidden reserves to increase output.

The Socialist State uses the law of value in carrying out control, through the financial and credit system, over industry’ and the distribution of the social product.

The use of the law of value is of great importance in operating the economic law of distribution according to work. The money form of wages is the means of control over the measure of labour and over the measure of reward in socialist society.

The restriction of the law of value, control over it, and its planned use are a tremendous advantage which socialism has over capitalism. It is thanks to this restriction that the operation of the law of value in the U.S.S.R. is not accompanied by destructive consequences in the shape of crises, whereas under capitalism the law of value, despite the low rates of development of industry in the capitalist countries, leads to periodic crises of overproduction, to unemployment and to the destruction of part of the productive forces.

Money and its Functions in Socialist Economy

The necessity of money in socialist society is determined by the existence of commodity production and the law of value. “Before the socialist revolution the Socialists wrote that it is impossible to abolish money at once. . . . A great many technical, and what is much more difficult and more important, organisational gains are necessary in order to abolish money." “In order to abolish money, it is necessary to arrange the organisation of the distribution of products for hundreds of millions of people, an affair of many years." (Lenin, The Deception of the People by the Slogans of Equality and Freedom. Little Lenin Library, Vol. XIX, pp. 26, 35-6.)

Money fundamentally changes its nature in being applied to the needs of the development of socialist economy. Under capitalism, money is turned into capital and is a means of appropriating the unpaid labour of other people. In socialist economy, on the other hand, money is a weapon of economic construction in the interests of the mass of the people in accordance with the requirements of the basic economic law of socialism. It is an expression of the socialist relations of production.

Under socialism money fulfils the role of universal equivalent in the national economy as a whole. The money form is used not only. in the circulation of consumer goods and those means of production that are commodities, but also in the economic turnover of those means of production that are not essentially commodities but which retain the commodity form. The unity of socialist national economy, the indissoluble connection and relationship between the production of means of production and the production of articles of consumption, between State industry and collective farm production, requires a single measure to express and measure the social labour expended On the production of what is produced. In socialist economy, where two forms of socialist ownership exist, only money can be such a universal measure of social labour.

Whereas under capitalism money serves as an instrument for the spontaneous calculation of social labour, a calculation that is made behind the back of the commodity producers through market fluctuations, in socialist economy money is the economic instrument of the planned management of the economy, and serves in the production and distribution of the social product.

Consequently, money in socialist society is the universal equivalent, the economic instrument for planning the national economy, the means used for universal accounting and control over the production and distribution of the social product, over the measure of labour and the measure of remuneration.

The new nature of money under socialism is expressed in the fact that while the old form is retained, there is a change in the social content and the purpose of the functions of money compared with the functions of money under capitalism.

Money has primarily the function of a measure of the value of commodities, i.e., it measures the social labour embodied in them. In the conditions of socialism, when two basic forms of socialist production exist, only a money form can be used to express the results of the economic activity of an enterprise, to compare the results of the work of enterprises and of branches producing different goods, and to measure the volume of output of branches of the economy and of the national economy as a whole. Since the means of production, although they are not commodities, retain the form of commodity and value, money in its function as a measure of value serves also as a means for keeping account of the social labour expended on means of production.

Of course only a monetary commodity which itself has can have the function of a measure of value—such as gold. In the Soviet Union and the other countries of the socialist camp gold plays the part of universal equivalent. Soviet currency has a gold content, being tokens of gold.

In socialist society money can only fulfil the functions of a measure of the value of commodities by virtue of its connection with gold. Lenin connected the abolition of gold money with the victory of socialism on a world scale. He said: “In the R.S.F.S.R., for the time being it is necessary to retain gold, sell it as dearly as possible and to buy goods with it as cheaply as possible." (Lenin, “On the Significance of Gold at Present and after the Complete Victory of Socialism", Works, Russian edition, Vol. XXXIII, pp. 89-90.) Soviet money retains the historically derived connection with gold.

On the basis that gold is a universal equivalent, the Soviet State fixed a gold content for the rouble in carrying out the currency reform of 1922-4. The gold content of the rouble was later fixed indirectly, by establishing an exchange-rate for the Soviet rouble with first the franc and later the dollar. In 1950, in connection with the increased purchasing power of the rouble and the reduced purchasing power of the dollar and other capitalist currencies, the Soviet State fixed the gold content of the rouble directly, at 0.222168 grams of gold. The exchange-rate of the rouble with other currencies was raised to correspond with its gold content.

The Soviet State produces and accumulates gold as the universal money used for trading both with the countries of the capitalist world market and with the countries of the world market of the socialist camp.

The Soviet State uses money, in its function as a measure of value, as a means for planned leadership, accounting and control over the course of production and the distribution of the social product, as an instrument for carrying out economic accounting. Thus, for example, by comparing the planned and actual cost of production, the cause can be found why the actual cost of production is in excess of the planned cost and the necessary measures devised to reduce the cost of production and increase the profitability of the enterprise.

In its function as a measure of value money is used by the Socialist State in the planning of prices. In socialist economy price is the money expression of the value of commodities, and is established in a planned way.

In socialist economy money is also a pricing-unit. In the Soviet Union this unit is the rouble.

In socialist economy money has the function of a means of circulation of commodities. Money acts as a means of circulation in the purchase and sale of commodities. The function of money as a means of circulation is used to extend commodity turnover.

Money in socialist economy has the function of a means of payment. Money acts as a means of payment when wages are paid out to workers and employees, when loans are borrowed and repaid by socialist enterprises, when taxes are paid, etc. The Socialist State uses money in its function as a means of payment to supervise the work of socialist enterprises. For example, money is advanced to enterprises by the bank to’ the extent that they fulfil their production plan. The bank requires loans to be repaid promptly, and this provides an incentive to plan fulfilment by the enterprise, which will not be able to accumulate sufficient money to repay the loan without fulfilling the plan.

In socialist economy money has the function of a means of socialist accumulation and saving. State enterprises and collective farms keep their money in banks. The money incomes of enterprises and organisations, and their money which is temporarily not in use, are used for the needs of socialist accumulation, to extend production, to form reserves, and to meet the material and cultural needs of the population. As a result of the improvement in the well-being of the working people their money savings are increasing. These are kept in savings banks.

In socialist society gold performs the functions of world currency. The gold reserve is mainly a State reserve fund of world currency. In foreign trade, gold as an instrument for buying and selling is a means of international accounting by the State.

The stability of the Soviet currency is secured not merely by the gold fund, but primarily by the huge quantity of commodities in State hands which are released into the trade network at stable planned prices. In no capitalist country does money have such a reliable backing as in the Soviet Union.


(1) Commodity production in socialist society is made necessary by the existence of two basic forms of socialist production: State and collective farm. Commodity production and commodity circulation are limited mainly to consumer goods. Commodity production in socialist society is commodity production of a special kind, without private ownership of the means of production, and without capitalists. It serves socialist society.

(2) A commodity in socialist economy has use-value created by concrete labour, and value created by abstract labour. The contradiction between private and social labour does not exist in socialist society. In socialist economy both the creation of use-values and the improvement of the quality of output and also systematic reductions in the value of commodities on the basis of the planned (1) reduction of the socially-necessary time spent on their production are of the utmost importance.

(3) The sphere of operation of the law of value in socialist economy is limited. The law of value is not the regulator of production, but influences production and has a regulating influence on commodity circulation. The law of value is used in the process of the planned management of the national economy. The operation of the law of value is taken into account in the planning of prices.

4) Money in socialist economy is a universal equivalent, an economic instrument for planning the economy, a means for controlling and keeping account of the production and distribution of the social product, the measure of labour and consumption. Money has the function of a measure of value, a means of circulation, a means of payment, and a means of socialist accumulation and saving, a world currency. Soviet money is backed not only by the gold reserve but primarily by the mass of commodities which is concentrated in State hands and sold at State planned prices.


1.The stable 10-rouble note, introduced by the currency reform of 1922-4—Editor, English Edition