WEBVTT NOTE II. The Nature of Economic Calculation 1 00:00:00.000 --> 00:00:04.800 Section 2. The Nature of Economic Calculation 2 00:00:04.800 --> 00:00:11.760 Every man who in the course of economic life takes a choice between the satisfaction of one need as against another, 3 00:00:11.760 --> 00:00:15.120 eo ipso makes a judgment of value. 4 00:00:15.120 --> 00:00:21.600 Such judgments of value at once include only the very satisfaction of the need itself, 5 00:00:21.600 --> 00:00:28.640 and from this they reflect back upon the goods of a lower and then further upon goods of a higher order. 6 00:00:28.640 --> 00:00:34.200 As a rule, the man who knows his own mind is in a position to value goods of a lower order. 7 00:00:34.200 --> 00:00:42.800 Under simple conditions, it is also possible for him without much ado to form some judgment of the significance to him of goods of a higher order. 8 00:00:42.800 --> 00:00:49.080 But, where the state of affairs is more involved and their interconnections not so easily discernible, 9 00:00:49.080 --> 00:00:55.440 subtler means must be employed to accomplish a correct valuation of the means of production. 10 00:00:55.440 --> 00:01:01.120 It would not be difficult for a farmer in economic isolation to come by a distinction 11 00:01:01.120 --> 00:01:05.920 between the expansion of pasture farming and the development of activity in the hunting 12 00:01:05.920 --> 00:01:07.040 field. 13 00:01:07.040 --> 00:01:13.040 In such a case the processes of production involved are relatively short and the expense 14 00:01:13.040 --> 00:01:16.600 and income entailed can be easily gauged. 15 00:01:16.600 --> 00:01:22.160 But it is quite a different matter when the choice lies between the utilization of a water 16 00:01:22.160 --> 00:01:28.560 Water course for the manufacture of electricity or the extension of a coal mine or the drawing 17 00:01:28.560 --> 00:01:34.320 up of plans for the better employment of the energies latent in raw coal. 18 00:01:34.320 --> 00:01:39.680 Here the roundabout processes of production are many and each is very lengthy. 19 00:01:39.680 --> 00:01:44.680 Here the conditions necessary for the success of the enterprises which are to be initiated 20 00:01:44.680 --> 00:01:51.440 are diverse so that one cannot apply merely vague valuations but requires rather more 21 00:01:51.440 --> 00:01:58.040 more exact estimates and some judgment of the economic issues actually involved. 22 00:01:58.040 --> 00:02:02.920 Valuation can only take place in terms of units, yet it is impossible that there should 23 00:02:02.920 --> 00:02:06.580 ever be a unit of subjective use-value for goods. 24 00:02:06.580 --> 00:02:11.020 Marginal utility does not posit any unit of value, since it is obvious that the value 25 00:02:11.020 --> 00:02:16.320 of two units of a given stock is necessarily greater than, but less than double, the value 26 00:02:16.320 --> 00:02:18.320 of a single unit. 27 00:02:18.320 --> 00:02:23.320 Estimates of value do not measure, they merely establish grades and scales. Even Robinson 28 00:02:23.320 --> 00:02:29.220 Crusoe, when he has to make a decision where no ready judgment of value appears, and where 29 00:02:29.220 --> 00:02:34.820 he has to construct one upon the basis of a more or less exact estimate, cannot operate 30 00:02:34.820 --> 00:02:40.740 solely with subjective use value, but must take into consideration the intersubstitutability 31 00:02:40.740 --> 00:02:46.020 of goods on the basis of which he can then form his estimates. 32 00:02:46.020 --> 00:02:52.540 In such circumstances it will be impossible for him to refer all things back to one unit. 33 00:02:52.540 --> 00:02:58.420 Rather will he so far as he can refer all the elements which have to be taken into account 34 00:02:58.420 --> 00:03:03.140 in forming his estimate to those economic goods which can be apprehended by an obvious 35 00:03:03.140 --> 00:03:09.660 judgment of value, that is to say, to goods of a lower order and to pain cost. 36 00:03:09.660 --> 00:03:13.980 That this is only possible in very simple conditions is obvious. 37 00:03:13.980 --> 00:03:19.740 In the case of more complicated and more lengthy processes of production, it will plainly not 38 00:03:19.740 --> 00:03:21.360 answer. 39 00:03:21.360 --> 00:03:27.160 In an exchange economy, the objective exchange value of commodities enters as the unit of 40 00:03:27.160 --> 00:03:29.220 economic calculation. 41 00:03:29.220 --> 00:03:31.800 This entails a threefold advantage. 42 00:03:31.800 --> 00:03:37.920 In the first place, it renders it possible to base the calculation upon the valuations 43 00:03:37.920 --> 00:03:40.400 of all participants in trade. 44 00:03:40.400 --> 00:03:45.840 The subjective use-value of each is not immediately comparable as a purely individual phenomenon, 45 00:03:45.840 --> 00:03:48.960 with the subjective use-value of other men. 46 00:03:48.960 --> 00:03:54.680 It only becomes so in exchange-value, which arises out of the interplay of the subjective 47 00:03:54.680 --> 00:03:58.120 valuations of all who take part in exchange. 48 00:03:58.120 --> 00:04:04.320 But in that case, calculation by exchange-value furnishes a control over the appropriate employment 49 00:04:04.320 --> 00:04:05.520 of goods. 50 00:04:05.520 --> 00:04:10.480 Anyone who wishes to make calculations in regard to a complicated process of production will 51 00:04:10.480 --> 00:04:15.140 immediately notice whether he has worked more economically than others or not. 52 00:04:15.140 --> 00:04:19.640 If he finds, from reference to the exchange relations obtaining in the market, that he 53 00:04:19.640 --> 00:04:24.360 will not be able to produce profitably, this shows that others understand how to make a 54 00:04:24.360 --> 00:04:27.840 better use of the goods of higher order in question. 55 00:04:27.840 --> 00:04:34.000 Lastly, calculation by exchange value makes it possible to refer values back to a unit. 56 00:04:34.000 --> 00:04:38.600 For this purpose, since goods are mutually substitutable in accordance with the exchange 57 00:04:38.600 --> 00:04:43.180 relations obtaining in the market, any possible good can be chosen. 58 00:04:43.180 --> 00:04:47.480 In a monetary economy it is money that is so chosen. 59 00:04:47.480 --> 00:04:49.900 Monetary calculation has its limits. 60 00:04:49.900 --> 00:04:53.320 Money is no yardstick of value, nor yet of price. 61 00:04:53.320 --> 00:04:56.280 Value is not indeed measured in money, nor is price. 62 00:04:56.280 --> 00:04:59.040 They merely consist in money. 63 00:04:59.040 --> 00:05:05.880 Money as an economic good is not of stable value as has been naively but wrongly assumed 64 00:05:05.880 --> 00:05:09.840 in using it as a standard of deferred payments. 65 00:05:09.840 --> 00:05:15.640 The exchange relationship which obtains between money and goods is subjected to constant, 66 00:05:15.640 --> 00:05:21.700 if as a rule not too violent, fluctuations originating not only from the side of other 67 00:05:21.700 --> 00:05:25.440 economic goods but also from the side of money. 68 00:05:25.440 --> 00:05:36.440 However, these fluctuations disturb value calculations only in the slightest degree, since usually, in view of the ceaseless alternations in other economic data, 69 00:05:36.440 --> 00:05:49.440 these calculations will refer only to comparatively short periods of time, periods in which good money, at least normally, undergoes comparatively trivial fluctuations in regard to its exchange relations. 70 00:05:49.440 --> 00:06:08.440 The inadequacy of the monetary calculation of value does not have its mainspring in the fact that value is then calculated in terms of a universal medium of exchange, namely money, but rather in the fact that in this system it is exchange value and not subjective use value on which the calculation is based. 71 00:06:08.440 --> 00:06:17.440 It can never obtain as a measure for the calculation of those value determining elements which stand outside the domain of exchange transactions. 72 00:06:17.440 --> 00:06:47.440 If, for example, a man were to calculate the profitability of erecting a water works, he would not be able to include in his calculation the beauty of the waterfall which the scheme might impair, except that he may pay attention to the diminution of tourist traffic or similar changes which may be valued in terms of money, yet these considerations might well prove one of the factors in deciding whether or not the building is to go up at all. It is customary to term such elements extra-economic. This perhaps is appropriate. 73 00:06:47.440 --> 00:06:52.240 We are not concerned with disputes over terminology, yet the considerations themselves can scarcely 74 00:06:52.240 --> 00:06:56.840 be termed irrational. In any place where men regard a significant the beauty of a neighborhood 75 00:06:56.840 --> 00:07:01.760 or of a building, the health, happiness, and contentment of mankind, the honor of individuals 76 00:07:01.760 --> 00:07:08.080 or nations, they are just as much motive forces of rational conduct as are economic factors 77 00:07:08.080 --> 00:07:12.600 in the proper sense of the word, even where they are not substitutable against each other 78 00:07:12.600 --> 00:07:42.600 that monetary calculation cannot embrace these factors lies in its very nature, but for the purposes of our everyday economic life this does not detract from the significance of monetary calculation, for all those ideal goods are goods of a lower order and can hence be embraced straightway within the ambit of our judgment of values, there is therefore no difficulty in taking them into account even though they must remain outside the 79 00:07:42.600 --> 00:07:44.600 and the sphere of monetary value. 80 00:07:44.600 --> 00:07:47.600 That they do not admit of such computation 81 00:07:47.600 --> 00:07:51.600 renders their consideration in the affairs of life easier and not harder. 82 00:07:51.600 --> 00:07:55.600 Once we see clearly how highly we value beauty, health, honor and pride, 83 00:07:55.600 --> 00:07:59.600 surely nothing can prevent us from paying a corresponding regard to them. 84 00:07:59.600 --> 00:08:02.600 It may seem painful to any sensitive spirit 85 00:08:02.600 --> 00:08:05.600 to have to balance spiritual goods against material, 86 00:08:05.600 --> 00:08:08.600 but that is not the fault of monetary calculation. 87 00:08:08.600 --> 00:08:11.600 It lies in the very nature of things themselves. 88 00:08:11.600 --> 00:08:17.600 If our judgments of value can be established directly without computation in value or in money, 89 00:08:17.600 --> 00:08:22.600 the necessity of choosing between material and spiritual satisfaction cannot be evaded. 90 00:08:22.600 --> 00:08:28.600 Robinson Crusoe and the socialist state have an equal obligation to make the choice. 91 00:08:28.600 --> 00:08:36.600 Anyone with a genuine sense of moral values experiences no hardship in deciding between honor and livelihood. 92 00:08:36.600 --> 00:08:58.360 He knows his plain duty. If a man cannot make honor his bread, yet can he renounce his bread for honor's sake, only they who prefer to be relieved of the agony of this decision, because they cannot bring themselves to renounce material comfort for the sake of spiritual advantage, seeing the choice a profanation of true values. 93 00:08:58.360 --> 00:09:03.360 Monetary calculation only has meaning within the sphere of economic organization. 94 00:09:03.360 --> 00:09:09.360 It is a system whereby the rules of economics may be applied in the disposition of economic goods. 95 00:09:09.360 --> 00:09:16.360 Economic goods only have part in this system in proportion to the extent to which they may be exchanged for money. 96 00:09:16.360 --> 00:09:21.360 Any extension of the sphere of monetary calculation causes misunderstanding. 97 00:09:21.360 --> 00:09:26.360 It cannot be regarded as constituting a kind of yardstick for the valuation of goods 98 00:09:26.360 --> 00:09:32.360 and cannot be so treated in historical investigations into the development of social relationships. 99 00:09:32.360 --> 00:09:37.440 It cannot be used as a criterion of national wealth and income, nor as a means of gauging 100 00:09:37.440 --> 00:09:42.440 the value of goods which stand outside the sphere of exchange, as who should seek to 101 00:09:42.440 --> 00:09:48.400 estimate the extent of human losses through emigrations or wars in terms of money. 102 00:09:48.400 --> 00:09:52.000 This is mere stylistic tomfoolery. 103 00:09:52.000 --> 00:09:57.400 However much it may be indulged in by otherwise perspicacious economists. 104 00:09:57.400 --> 00:10:04.940 Nonetheless, within these limits, which in economic life it never overlaps, monetary calculation 105 00:10:04.940 --> 00:10:08.760 fulfills all the requirements of economic calculation. 106 00:10:08.760 --> 00:10:13.600 It affords us a guide through the oppressive plentitude of economic potentialities. 107 00:10:13.600 --> 00:10:19.240 It enables us to extend, to all goods of a higher order, the judgment of value, which 108 00:10:19.240 --> 00:10:28.240 which is bound up with and clearly evident in the case of goods ready for consumption or, at best, of production goods of the lowest order. 109 00:10:28.240 --> 00:10:38.240 It renders their value capable of computation and thereby gives us the primary basis for all economic operations with goods of a higher order. 110 00:10:38.240 --> 00:10:49.240 Without it, all production involving processes stretching well back in time, and all the longer roundabout processes of capitalistic production, would be gropings in the dark. 111 00:10:49.240 --> 00:10:53.240 There are two conditions governing the possibility of calculating value in terms of money. 112 00:10:53.240 --> 00:11:01.240 Firstly, not only must goods of a lower but also those of a higher order come within the ambit of exchange, if they are to be included. 113 00:11:01.240 --> 00:11:05.240 If they do not do so, exchange relationships would not arise. 114 00:11:05.240 --> 00:11:35.240 True enough, the considerations which must obtain in the case of Robinson Crusoe prepared within the range of his own hearth to exchange, by production, labor and flour for bread, are indistinguishable from those which obtain when he is prepared to exchange bread for clothes in the open market, and therefore it is to some extent true to say that every economic action, including Robinson Crusoe's own production, can be termed exchange. Moreover, the mind of one man alone, be it 115 00:11:35.240 --> 00:11:42.200 Ever so cunning is too weak to grasp the importance of any single one among the countlessly 116 00:11:42.200 --> 00:11:44.480 many goods of higher order. 117 00:11:44.480 --> 00:11:50.000 No single man can ever master all the possibilities of production innumerable as they are as to 118 00:11:50.000 --> 00:11:55.520 be in a position to make straightway evident judgments of value without the aid of some 119 00:11:55.520 --> 00:11:57.800 system of computation. 120 00:11:57.800 --> 00:12:03.240 The distribution among a number of individuals of administrative control over economic goods 121 00:12:03.240 --> 00:12:08.560 in a community of men who take part in the labor of producing them and who are economically 122 00:12:08.560 --> 00:12:15.020 interested in them, entails a kind of intellectual division of labor, which would not be possible 123 00:12:15.020 --> 00:12:19.720 without some system of calculating production and without economy. 124 00:12:19.720 --> 00:12:25.720 The second condition is that there exists in fact a universally employed medium of exchange, 125 00:12:25.720 --> 00:12:30.120 namely money, which plays the same part as a medium in the exchange of production goods 126 00:12:30.120 --> 00:12:31.200 also. 127 00:12:31.200 --> 00:12:36.200 If this were not the case, it would not be possible to reduce all exchange relationships 128 00:12:36.200 --> 00:12:38.660 to a common denominator. 129 00:12:38.660 --> 00:12:43.600 Only under simple conditions can economics dispense with monetary calculations. 130 00:12:43.600 --> 00:12:47.740 Within the narrow confines of household economy, for instance, where the father can supervise 131 00:12:47.740 --> 00:12:52.480 the entire economic management, it is possible to determine the significance of changes in 132 00:12:52.480 --> 00:12:57.280 the processes of production without such aids to the mind, and yet with more or less of 133 00:12:57.280 --> 00:12:58.700 accuracy. 134 00:12:58.700 --> 00:13:04.060 In such a case, the process develops under a relatively limited use of capital. 135 00:13:04.060 --> 00:13:08.660 Few of the capitalistic roundabout processes of production are here introduced. 136 00:13:08.660 --> 00:13:13.620 What is manufactured is, as a rule, consumption goods, or at least such goods of a higher 137 00:13:13.620 --> 00:13:16.980 order as stand very near to consumption goods. 138 00:13:16.980 --> 00:13:22.740 The division of labor is, in its rudimentary stages, one and the same laborer controls 139 00:13:22.740 --> 00:13:27.820 the labor of what is in effect a complete process of production of goods ready for consumption 140 00:13:27.820 --> 00:13:33.020 from beginning to end. All this is different, however, in developed communal production. 141 00:13:33.020 --> 00:13:37.840 The experiences of a remote and bygone period of simple production do not provide any sort 142 00:13:37.840 --> 00:13:43.660 of argument for establishing the possibility of an economic system without monetary calculation. 143 00:13:43.660 --> 00:13:48.260 In the narrow confines of a closed household economy, it is possible throughout to review 144 00:13:48.260 --> 00:13:53.200 the process of production from beginning to end and to judge all the time whether one 145 00:13:53.200 --> 00:13:58.600 One or another mode of procedure yields more consumable goods. This, however, is no longer 146 00:13:58.600 --> 00:14:04.040 possible in the incomparably more involved circumstances of our own social economy. It 147 00:14:04.040 --> 00:14:10.320 will be evident, even in the socialist society, that 1,000 hectoliters of wine are better 148 00:14:10.320 --> 00:14:16.660 than 800, and it is not difficult to decide whether it desires 1,000 hectoliters of wine 149 00:14:16.660 --> 00:14:22.560 rather than 500 of oil. There is no need for any system of calculation to establish this 150 00:14:22.560 --> 00:14:37.560 In this fact, the deciding element is the will of the economic subjects involved, but once this decision has been taken, the real task of rational economic direction only commences, i.e. economically, to place the means at the service of the end. 151 00:14:37.560 --> 00:14:42.560 That can only be done with some kind of economic calculation. 152 00:14:42.560 --> 00:14:59.560 If the human mind cannot orientate itself properly among the bewildering mass of intermediate products and potentialities of production without such aid, it would simply stand perplexed before the problems of management and location. 153 00:14:59.560 --> 00:15:08.560 It is an illusion to imagine that in a socialist state calculation in natura can take the place of monetary calculation. 154 00:15:08.560 --> 00:15:15.280 Calculation in natura, in an economy without exchange, can embrace consumption goods only. 155 00:15:15.280 --> 00:15:20.240 It completely fails when it comes to dealing with goods of a higher order. 156 00:15:20.240 --> 00:15:27.160 And as soon as one gives up the conception of a freely established monetary price for goods of a higher order, 157 00:15:27.160 --> 00:15:30.320 rational production becomes completely impossible. 158 00:15:30.320 --> 00:15:36.880 Every step that takes us away from private ownership of the means of production and from the use of money 159 00:15:36.880 --> 00:15:40.880 also takes us away from rational economics. 160 00:15:40.880 --> 00:15:46.880 It is easy to overlook this fact, considering that the extent to which socialism is in evidence among us 161 00:15:46.880 --> 00:15:51.880 constitutes only a socialistic oasis in a society with monetary exchange, 162 00:15:51.880 --> 00:15:54.880 which is still a free society to a certain degree. 163 00:15:54.880 --> 00:15:57.880 In one sense we may agree with the socialist assertion, 164 00:15:57.880 --> 00:16:02.880 which is otherwise entirely untenable and advanced only as a demagogic point, 165 00:16:02.880 --> 00:16:22.880 To the effect that the nationalization and municipalization of enterprise is not really socialism, since these concerns in their business organizations are so much dependent upon the environing economic system with its free commerce, that they cannot be said to partake today of the really essential nature of a socialist economy. 166 00:16:22.880 --> 00:16:31.880 In state and municipal undertakings, technical improvements are introduced because their effect in similar private enterprises, domestic or foreign, can be noticed. 167 00:16:31.880 --> 00:16:37.360 are noticed, and because those private industries which produce the materials for these improvements 168 00:16:37.360 --> 00:16:40.920 give the impulse for their introduction. 169 00:16:40.920 --> 00:16:46.900 In these concerns the advantages of reorganization can be established because they operate within 170 00:16:46.900 --> 00:16:52.580 the sphere of a society based upon private ownership of the means of production and upon 171 00:16:52.580 --> 00:16:59.080 the system of monetary exchange, being thus capable of computation and account. 172 00:16:59.080 --> 00:17:04.400 This state of affairs, however, could not obtain in the case of socialist concerns operating 173 00:17:04.400 --> 00:17:07.320 in a purely socialistic environment. 174 00:17:07.320 --> 00:17:13.240 Without economic calculation there can be no economy, hence in a socialist state wherein 175 00:17:13.240 --> 00:17:18.680 the pursuit of economic calculation is impossible, there can be in our sense of the term no economy 176 00:17:18.680 --> 00:17:19.980 whatsoever. 177 00:17:19.980 --> 00:17:26.000 In trivial and secondary matters, rational conduct might still be possible, but in general 178 00:17:26.000 --> 00:17:30.160 it would be impossible to speak of rational production anymore. 179 00:17:30.160 --> 00:17:33.800 There would be no means of determining what was rational, 180 00:17:33.800 --> 00:17:39.200 and hence it is obvious that production could never be directed by economic considerations. 181 00:17:39.200 --> 00:17:40.800 What this means is clear enough. 182 00:17:40.800 --> 00:17:44.960 Apart from its effects on the supply of commodities, 183 00:17:44.960 --> 00:17:50.200 rational conduct would be divorced from the very ground which is its proper domain. 184 00:17:50.200 --> 00:17:53.560 Would there in fact be any such thing as rational conduct at all, 185 00:17:53.560 --> 00:17:57.400 or indeed such a thing as rationality and logic and thought itself, 186 00:17:57.400 --> 00:18:01.360 historically human rationality is a development of economic life. 187 00:18:01.360 --> 00:18:04.480 Could it then obtain, when divorced therefrom, 188 00:18:04.480 --> 00:18:08.920 for a time the remembrance of the experiences gained in a competitive economy, 189 00:18:08.920 --> 00:18:13.320 which has obtained for some thousands of years, may provide a check 190 00:18:13.320 --> 00:18:16.920 to the complete collapse of the art of economy. 191 00:18:16.920 --> 00:18:20.400 The older methods of procedure might be retained 192 00:18:20.400 --> 00:18:24.600 not because of their rationality, but because they appear to be hallowed by tradition. 193 00:18:24.600 --> 00:18:30.600 Actually, they would meanwhile have become irrational, as no longer comporting with the new conditions. 194 00:18:30.600 --> 00:18:39.600 Eventually, through the general reconstruction of economic thought, they will experience alterations, which will render them in fact uneconomic. 195 00:18:39.600 --> 00:18:44.200 The supply of goods will no longer proceed anarchically of its own accord, that is true. 196 00:18:44.200 --> 00:18:49.600 All transactions which serve the purpose of meeting requirements will be subject to the control of a supreme authority. 197 00:18:49.600 --> 00:18:57.600 Yet in place of the economy of the anarchic method of production, recourse will be had to the senseless output of an absurd apparatus. 198 00:18:57.600 --> 00:19:04.600 The wheels will turn but will run to no effect. One may anticipate the nature of the future socialist society. 199 00:19:04.600 --> 00:19:12.600 There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use. 200 00:19:12.600 --> 00:19:18.600 In the majority of cases, what will be manufactured will be unfinished goods and production goods. 201 00:19:18.600 --> 00:19:25.100 All these concerns will be interrelated. Every good will go through a whole series of stages before it is ready for use. 202 00:19:25.100 --> 00:19:31.600 In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. 203 00:19:31.600 --> 00:19:39.100 It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, 204 00:19:39.100 --> 00:19:43.600 or whether work and material have not been wasted in its completion. 205 00:19:43.600 --> 00:19:49.600 How will it be able to decide whether this or that method of production is the more profitable? 206 00:19:49.600 --> 00:19:56.600 At best, it will only be able to compare the quality and quantity of the consumable end product produced, 207 00:19:56.600 --> 00:20:02.600 but will in the rarest cases be in a position to compare the expenses entailed in production. 208 00:20:02.600 --> 00:20:07.600 It will know, or think it knows, the ends to be achieved by economic organization, 209 00:20:07.600 --> 00:20:14.200 and will have to regulate its activities accordingly, i.e. it will have to attain those ends with the least expense. 210 00:20:14.200 --> 00:20:19.000 It will have to make its computations with a view to finding the cheapest way. 211 00:20:19.000 --> 00:20:22.600 This computation will naturally have to be a value computation. 212 00:20:22.600 --> 00:20:27.600 It is eminently clear and requires no further proof that it cannot be of a technical character 213 00:20:27.600 --> 00:20:33.200 and that it cannot be based upon the objective use value of goods and services. 214 00:20:33.200 --> 00:20:38.560 Now, in the economic system of private ownership of the means of production, the system of 215 00:20:38.560 --> 00:20:45.200 computation by value is necessarily employed by each independent member of society. Everybody 216 00:20:45.200 --> 00:20:50.480 participates in its emergence in a double way, on the one hand as a consumer and on 217 00:20:50.480 --> 00:20:55.720 the other as a producer. As a consumer, he establishes a scale of valuation for goods 218 00:20:55.720 --> 00:21:00.840 ready for use and consumption. As a producer, he puts goods of a higher order into such 219 00:21:00.840 --> 00:21:14.840 In this way, all goods of a higher order receive a position in the scale of valuations in accordance with the immediate state of social conditions of production and of social needs. 220 00:21:14.840 --> 00:21:25.840 Through the interplay of these two processes of valuation, means will be afforded for governing both consumption and production by the economic principle throughout. 221 00:21:25.840 --> 00:21:35.840 Every graded system of pricing proceeds from the fact that men always and ever harmonize their own requirements with their estimation of economic facts. 222 00:21:35.840 --> 00:21:42.840 All this is necessarily absent from a socialist state. The administration may know exactly what goods are most urgently needed, 223 00:21:42.840 --> 00:21:50.840 but in so doing it has only found what is in fact but one of the two necessary prerequisites for economic calculation. 224 00:21:50.840 --> 00:21:56.840 In the nature of the case, it must, however, dispense with the other, the valuation of the means of production. 225 00:21:56.840 --> 00:22:00.840 It may establish the value attained by the totality of the means of production, 226 00:22:00.840 --> 00:22:04.840 this is obviously identical with that of all the needs thereby satisfied. 227 00:22:04.840 --> 00:22:09.840 It may also be able to calculate the value of any means of production 228 00:22:09.840 --> 00:22:14.840 by calculating the consequence of its withdrawal in relation to the satisfaction of needs. 229 00:22:14.840 --> 00:22:21.240 of Needs. Yet, it cannot reduce this value to the uniform expression of a money price, 230 00:22:21.240 --> 00:22:26.520 as can a competitive economy, wherein all prices can be referred back to a common expression 231 00:22:26.520 --> 00:22:32.600 in terms of money. In a socialist commonwealth, which, whilst it need not of necessity dispense 232 00:22:32.600 --> 00:22:37.640 with money altogether, yet finds it impossible to use money as an expression of the price 233 00:22:37.640 --> 00:22:44.760 of the factors of production including labor, money can play no role in economic calculation. 234 00:22:44.760 --> 00:22:47.760 Picture the building of a new railroad. 235 00:22:47.760 --> 00:22:52.240 Should it be built at all, and if so, which out of a number of conceivable roads should 236 00:22:52.240 --> 00:22:53.240 be built? 237 00:22:53.240 --> 00:22:58.460 In a competitive and monetary economy, this question would be answered by monetary calculation. 238 00:22:58.460 --> 00:23:03.280 The new road will render less expense of the transport of some goods, and it may be possible 239 00:23:03.280 --> 00:23:08.120 to calculate whether this reduction of expense transcends that involved in the building and 240 00:23:08.120 --> 00:23:10.920 upkeep of the next line. 241 00:23:10.920 --> 00:23:13.920 That can only be calculated in money. 242 00:23:13.920 --> 00:23:18.860 It is not possible to attain the desired end merely by counterbalancing the various physical 243 00:23:18.860 --> 00:23:21.360 expenses and physical savings. 244 00:23:21.360 --> 00:23:27.420 Where one cannot express hours of labor, iron, coal, all kinds of building material, machines 245 00:23:27.420 --> 00:23:32.880 and other things necessary for the construction and upkeep of the railroad in a common unit, 246 00:23:32.880 --> 00:23:35.260 it is not possible to make calculations at all. 247 00:23:35.260 --> 00:23:40.080 The drawing up of bills on an economic basis is only possible where all the goods concerned 248 00:23:40.080 --> 00:23:42.080 can be referred back to money. 249 00:23:42.080 --> 00:23:47.760 Admittedly, monetary calculation has its inconveniences and serious defects, but we have certainly 250 00:23:47.760 --> 00:23:53.200 nothing better to put in its place, and for the practical purposes of life, monetary calculation 251 00:23:53.200 --> 00:23:59.120 as it exists under a sound monetary system always suffices. Were we to dispense with 252 00:23:59.120 --> 00:24:04.720 it, any economic system of calculation would become absolutely impossible. The socialist 253 00:24:04.720 --> 00:24:10.200 society would know how to look after itself. It would issue an edict and decide for or 254 00:24:10.200 --> 00:24:15.700 or against the projected building, yet this decision would depend at best upon vague estimates. 255 00:24:15.700 --> 00:24:21.040 It would never be based upon the foundation of an exact calculation of value. 256 00:24:21.040 --> 00:24:26.320 The static state can dispense with economic calculation, for here the same events in economic 257 00:24:26.320 --> 00:24:31.400 life are ever recurring, and if we assume that the first disposition of the static socialist 258 00:24:31.400 --> 00:24:37.360 economy follows on the basis of the final state of the competitive economy, we might, 259 00:24:37.360 --> 00:24:42.480 Let all events conceive of a socialist production system which is rationally controlled from 260 00:24:42.480 --> 00:24:47.160 an economic point of view, but this is only conceptually possible. 261 00:24:47.160 --> 00:24:51.720 For the moment we leave aside the fact that a static state is impossible in real life, 262 00:24:51.720 --> 00:24:57.280 as our economic data are forever changing, so that the static nature of economic activity 263 00:24:57.280 --> 00:25:02.900 is only a theoretical assumption, corresponding to no real state of affairs, however necessary 264 00:25:02.900 --> 00:25:06.900 may be for our thinking and for the perfection of our knowledge of economics. 265 00:25:06.900 --> 00:25:13.900 Even so, we must assume that the transition to socialism must, as a consequence of the leveling out of the differences in income 266 00:25:13.900 --> 00:25:20.900 and the resultant readjustments in consumption and therefore production, change all economic data in such a way 267 00:25:20.900 --> 00:25:27.900 that a connecting link with the final state of affairs in the previously existing competitive economy becomes impossible. 268 00:25:27.900 --> 00:25:39.400 But then we have the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations without the compass of economic calculation. 269 00:25:39.400 --> 00:25:50.900 Thus, in the socialist commonwealth, every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. 270 00:25:50.900 --> 00:25:56.900 There is only groping in the dark. Socialism is the abolition of rational economy.