WEBVTT NOTE III. Economic Calculation in the Socialist Commonwealth 1 00:00:00.000 --> 00:00:05.000 Section 3. Economic Calculation in the Socialist Commonwealth. 2 00:00:06.000 --> 00:00:14.000 Are we really dealing with the necessary consequences of common ownership of the means of production? 3 00:00:14.000 --> 00:00:21.000 Is there no way in which some kind of economic calculation might be tied up with a socialist system? 4 00:00:21.000 --> 00:00:27.720 In every great enterprise, each particular business or branch of business is to some 5 00:00:27.720 --> 00:00:31.080 extent independent in its accounting. 6 00:00:31.080 --> 00:00:37.240 It reckons the labor and material against each other, and it is always possible for 7 00:00:37.240 --> 00:00:43.040 each individual group to strike a particular balance and to approach the economic results 8 00:00:43.040 --> 00:00:46.620 of its activities from an accounting point of view. 9 00:00:46.620 --> 00:00:53.180 We can thus ascertain with what success each particular section has laboured, and accordingly 10 00:00:53.180 --> 00:01:00.580 draw conclusions about the reorganization, curtailment, abandonment, or expansion of 11 00:01:00.580 --> 00:01:05.540 existing groups, and about the institution of new ones. 12 00:01:05.540 --> 00:01:09.500 Admittedly, some mistakes are inevitable in such a calculation. 13 00:01:09.500 --> 00:01:16.220 They arise partly from the difficulties consequent upon an allocation of general expenses. 14 00:01:16.220 --> 00:01:21.820 Let other mistakes arise from the necessity of calculating with what are not from many 15 00:01:21.820 --> 00:01:28.280 points of view rigorously ascertainable data, e.g. when in the ascertainment of the profitability 16 00:01:28.280 --> 00:01:35.120 of a certain method of procedure, we compute the amortization of the machines used on the 17 00:01:35.120 --> 00:01:38.580 assumption of a given duration for their usefulness. 18 00:01:38.580 --> 00:01:44.540 Still, all such mistakes can be confined within certain narrow limits, so that they do not 19 00:01:44.540 --> 00:01:48.220 not disturb the net result of the calculation. 20 00:01:48.220 --> 00:01:54.820 What remains of uncertainty comes into the calculation of the uncertainty of future conditions, 21 00:01:54.820 --> 00:02:00.820 which is an inevitable concomitant of the dynamic nature of economic life. 22 00:02:00.820 --> 00:02:06.740 It seems tempting to try to construct by analogy a separate estimation of the particular production 23 00:02:06.740 --> 00:02:12.540 groups in the socialist state also, but it is quite impossible, for each separate calculation 24 00:02:12.540 --> 00:02:17.460 of the particular branches of one and the same enterprise depends exclusively on the 25 00:02:17.460 --> 00:02:24.460 fact that it is precisely in market dealings that market prices to be taken as the bases 26 00:02:24.460 --> 00:02:30.900 of calculation are formed for all kinds of goods and labor employed. 27 00:02:30.900 --> 00:02:35.300 Where there is no free market, there is no pricing mechanism. 28 00:02:35.300 --> 00:02:40.900 Without a pricing mechanism, there is no economic calculation. 29 00:02:40.900 --> 00:02:47.300 We might conceive of a situation in which exchange between particular branches of business 30 00:02:47.300 --> 00:02:54.160 is permitted so as to obtain the mechanism of exchange relations, prices, and thus create 31 00:02:54.160 --> 00:02:59.820 a basis for economic calculation even in the socialist commonwealth. 32 00:02:59.820 --> 00:03:04.340 Within the framework of a uniform economy, knowing not private ownership of the means 33 00:03:04.340 --> 00:03:09.620 of production, individual labor groups are constituted independent and authoritative 34 00:03:09.620 --> 00:03:14.340 of Disposers, which have indeed to behave in accordance with the directions of the Supreme 35 00:03:14.340 --> 00:03:21.340 Economic Council, but which nevertheless assign each other material goods and services only 36 00:03:21.340 --> 00:03:26.820 against a payment, which would have to be made in the general medium of exchange. It 37 00:03:26.820 --> 00:03:32.100 is roughly in this way that we conceive of the organization of the socialist running 38 00:03:32.100 --> 00:03:38.780 of business when we nowadays talk of complete socialization and the like. But we have still 39 00:03:38.780 --> 00:03:51.780 I will not come to the crucial point. Exchange relations between production goods can only be established on the basis of private ownership of the means of production. 40 00:03:51.780 --> 00:04:05.780 When the coal syndicate provides the iron syndicate with coal, no price can be formed, except when both syndicates are the owners of the means of production employed in their business. 41 00:04:05.780 --> 00:04:11.280 not be socialization, but workers capitalism and syndicalism. 42 00:04:11.280 --> 00:04:16.820 The matter is indeed very simple for those socialist theorists who rely on the labor 43 00:04:16.820 --> 00:04:18.500 theory of value. 44 00:04:18.500 --> 00:04:24.340 As soon as society takes possession of the means of production and applies them to production 45 00:04:24.340 --> 00:04:30.500 in their directly socialized form, each individual's labor, however different its specific utility 46 00:04:30.500 --> 00:04:35.240 may be, becomes a priori and directly social labor. 47 00:04:35.240 --> 00:04:41.960 The amount of social labor invested in a product need not then be established indirectly. 48 00:04:41.960 --> 00:04:47.860 Daily experience immediately tells us how much is necessary on an average. 49 00:04:47.860 --> 00:04:53.360 Society can simply calculate how many hours of labor are invested in a steam engine, a 50 00:04:53.360 --> 00:05:00.120 quarter of last harvest's wheat, and 100 yards of linen of given quality. 51 00:05:00.120 --> 00:05:06.440 To be sure, society will also have to know how much labor is needed to produce any consumption 52 00:05:06.440 --> 00:05:07.440 good. 53 00:05:07.440 --> 00:05:12.280 It will have to arrange its production plan according to its means of production to which 54 00:05:12.280 --> 00:05:14.560 labor especially belongs. 55 00:05:14.560 --> 00:05:19.920 The utility yielded by the various consumption goods weighted against each other and against 56 00:05:19.920 --> 00:05:25.400 the amount of labor required to produce them will ultimately determine the plan. 57 00:05:25.400 --> 00:05:31.080 People will make everything simple without the mediation of the notorious value. 58 00:05:31.080 --> 00:05:35.120 Here it is not our task once more to advance critical objections against the labor theory 59 00:05:35.120 --> 00:05:36.680 of value. 60 00:05:36.680 --> 00:05:42.040 In this connection, they can only interest us insofar as they are relevant to an assessment 61 00:05:42.040 --> 00:05:47.720 of the applicability of labor in the value computations of a socialist economy. 62 00:05:47.720 --> 00:05:53.640 On a first impression, calculation in terms of labor also takes into consideration the 63 00:05:53.640 --> 00:05:56.640 The Natural Non-Human Conditions of Production 64 00:05:56.640 --> 00:06:02.040 The law of diminishing returns is already allowed for in the concept of socially necessary 65 00:06:02.040 --> 00:06:07.360 average labor time to the extent that its operation is due to the variety of the natural 66 00:06:07.360 --> 00:06:09.500 conditions of production. 67 00:06:09.500 --> 00:06:15.440 If the demand for a commodity increases and worse natural resources must be exploited, 68 00:06:15.440 --> 00:06:20.220 then the average socially necessary labor time required for the production of a unit 69 00:06:20.220 --> 00:06:22.080 increases too. 70 00:06:22.080 --> 00:06:29.820 If more favorable natural resources are discovered, the amount of socially necessary labor diminishes. 71 00:06:29.820 --> 00:06:35.980 The consideration of the natural condition of production suffices only in so far as it 72 00:06:35.980 --> 00:06:39.680 is reflected in the amount of labor socially necessary. 73 00:06:39.680 --> 00:06:43.720 But it is a misrespect that valuation in terms of labor fails. 74 00:06:43.720 --> 00:06:48.880 It leaves the employment of material factors of production out of account. 75 00:06:48.880 --> 00:06:54.400 Let the amount of socially necessary labour time required for the production of each 76 00:06:54.400 --> 00:06:58.520 of the commodities P and Q be ten hours. 77 00:06:58.520 --> 00:07:05.640 Further, in addition to labour, the production of both P and Q requires the raw material 78 00:07:05.640 --> 00:07:11.560 A, a unit of which is produced by an hour's socially necessary labour. 79 00:07:11.560 --> 00:07:17.120 Two units of A and eight hours' labour are used in the production of P, and one unit 80 00:07:17.120 --> 00:07:24.360 of A and Nine Hours Labor in the Production of Q. In terms of labor, P and Q are equivalent, 81 00:07:24.360 --> 00:07:30.860 but in value terms P is more valuable than Q. The former is false, and only the latter 82 00:07:30.860 --> 00:07:37.960 corresponds to the nature and purpose of calculation. True, the surplus, by which according to value 83 00:07:37.960 --> 00:07:45.840 calculation P is more valuable than Q, this material substratum, is given by nature without 84 00:07:45.840 --> 00:07:47.760 about any addition from man. 85 00:07:47.760 --> 00:07:52.720 Still, the fact that it is only present in such quantities that it becomes an object 86 00:07:52.720 --> 00:08:00.520 of economizing must be taken into account in some form or other in value calculation. 87 00:08:00.520 --> 00:08:06.040 The second defect in calculation in terms of labor is the ignoring of the different 88 00:08:06.040 --> 00:08:07.800 qualities of labor. 89 00:08:07.800 --> 00:08:11.720 To Marx, all human labor is economically of the same kind. 90 00:08:11.720 --> 00:08:16.640 It is always the productive expenditure of human brain, brawn, nerve and hand. 91 00:08:16.640 --> 00:08:21.400 Skilled labor counts only as intensified or rather multiplied simple labor, so that a 92 00:08:21.400 --> 00:08:26.980 smaller quantity of skilled labor is equal to a larger quantity of simple labor. 93 00:08:26.980 --> 00:08:32.340 Experience shows that skilled labor can always be reduced in this way to the terms of simple labor. 94 00:08:32.340 --> 00:08:36.880 No matter that a commodity be the product of the most highly skilled labor, its value 95 00:08:36.880 --> 00:08:41.460 can be equated with that of the product of simple labor, so that it represents merely 96 00:08:41.460 --> 00:09:00.020 To judge Marx's view, we need not ask if it is possible to discover a single uniform physiological 97 00:09:00.020 --> 00:09:06.020 measure of all human labor, whether it be physical or mental, for it is certain that 98 00:09:06.020 --> 00:09:11.260 That there exist among men varying degrees of capacity and dexterity, which cause the 99 00:09:11.260 --> 00:09:15.840 products and services of labor to have varying qualities. 100 00:09:15.840 --> 00:09:20.420 What must be conclusive in deciding the question whether reckoning in terms of labor is applicable 101 00:09:20.420 --> 00:09:27.420 or not, is whether it is, or is not possible, to bring different kinds of labor under a 102 00:09:27.420 --> 00:09:33.220 common denominator, without the mediation of the economic subject's valuation of their 103 00:09:33.220 --> 00:09:34.620 products. 104 00:09:34.620 --> 00:09:39.140 The proof Marx attempts to give is not successful. 105 00:09:39.140 --> 00:09:46.380 Experience indeed shows that goods are consumed under exchange relations without regard of 106 00:09:46.380 --> 00:09:50.940 the fact of their being produced by simple or complex labor. 107 00:09:50.940 --> 00:09:56.760 But this would only be a proof that given amounts of simple labor are directly made 108 00:09:56.760 --> 00:10:00.540 equal to given amounts of complex labor. 109 00:10:00.540 --> 00:10:09.580 If it were shown that labor is their source of exchange value, this not only is not demonstrated, 110 00:10:09.580 --> 00:10:15.500 but is what Marx is trying to demonstrate by means of these very arguments. 111 00:10:15.500 --> 00:10:21.420 No more is it a proof of this homogeneity that rates of substitution between simple 112 00:10:21.420 --> 00:10:27.500 and complex labor are manifested in the wage rate in an exchange economy, a fact to which 113 00:10:27.500 --> 00:10:30.700 which Marx does not allude in this context. 114 00:10:30.700 --> 00:10:38.860 This equalizing process is a result of market transactions and not its antecedent. 115 00:10:38.860 --> 00:10:44.220 Calculation in terms of labor would have to set up an arbitrary proportion for the substitution 116 00:10:44.220 --> 00:10:52.000 of complex by simple labor, which excludes its employment for purposes of economic administration. 117 00:10:52.000 --> 00:10:57.460 It was long supposed that the labor theory of value was indispensable to socialism, so 118 00:10:57.460 --> 00:11:03.060 so that the demand for the nationalization of the means of production should have an ethical basis. 119 00:11:03.060 --> 00:11:09.660 Today, we know this for the error it is, although the majority of socialist supporters have thus employed this misconception, 120 00:11:09.660 --> 00:11:16.660 and although Marx, however much he fundamentally took another point of view, was not altogether free from it, 121 00:11:16.660 --> 00:11:27.260 it is clear that the political call for the introduction of socialized production neither requires nor can obtain the support of the labor theory of value on the one hand, 122 00:11:27.260 --> 00:11:30.940 and that on the other, those people holding different views 123 00:11:30.940 --> 00:11:36.620 on the nature and origin of economic value can be socialist according to their sentiments. 124 00:11:36.620 --> 00:11:41.820 Yet the labor theory of value is inherently necessary for the supporters of socialist production 125 00:11:41.820 --> 00:11:44.300 in a sense other than that usually intended. 126 00:11:44.300 --> 00:11:49.180 In the main, socialist production might only appear rationally realizable 127 00:11:49.180 --> 00:11:53.180 if it provided an objectively recognizable unit of value 128 00:11:53.180 --> 00:12:04.020 which would permit of economic calculation in an economy where neither money nor exchange were present and only labor can conceivably be considered as such.