Will the socialist commonwealth need a system of economic calculation? That is, will it need a method for assessing the advantages and disadvantages of alternative courses of action in terms of a common measure? Many socialists think that this will not be necessary. I would like to explain why I disagree and suggest how such a common measure might be devised.
Let me clarify my position at the outset. While I agree with the view that there will be a problem of economic calculation in socialism, I reject the conclusions that economists have drawn from this. Some have concluded that rational decision-making is impossible in socialism. Others – notably, Oskar Lange – have proposed that planners should set prices to simulate the operation of a competitive market. Although Lange considered himself a socialist, he accepted the claim of his openly pro-capitalist opponents that the market provides the optimal solution to the economic calculation problem.
While rational decision-making will indeed be essential to socialism, it must always be emphasized that socialism will have a different rationality. It will not try to imitate capitalism but solve problems in its own way, in accordance with its own values and priorities. Otherwise why bother to establish it?
Misunderstandings
I would like to avoid misunderstandings that arise from the ambiguity of certain words.
Take the word economic. In capitalism this word is inextricably linked to the idea of saving money. In fact, economics has been defined as the study of a system of production based on production for sale. As socialism will be a non-market system with production directly for use, it will not be an economic system in this sense. It will, however, still have to make choices about the use of resources, seeking to economize them in the sense of not wasting them. In a broader sense of the word, economic calculation and economic decision-making may therefore still exist in a socialist society.
Take the word costs. In capitalism this word has a very specific and narrow meaning – money expenditures that cannot be avoided in some business activity. But in everyday usage it also refers more broadly to any undesired effects associated with doing something. In this sense production in socialism will also entail costs – effects that people will not want and will seek to minimize (where they cannot be prevented altogether). Examples are unrewarding labor, pollution and the depletion of non-renewable resources that might be needed by future generations.
There is an overlap between the two concepts of cost, but there are also major discrepancies. Thus, cost-benefit analysis (CBA) as applied today to compare the costs and benefits of a project – say, a canal, a dam, or an airport – leaves out of account effects that cannot be expressed in terms of money. For instance, loss of human life is valued merely in terms of income foregone. In socialism such effects will have their due influence on decision-making. Conversely, certain things that in capitalism come under the heading of costs, such as interesting and satisfying work, may be reckoned as benefits.
A similar ambiguity surrounds the word efficiency. We associate this word with the capitalist drive for profit, and this may make us feel that there is something inhuman in the concept itself. However, once efficiency is defined as the ratio of full social benefits to full social costs, it makes good sense to aim at its maximization.
‘Scarcity’ and ‘abundance’
The view that socialism will not need economic calculation is based on the idea that economic calculation is a way of coping with scarcity while socialism will be a society of abundance.
When we speak of socialism as a society of abundance we mean that people will have free access to the things they need. They will live a comfortable, secure and satisfying life. At the same time, we reject the absurd claim that desires expand without limit and do not expect people to make unrealistically extravagant demands on the production system.
In this sense I too envisage socialism as a society of abundance. But such a society will not come into being instantaneously as soon as capitalism is abolished. It can emerge only as the successful outcome of massive efforts to overcome the legacy of waste and misery inherited from capitalism. So at its initial stage socialism will not yet be a society of abundance.
Some socialists admit this point but play down its importance by arguing that the initial stage will be brief. That is hard to judge: it depends just how bad the situation will have become by the time socialism is established. But for the sake of argument let us suppose that the initial stage does last only a few years. It is, nevertheless, the crucial stage. The new society will mature only if the problems of this stage are handled effectively. Therefore I take the view that when we think about socialism we should concentrate mainly on the initial stage.
Moreover, the words scarcity and abundance are also ambiguous. In theoretical economics they are given 'technical' meanings. Abundance refers to a hypothetical state of affairs in which the superfluity of resources is so great that it is never necessary to make choices or set priorities. All technically conceivable projects can be carried out, and all at once. Anything less than this counts as scarcity, however well people might be living. In this special sense, even mature socialism is not likely to be a society of abundance. In fact, economical use of non-renewable resources, rooted in awareness of 'scarcity' in the technical sense, may well be a condition of achieving 'abundance' in the everyday sense.
Overload
Some socialists argue as follows. Yes, socialist society will have to make choices and set priorities. But this does not mean that diverse social costs and benefits will have to be reduced to some common measure. People will survey and discuss the full range of social costs and benefits of various options. Costs and benefits that cannot be properly quantified will be assessed in qualitative terms. Then a decision will be made among the options by referendum or some other democratic procedure.
But how well will this ‘qualitative’ approach work? It is difficult for people to make up their minds when called upon to choose among options that all have both important advantages and important disadvantages. So debates would tend to be lengthy, frustrating and inconclusive. And there will be many such matters awaiting resolution.
The likely result is overload of the decision-making system. Urgent decisions will be delayed, but attempts to move forward more quickly may undermine the quality of the decisions taken, so that not all significant factors are given proper consideration. Moreover, the numerous and complicated debates will make such heavy demands on the time and effort of participants that many people will be deterred from participating. Decision-making may become the province of a minority of enthusiasts, who would not necessarily be representative of the general public. Overload is therefore a potential threat not only to the effectiveness of decision-making in socialism but also to its democratic nature.
I conclude that the qualitative approach will work only if it is confined to a relatively small number of issues – let us say, to the most important strategic issues facing society. A shortcut is then needed to allow other issues to be handled expeditiously – by means of standardized procedures, without the need for long debate. For this it must be possible to make direct comparisons between different costs and benefits and calculate the net benefit (benefits minus costs) or benefit-cost ratio for alternative options. That in turn requires attaching a set of weights to different costs and benefits so that they can be expressed in terms of a single common measure.
Which of these two variants – net benefit or benefit-cost ratio – would be better? I suggest that each may be more appropriate under certain circumstances. Ratios would be more convenient in comparing different methods of achieving a given purpose, while the net benefit expected from a project would be crucial in deciding whether or not to undertake it.
It is likely that certain limits would be placed on the scope of decision-making based on calculations of benefits and costs. In particular, certain kinds of costs and risks, especially pertaining to the environment and to human health and safety, may be ruled out in advance, irrespective of the magnitude of compensating benefits.
Decentralized but consistent
Devising a common measure for economic calculation in socialism will be no easy task, and I do not claim to have a fully worked-out solution. The adoption of a common measure will itself be one of the most important decisions ever made by humanity.
Although objective criteria – for example, energy, land-use, and labor-time requirements – will provide indispensable data for economic calculation, the common measure cannot possibly be derived solely from such objective criteria. First of all, it will be necessary to choose a manageable subset of the numerous objective criteria that could be used, and there will inevitably be a subjective element in this choice. The same is true of the manner in which the chosen objective criteria are combined. The method by which the common measure is determined will reflect the values and priorities of a socialist society, defined democratically following extensive discussion and research, including in-depth analysis of the values and attitudes of representative samples of the population and the use of focus groups. Thus the measure will be only partly and indirectly of an objective nature. It will be essentially inter-subjective, or subjective with the subject being the democratically organized human community,
Economic calculation in socialism will facilitate decision-making that is expeditious and rational in relation to the society’s own values. Because its method will embody the values of the society as a whole, the great bulk of day-to-day decisions can be taken at the local level or even entrusted to small teams of responsible specialists. The functioning of socialism will be mostly decentralized but consistent in reflecting the guiding values of the community.
Response from Adam Buick (SPGB)
No, Socialism Will Not Need a General Unit of Account
Calculation in kind – in physical amount of the materials, energy and types of work skills required to produce something – is not at issue. It has to take place in all human societies and will in socialism too. The question is: Does this need to be duplicated in socialism, as it is under capitalism, by an additional calculation in some common unit?
There are three circumstances in which a society might use a general unit of calculation:
first, to put a ‘price’ on goods and services used by individuals to meet their individual needs (consumer goods);
second, to put a ‘price’ on materials and machines used in production (producer goods) to work out the least ‘costly’ way of producing them;
third, to decide how to use land.
Why capitalism uses monetary calculation
Capitalism is a system where money is invested in production with a view to ending up with more money. The means of production – materials that originally came from nature and the buildings and machines (themselves constructed from materials that originally came from nature) used to transform them into something different – are ‘capital’; not merely wealth used to produce other wealth but wealth used to produce other wealth with a view to making a monetary profit.
It should be clear from this why a general unit of account is essential in such a system and why it is money. Money existed before capitalism and arose, in societies where some products were bought and sold, when one of these products came to be the ‘universal equivalent,’ a product that could be exchanged for any other. This could only happen if an amount of the universal equivalent was ‘worth’ the same as the amounts of the other products with which it was to be exchanged. The measure of this was the length of time normally taken to produce both.
Originally, then, money was a product of work, just like everything else that was exchanged, and was used as a common unit to measure what both had in common: a given amount of labor-time. In saying that capitalism is a system in which money is invested with a view to ending up with more money, we are saying that capitalism is a system in which the aim is to end up with a product incorporating more normal labor-time than that incorporated in the products used to produce it.
There are various reasons why such calculations under capitalism cannot be done directly in units of labor-time, primarily because the amount of labor-time required to produce the materials and instruments of production varies due to productivity increasing over time. It is not the actual labor-time that was taken to produce a good that needs to be measured. It is the average time that would be needed to produce them at the time they are used. It is this rather than actual labor-time that money attempts to measure; in fact there is no other way in which it could conceivably be measured, and it is the impersonal working of the market that does the measuring.
This is why calculation in kind is duplicated under capitalism by a monetary calculation whose purpose is to calculate monetary profit, the increase in invested money that is the aim of capitalist production.
Why might socialism need a general unit of account?
It should be clear why socialism, where production will be geared to meeting people’s needs and not to realizing a monetary profit, can dispense with monetary calculation, but might it still require some other general unit of account? Let us go through the three circumstances mentioned earlier that might require this.
First, goods and services consumed by individuals to live. To satisfy people’s consumption for this will be the aim of socialist production. Here, given the present high state of development of the forces of production and given the elimination of the waste of capitalism (money transactions, wars and preparations for war), enough could be produced to satisfy everybody’s likely needs. In these circumstances, socialist society could very quickly go over to free access to consumer goods and free provision of services. It is always possible that, in the very early days, it might not be possible to apply this to all goods and services. There could also be natural disasters that could mean that this might have to be temporarily suspended even when socialism has been going for years.
The best way to deal with both of these situations would be direct rationing, free distribution of the goods affected but in limited amounts. There would be no need to set up a complicated system involving goods being given a pseudo-price and people being given an all-purpose voucher that could be used acquire them. One example of this would be the labor-time vouchers Marx mentioned, for illustrative purposes, in some private notes. Unfortunately, some later socialists tried to develop this into a fully worked-out scheme to be implemented in socialism. But it wouldn’t work (nor would any other all-purpose voucher scheme) and isn’t necessary. But this is not at issue here as nobody here is proposing it.
Second. Would socialist society need a general unit to work out the ‘cost’ of the materials, energy and labor used to produce consumer goods, with a view to deciding which production method to use as the least costly (in terms of the unit)? There will of course be costs in socialism but these would be measured in kind – so much of such and such material or particular kind of working skill.
Peter Joseph and the Zeitgeist Movement propose that the production method used to produce what is needed by individuals, as well as to produce materials and machines used in production, should be what is technically the most efficient. In other words, you decide what you want produced and then you decide the most efficient technical way to do this. This seems reasonable as the default position.
It is true that, as with consumer goods, some resource required for maximum technical efficiency might be in short supply. In fact this is more likely than in the case of consumer goods; there might even be some resources that are permanently in short supply. In which case, direct rationing could again be applied. There would be no need to construct a system which puts a pseudo-price on all the other resources needed to produce a particular good. Robin Cox, in his ‘The “Economic Calculation” Controversy: Unravelling of a Myth’ has gone into more detail into how one possible way of such rationing might work
Third. Finally, land use. This is the one circumstance where there can be no abundance. Using land for one purpose precludes it from being used for another. So a choice of land use will have to be made in socialism and some criteria to guide this choice will be needed.
This is a problem under capitalism too and it is instructive that letting the market decide is regarded as irrational by many theorists of capitalism. Land is not a product of work and so cannot be measured in the way that products of work are, i.e., by labor-time and its proxy, money. However, it generally is and this leads to irrational decisions as far as the functioning of the capitalist economy is concerned. The monetary price of land is determined purely by demand and this can result in a highly-demanded piece of land not being used as a place on which to build a productive unit that would otherwise be profitable but is not because one of its costs would be the high price of the land. To avoid this distorting effect was why some intellectual defenders of capitalism have advocated that land should not be subject to market forces but should be nationalized (John Stuart Mill) or the rental income taxed away (Henry George).
It is also why even under capitalism other, non-monetary methods of deciding land use have been developed – cost/benefit analyses (plural) which do indeed measure ‘costs’ and ‘benefits’ in terms of a common unit. I don’t see this being a problem in socialism, though of course measurements in this unit would not then be converted into the money unit of account. It would just be a points system. This would avoid having to put every particular land use decision to a vote (and having to decide who was entitled to vote). It would be, as Stephen Shenfield says in his contribution, a ‘shortcut’ that would ‘allow other issues to be handled expeditiously – by means of standardized procedures, without the need for long debate.’
However, this would not be a general common unit of account applied across all production but just for certain decisions (on land use). In fact, there is no reason why the common unit for measuring costs and benefits need be the same in all parts of the world. A different points system could be used in different parts reflecting the different traditions, priorities and preferences of the people living there.
Brief counter-response from Stephen Shenfield
I am glad that Adam Buick accepts the need for a general measure, at least in decision making on land use. I don’t in the least mind calling the general unit of measure a point. But I would stress that this sphere of decision making is extremely broad in scope, encompassing key areas of social production and consumption – in particular, agriculture, housing, and transportation – as well as the location of production facilities.
I agree that the points system need not be uniform throughout the world, except insofar as land use decisions affect the sustainability and rehabilitation of the global ecosystem. Here consistency is essential: decisions that shape the future of the whole world community cannot be determined solely by local needs.
