The Socialist Blueprint

FIRST of all we must see whether or not there is anything wrong with the pure logic of a socialist economy. For although no proof of the soundness of that logic will ever convert anyone to socialism or, in fact, prove much for socialism as a practical proposition, proof of logical unsoundness or even failure in an attempt to prove logical soundness would in itself suffice to convict it of inherent absurdity.

More precisely, our question may be formulated as follows: given a socialist system of the kind envisaged, is it possible to derive, from its data and from the rules of rational behavior, uniquely determined decisions as to what and how to produce or, to put the same thing into the slogan of exact economics, do those data and rules, under the circumstances of a socialist economy, yield equations which are independent, compatible—i.e., free from contradiction—and sufficient in number to determine uniquely the unknowns of the problem before the central board or ministry of production?

1. The answer is in the affirmative. There is nothing wrong with the pure logic of socialism. And this is so obvious that it would not have occurred to me to insist on it were it not for the fact that it has been denied and the still more curious fact that orthodox socialists, until they were taught their business by economists of strongly bourgeois views and sympathies, failed to produce an answer that would meet scientific requirements. The only authority standing for denial that we need to mention is Professor L.von Mises. 1 Starting from the proposition that rational economic behavior presupposes rational cost calculations, hence prices of cost factors, hence markets which price them, he concluded that in a socialist society, since there would be no such markets, the beacon lights of rational production would be absent so that the system would have to function in a haphazard manner if at all. To this and similar criticisms or perhaps to some doubts of their own, the accredited exponents of socialist orthodoxy had at first not much to oppose except the argument that the socialist management would be able to start from the system of values evolved by its capitalist predecessor—which is no doubt relevant for a discussion of practical difficulties but not at all for the question of principle—or a paean on the miraculous glories of their heaven, in which it would be easy to dispense altogether with capitalist tricks like cost rationality and in which comrades would solve all problems by helping themselves to the bounties pouring forth from social stores. This amounts to accepting the criticism, and some socialists actually seem to do so even today.

The economist who settled the question in a manner that left little to do except elaboration and the clearing up of points of secondary importance, was Enrico Barone to whose argument I refer readers who want a rigorous demonstration. 2 Here a brief sketch will suffice.

Viewed from the economists’ standpoint, production—including transportation and all operations incident to marketing—is nothing but the rational combination of the existing “factors” within the constraints imposed by technological conditions. In a commercial society, the task of combining factors involves buying or hiring them, and those individual incomes which are typical of such a society emerge in this very process of buying or hiring.

That is to say, the production and the “distribution” of the social product are but different aspects of one and the same process that affects both simultaneously. Now the most important logical—or purely theoretical— difference between commercial and socialist economy is that in the latter this is no longer so. Since prima facie there are no market values of means of production and, what is still more important, since the principles of socialist society would not admit of making them the criterion of distribution even if they did exist, the distributive automatism of commercial society is lacking in a socialist one. The void has to be filled by a political act, let us say by the constitution of the commonwealth. Distribution thus becomes a distinct operation and, in logic at least, is completely severed from production. This political act or decision would have to result from, and in turn go a long way toward determining, the economic and cultural character of the society, its behavior, aims and achievements; but it would be completely arbitrary when viewed from the economic standpoint. As has been pointed out before, the commonwealth may adopt an equalitarian rule—and this again in any of the many meanings that may be associated with equalitarian ideals—or admit inequalities to any desired degree. It might even distribute with a view to producing maximum performance in any desired direction—a particularly interesting case. It may study the wishes of individual comrades or resolve to give them what some authority or other thinks best for them; the slogan “to everyone according to his needs” might carry either meaning. But some rule must be established. For our purpose it will be sufficient to consider a very special case.

2 Upward of a dozen economists had hinted at the solution before Barone. Among them were such authorities as F.von Wieser (in his Natural Value, 1893, German original 1889) and Pareto (Cours d’Économie politique, vol. ii, 1897). Both perceived the fact that the fundamental logic of economic behavior is the same in both commercial and socialist society from which the solution follows. But Barone, a follower of Pareto, was the first to work it out. See his papers entitled “Il Ministro della Produzione nello Stato Collettivista,” Giornale degli Economisti, 1908; English translation included in the volume Collectivist Economic Planning mentioned in the preceding note. It is neither possible nor necessary to do justice to the rich crop of later work. I will only mention, as particularly important in one way or another: Fred M.Taylor, “The Guidance of Production in a Socialist State,” American Economic Review, March 1929; K.Tisch, Wirtschaftsrechnung und Verteilung im… sozialistischen Gemeinwesen, 1932; H.Zassenhaus, “Theorie der Planwirtschaft,” Zeitschrift für Nationalökonomie, 1934; especially Oskar Lange, “On the Economic Theory of Socialism,” Review of Economic Studies, 1936/7, republished as a book in Lange and Taylor, same title, 1938; and A.P.Lerner whose articles will be referred to in a later footnote.

2. Suppose then that the ethical persuasion of our socialist commonwealth is thoroughly equalitarian but at the same time prescribes that comrades should be free to choose as they please among all the consumers’ goods which the ministry is able and willing to produce—the community may of course refuse to produce certain commodities, alcoholic beverages for instance. Furthermore let us assume that the particular equalitarian ideal adopted is satisfied by handing out to every person—children and possibly other individuals counting for fractional persons as the competent authority may decide—a voucher representing his or her claim to a quantity of consumers’ goods equal to the social product available in the current period of account divided by the number of claimants, all vouchers to become valueless at the end of that period. These vouchers can be visualized as claims to the Xth part of all food, clothing, household goods, houses, motorcars, movie plays and so on that have been or are being produced for consumption (for the purpose of being delivered to consumers) during the period under consideration. It is only to avoid a complex and unnecessary mass of exchanges that would otherwise have to take place among the comrades, that we express the claims not in goods but by equal amounts of conveniently chosen but meaningless units—we can call them simply units, or moons or suns or even dollars—and rule that units of each good will be handed over against the surrender of a stated number of them. These “prices” charged by the social stores would under our assumptions have always to fulfill the condition that, each of them multiplied by the existing quantity of the commodity to which it refers, they add up to the otherwise arbitrary total of the comrades’ claims. But the ministry need not fix the individual “prices” except by way of initial suggestions. Given the tastes and the equal “dollar incomes,” comrades will reveal, by their reaction to these initial suggestions, at what prices they are ready to take the whole social product save those articles that nobody cares to have at all, and the ministry will then have to accept those prices if it wishes to have the stores cleared. This will accordingly be done and the principle of equal shares will be thus carried out in a very plausible sense and in a uniquely determined way.

But of course this presupposes that a definite quantity of every good has already been produced. The real problem, the solvability of which has been denied, is precisely how this can be done rationally, i.e., in a way which will result in a maximum of consumers’ satisfaction 3 subject to the limits imposed by the available resources, the technological possibilities and the rest of the environmental conditions. It is clear that decision on the plan of production by, say, a majority vote of the comrades would entirely fail to fulfill this 4 requirement because in this case certainly some people and possibly all the people would not get what they want and what it would still be possible to give them without reducing the satisfaction of others. It is, however, equally clear that economic rationality in this sense can be attained in another way. For the theorist this follows from the elementary proposition that consumers in evaluating (“demanding”) consumers’ goods ipso facto also evaluate the means of production which enter into the production of those goods. For the layman proof of the possibility of a rational plan of production in our socialist society can be supplied as follows.