A critical review of Woods' book

Reformism or Revolution is a big book and many of the points that Woods makes are uncontroversial by themselves. It is a critique of the ideas of the Heinz Dieterich and in it there is a general tendancy to accuse Dieterich of things based on supposition rather than explicit statement. This comes up repeatedly and Woods then goes off at a great tangent to deal with it.

For instance he accuses Dieterich of saying that all Latin American though is mediocre. I think this is a forced interpretation, the more plausible interpretation is that Dieterich was saying that current Latin American intellectual life is mediocre. I dont know if that is true but it is a much less sweeping statement than Woods attributes to him: that all historical intellectuals in Latin America have been mediocre
- which I am sure Heinz did not intend.

Woods on the other hand is quite willing to make very sweeping claims about mediocrity:

"In its youth, as we have seen, the bourgeoisie had a revolutionary ideology. In England and France it stood for materialism (in England this took the form of empiricism) and subjected the reactionary medieval-feudal ideology to a merciless criticism. But now, in the epoch of its senile decay, the bourgeoisie is incapable of producing great ideas. It is only capable of producing mediocre thinkers producing mediocre ideas."1

This damns not only the bourgeois thinkers on one continent, but accross the whole world for the last century or so, since as an orthodox Leninist he presumably accepts that bourgeois society had entered into senile decay by the time of the First World War. Perhaps Freud, Einstein and Bohr escape being 'mediocre' thinkers because they started their work a bit over a century ago, but what of mide 20th century thinkers like Turing, Shannon, or von Neumann were they all mediocre?

But even if we take the weaker version of Wood's mediocrity thesis restricted to our century:

"The fact that the bourgeoisie in the first decade of the 21st century has exhausted its progressive role and has become a brake on the development of civilization is precisely expressed in the poverty of bourgeois culture. This, in turn, expresses itself in the complete absence of any school of bourgeois philosophy worthy of the name. Incapable of any great thoughts, the bourgeois comes to the conclusion (perfectly logical from a bourgeois point of view) that no great thoughts are possible."2

It is a ridiculous overstatement. What about the school of militant atheists exemplified by the 3 Ds, Dawkins, Dennet and Deutsch? What about realist philosophers like Smart and Price or Julian Barbour. These people are not mediocre thinkers by any standard yet they are perfectly respectable members of bourgeois society. Woods, a follower of Trotsky, writes sweeping denunciations of bourgeois thought as a whole that have an eirily familiar ring. Remember this?

The present state of bourgeois literature is such that it is no longer able to create great works of art. The decadence and disintegration of bourgeois literature, resulting from the collapse and decay of the capitalist system, represent a characteristic trait, a characteristic peculiarity of the state of bourgeois culture and bourgeois literature at the present time. Gone never to return are the times when bourgeois literature, reflecting the victory of the bourgeois system over feudalism, was able to create great works of the period when capitalism was flourishing.3

There are parts of the book which deal with the particular political situation in Venzuela, something I am no expert on. There are however a number of significant points of political divergence between Woods and Dieterich that I have some knowledge of, and which I think it is worth my while addressing. I will concentrate on these in this critical review. The key accusations that Woods directs against Dieterich are that the latter is reviving the tradition of utopian socialism, that he is fundamentally hostile to Marxism and that what Dieterich advocates is not socialism but a capitalist mixed economy.

I think that these accusations are wrong. In what follows I will argue that what Wood's takes to be Dieterich's utopian proposals are actually pretty close to what Marx proposed back in the 19th century, whereas Wood's ideas about socialism derive more from the later German and Russian social democracy. I will argue in particular that Dieterich's ideas about establish an economy based on labour accounts are actually an elaboration of proposals that Marx himself made when he was criticising the programme the German Social Democratic Party had just adopted.

Bureaucracy versus cybernetics

There are many points where Woods criticises the imprecise use of language by Dieterich. There may be some merit in this, because Heinz is very free with metaphors and allusions which by their very nature lay themselves open to multiple interpretations. But even allowing for this I think Wood is deliberately stretching things with many of the meanings he imputes to Dieterich.

Wood goes to town on the following passage from Dieterich:

The mediocrity of the social sciences and of philosophy in the countries of historical socialism is intimately linked to the present problem of Cuban transition. In fact it constitutes, together with the cybernetic problem of Party-state, one of their two deeper roots. The reason for this mediocrity it shares with Latin American philosophy: Both are born of the mystification of the historical truth. They are, in Marx's sense, ideology, that is, objectively false consciousness.4

He objects both to the idea of false consciousness and to Dieterich's claim that the poor state of the social sciences in the countries of historical socialism is a factor in problems of the transition in Cuba. But Alan does this by first re writing what Heinz said:

So here we have it. The fall of the Soviet Union was due to the mediocrity of its social sciences and philosophy. Here the idealist method of Heinz Dieterich stands out in all its crudity. Let us gently correct him on this question by administering a slight dose of materialism: It was not the mediocrity of the social sciences and of philosophy that caused the bureaucratic degeneration of the USSR but the bureaucratic degeneration that caused the mediocrity of the social sciences and of philosophy in the USSR and the other so-called countries of historical socialism.5

Look back at the passage from Dieterich quoted above (and quoted by Woods). It says nothing at all about the fall of the USSR, it is talking about the problem of Cuban transition : whether the transition is to be one to capitalism or to a new socialism. So you can't say "So here we have it. The fall of the Soviet Union was due to the mediocrity of its social sciences".

Woods goes on to say that the poor state of social science in the USSR was a result of the dominance of the Stalinist bureaucracy. Well, that is the Trotskyist hypothesis, and you would expect Woods to say that. But if you read further into Heinz article you find him saying much the same thing: Stalinist repression prevented the development of soviet social science.

The ideological necessity to identify falsely (mystify) that which was State, as the social, was the original sin of the scientific social theory and philosophy of the socialist countries. It converted itself into a sterilizing founding myth of the nascent soviet civilization, which impeded the later evolution of revolutionary theory, especially, when under the power of the Stalinist Party-State those whom Stalin considered the "enemies of the people" were sanctioned even with death. "Enemies of the people" was a reformulation of the Jacobin formula of the "enemies of the revolution", which not only applied to the Trotskyists and the opposition of "right" and "left", but also served as a powerful preventive against any attempt to discover the historic truth of the new civilization.

Tragically, some of the greatest economists of all times, such as Nikolai Kondratiev and Wassily Leontief, who had the capacity to develop the new economic theory so necessary to decode the bolshevik mode of production, fell victims to the post Leninist State terror. In 1938, Kondratiev was shot on direct orders of Stalin, because he favored the New Economic Policy (NEP), of Lenin and a different policy of
accumulation than Stalin's, and Leontief emigrated to at the end of the 20s.6

If Heinz and Alan are in agreement that Stalinist repression held back the devolopment of social science in the USSR why does Alan Woods spend 3 pages lambasting Dieterich for not acknowledging the role of Stalinist repression?

Perhaps Woods' asumes his readers will not read Dieterich's original article, will not see that Dieterich makes the same point himself. Perhaps it is a matter of language, Dieterich makes some similar points to Woods but does not express them in the approved sectarian terminology. Where Woods says:

In Stalin's Russia, the bureaucracy controlled everything and demanded absolute obedience to its rule. The Cult of Stalin, the Great Leader and Teacher, was only an expression of this. The bureaucracy prostrated itself before the Leader, and in turn they expected the masses to prostrate themselves before the State – that is, the Bureaucracy. When comrade Dieterich complains about mediocre thought in the USSR, he should explain the material basis for this. He does not do so. He cannot do so, because he approaches the whole question not as a Marxist materialist but as an idealist of the most superficial sort.7

We find Dieterich writing on a similar topic:

For the organization of the Soviet economy there were potentially three subjects the State, the market and society. A particular form of property corresponded to each one: the State or public, private one and the social one. The revolution being of anti-capitalist nature, the market, that is the business class, was excluded as an organizing option. Due to the scarce development of the productive forces, the destruction of the war and the low cultural level of the people (illiteracy), it was equally almost impossible that the population (society) would satisfactorily organize the economy in that gigantic country. There remained, then, the State as principal operator of the economy and, in consequence, the state or public property as dominant. That unavoidable practical necessity generated, however, two difficulties. In the first place, an insoluble ideological problem. With the heroic phase of the revolution passed, the people did not want to work mainly for the glory of a State. Once the revolution becomes mundane, the Stakhanovism, those "Red Saturdays" and the martyrs become a minority, and the majorities expect from the socialist State that it would provide them with certain services, as are expected from whatever other type of State.

They will be willing to work for their mystifications, such as the King, the Fatherland, God, or "society", but not for an apparatus of control and domination such as is the State. Confronted by this problem, a laic and socialist revolution like the Soviet one had few options available, in fact, only one: identify the State with Society, in that way the work on the land (kolkhozes or sovkhozes) or in state factories was work for society, that is, for one's self. The volontee generale of Rousseau and the Jacobins, the general will and the will of the individual could this way become identical.8

It is not that Dieterich does not give an explanation for the glorification of the state in the USSR, or that this explanation is not materialist, the problem is that whilst similar to the Trotskyist explanation favoured by Woods it contains new and unfamiliar elements. The familiar elements are there : the low level of the productive forces, the low cultural level, the destruction from war and civil war. These are routinely mentioned by Trotskyist writers when explaining the rise of the bureacracy in Soviet Russia. And it is not that Dieterich's explanation is not 'materialist', since his explanation for the ideological glorification of the state is based on an economic need. Dieterich says that it was necessary in order to provide an ideological motivation for those working to build up the economy - private self interest not being available as a motivating factor. The problem for Woods is that this explanation deviates slightly from the one he is comfortable with, contains a new element: an emphasis on the necessary role of state glorifying ideology in the functioning of the soviet economy. Dieterich's explanation relates to the basic distinguishing feature of different modes of production: how is surplus labour extracted.

The specific economic form, in which unpaid surplus-labour is pumped out of direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of the conditions of production to the direct producers – a relation always naturally corresponding to a definite stage in the development of the methods of labour and thereby its social productivity – which reveals the innermost secret, the hidden basis of the entire social structure and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state.9

The main thrust of Dieterich's article is to point out the need for a theory of how socialist economies work, both hithertoo existing ones, and other ones which might be extablished in the near future. He is arguing that socialism in the 21st century can only succeed if it has a better theory of what the socialist mode of production is.

Back in the 1880s Engels wrote a pamphlet10 presenting to a German readership a short history of the socialist movement from the ideas of early 19th century socialist thinkers, particularly Saint Simon, Fourier and Owen down to his and Marx's then more recent ideas. Drawing on the title of this pamphlet it became the fashion among later Marxist writers to denigrate 'utopianism' as a fanciful spinning of overly detailed plans for a socialist future. This is the meaning that Woods gives to the term when he criticises Dieterich's 'utopianism'. But Engels himself was actually very complimentary towards earlier socialist pioneers, particularly towards Owen.

The newly-created gigantic productive forces, hitherto used only to enrich individuals and to enslave the masses, offered to Owen the foundations for a reconstruction of society; they were destined, as the common property of all, to be worked for the common good of all.

Owen's communism was based upon this purely business foundation, the outcome, so to say, of commercial calculation. Throughout, it maintained this practical character. Thus, in 1823, Owen proposed the relief of the distress in Ireland by Communist colonies, and drew up complete estimates of costs of founding them, yearly expenditure, and probable revenue. And in his definite plan for the future, the technical working out of details is managed with such practical knowledge – ground plan, front and side and bird's-eye views all included – that the Owen method of social reform once accepted, there is from the practical point of view little to be said against the actual arrangement of details.11

No suggestion here that Owen's ideas were impractical.

Woods claims that the 'utopians' including Owen distanced themselves from the working class movement12 and sought to introduce socialism by appealing to the enlightened middle class, though he grudgingly conceeds that in his later years Owen 'tried to rectify his mistakes'. Engels was considerably more complementary about Owen's role in the labour movement.

Every social movement, every real advance in England on behalf of the workers links itself on to the name of Robert Owen. He forced through in 1819, after five years' fighting, the first law limiting the hours of labor of women and children in factories. He was president of the first Congress at which all the Trade Unions of England united in a single great trade association. He introduced as transition measures to the complete communistic organization of society, on the one hand, cooperative societies for retail trade and production. These have since that time, at least, given practical proof that the merchant and the manufacturer are socially quite unnecessary. On the other hand, he introduced labor bazaars for the exchange of the products of labor through the medium of labor-notes, whose unit was a single hour of work; institutions necessarily doomed to failure, but completely anticipating Proudhon's bank of exchange of a much later period, and differing entirely from this in that it did not claim to be the panacea for all social ills, but only a first step towards a much more radical revolution of society.

Do we need a better theory of socialist economy

Woods claims, without supporting quotes, that Dieterich identifies himself as being Post Marxist and Post Communist, and that he shows excessive egotism and presumption in calling for a new socialism of the 21st century. Woods position seems to be that we already have an adequate theory of how a socialist economy should operate: the Soviet form of planned economy would be just fine were it not held back by bureaucracy.

Insofar as art and science made notable advances in the USSR (which they did) this was thanks to the colossal stimulus that the October Revolution and the nationalized planned economy gave to education and culture in general. But these achievements were made in spite of the bureaucracy, not thanks to it. The same thing can be said of the planned economy in general.13

The idea that everything would be fine if it were not for bureaucracy ignores not only the 1920s and 30s debates on the 'economic calculation' problem14, but the entire history of related debate in the USSR over economic mechanisms. Dieterich's proposal for 21st century socialism, and our proposal for New Socialism back in 1992, both stemmed from the historic impasse that the Soviet Model had gotten into by the end of the 80s. The problem with Trotskyists like Woods arguing that the cause of the decline and collapse of the USSR was the hamstringing of the planned economy by the bureacracy is that this thesis does not match up well with the timeline. Trotsky was denouncing the bureacracy from the early 1930s and was from that early date warning that the soviet economy was in danger of collapse because of the bureaucracy. The problem with this is that at the very time that he was warning of the bureacratic danger, the soviet economy was growing at an unprecedented rate. It contined to grow at a breakneck speed right up until the mid 1960s. It was not until the 1970s or 80s that it started to stagnate. The soviet economy was not 'in danger' in 1934 but by the late 1980s it certainly was. If the economy was being throttled by the Stalinist Bureaucracy, why did this throttling take 50 years to take effect. Was the 1980s state bureacratic repression was much worse than in the 1930s? Clearly not. Mass executions, imprisonment on suspicion, exile etc were rife in the 30s but absent in the 80s.

As a causal explanation it fails. If bureacracy had been constantly strangling from the 1930s the collapse would have occured far earlier. Something new must have happened from the 1970s that caused the stagnation. I have already hinted at the similarity between Woods outlook and that of Zhadanov. Woods shares the notion of a basically sound soviet economy strangled by bureaucracy with modern Stalinists like Furr and Ball15. The difference is that the Stalinists say the bureaucratic degeneration did not occur until the 1950s under Khruschev. Whilst they put the degeneration 20 years closer to when economic stagnation was visible, these arguments too have difficulty accounting for the robust growth of the USSR in the Khruschev period.

I am generally sympathetic to Ball's aims: to defend socialist planning. I think that he makes a very interesting point in focussing attention on innovation and the comparative role of subsidies versus temporary prices a point that had not been brought up in the left debate on the USSR before. Basically he argues that in the 1930s state enterprises were paid subsidies for innovations to cover the extra cost they incurred in introducing new technology.

Ball argues that the key was a shift in the way they dealt with innovation. Up until some point in the 50s the policy had been to give state subsidies to factories or projects that were engaged in innovating and producing new products. Thus the plan encouraged innovation. Essentially they were encoraged to introduce new products and the state would meet any costs they had in doing this. Later they shifted to a system where enterprises had to recover the cost of innovation from what were called 'temporary prices'. The price of a new product was fixed initially at a premium which was supposed to be reduced to closer to cost price as time went on. This is analogous to what happens in a capitalist economy with patents. He claims that there were serious problems with this mechanism. For a start it encouraged gaming in which enterprises pretended that they had new products when the products were little different from before, in order to get the higher temporary price. Secondly, the planners did not reduce the temporary prices to stable prices fast enough and as a result a large number of old products still sold at the temporary price level.

These points by Ball are actually quite interesting and may well be one factor in the decline in innovation, but I am not sure that I find it entirely convincing as a long term explanation of the slowdown in the diffusion of technology. If there was gaming over the temporary prices, would there not have been similar gaming over subsidies in the long run with enterprises applying for subsidies for products that they claimed were new, but which were actually just slight mods of old ones. Similarly if the planners forgot to downgrade the temporary prices in the 60s might they not have forgotten to remove subsidies in the 60s had these been retained.

Note of course, that free market Russia of the last 20 years has hardly been known as a world leader in technical innovation.

My own feeling is that whilst the difference between subsidies and temporary prices may have had some effect the existence of either of these mechanisms depended on two key features of the soviet economy from the 30s on:

  1. The continued existence of money rather than the use of labour accounts,
  2. Associated with this, the existence of enterprise as accounting centres which were proto capitals. These factors were both there under the soviet economic system of the from the 1930s to the 1980s.

On top of that you had the continued existence of the wage form which meant that only part of the labour time that went into making something appeared as the cost = the part that went to replace the consumer goods bought on the market. This means that the cutof point in investment decsions replacing living with dead labour was skewed towards the living labour end, hampering the use of labour saving machinery. This mattered little during a period of extensive growth, but once internal labour reserves had been largely absorbed by industry, the effect of this on the introduction of new technology would be more critical.

Beyond this, there is the general point that the rate of growth of any industrial economy that is relying initially on technology transfer from more advanced countries will be more rapid than the rate of growth of that economy when it is fully industrialised. From that point on, improvement in productivity depends on incremental improvements in industrial technology rather than the step change in productivity associated with moving people from agriculture to industry.

I think Ball overplays the difference between Stalin and his successors. The real break did not come in 1953 but with Gorbachov. Both Khrushchev and Zhou Enlai for their different reasons wanted to make a big thing of Khrushchev being a big break with the past, but I think looking back from more than half century later it is hard to give as much significance to it as they did. One of the points that Dieterich is making, and which Woods contests, is that the 20th century did not develop an adequate historical materialist theorisation of how socialist economies work. Writing of the Soviet economy he says:

It was a reality sui generis, a hybrid, whose description and scientific explanation required its own theoretical paradigm, that is, an evolution of the paradigm of the classics which would be capable of apprehending scientifically the new economic reality. In a discussion with Soviet economists, in 1952, Stalin illustrated the problem in the following form: "The concepts of work necessary work and surplus work and necessary product and surplus product are not useful for our economy. Is not all that enters into social security and defense part of necessary work? Is not the worker interested in this? In a socialist economy we must make the following distinction work for one's own necessities and work for society.

In the discussion of mercantile relations in the, he took the following position. He observed that capital goods (means of production) were not freely sold, but were produced and assigned through the plan to their destinations, a fact for which they could not be considered merchandise. On the other hand, the means of consumption could be acquired freely, a fact, for which their mercantile character was undeniable.

It is evident that Stalin was right so far as the mechanical application of capitalist terminology, and even classical political economics, to the Soviet economy was not justifiable, either politically or scientifically.16

Stalin opposed the extension of market relations, but he gave no evidence of a deep understanding of the labour theory of value or how Marx envisaged using it in a socialist economy, thus his Economic Problems, whilst defensive against proposed changes towards the market economy, did not offer a way forward. But this was better than the position put forward by Trotsky in his Soviet Economy in Danger which prefigured the Dengist or Gorbachovite policies of China in the 80s or the USSR in the late 80s.

What are the organs of constructing and applying the plan like? What are the methods of checking and regulating it? What are the conditions for its success?

In this connection three systems must be subjected to a brief analysis:

  1. special state departments, that is, the hierarchical system of plan commissions, in the centre and locally;
  2. trade, as a system of market regulation;
  3. Soviet democracy, as a system for the living regulation by the masses of the structure of the economy.

If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. In its projections it is necessarily obliged, in actual performance, to depend upon the proportions (and with equal justice one may say the disproportions) it has inherited from capitalist Russia, upon the data of the economic structure of contemporary capitalist nations, and finally upon the experience of successes and mistakes of the Soviet economy itself. But even the most correct combination of all these elements will allow only a most imperfect framework of a plan, not more.

The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realized through the market.

The regulation of the market itself must depend upon the tendencies that are brought out through its mechanism. The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation. The system of the transitional economy is unthinkable without the control of the ruble. This presupposes, in its turn, that the ruble is at par. Without a firm monetary unit, commercial accounting can only increase the chaos.17

My feeling is that although Stalin's position was preferable to that of Grobachov, Tito and the other market socialists, it still did not get to the heart of the matter because of his failure to differentiate between a system of money and a system of labour accounts as advocated by Marx. The only people writing in the 30s who came close to understanding this were the Dutch left Communists18. In any case the policies and arguments he uses seem pretty standard as those put forward by east block reformers like Dubcek in the 60s - increasing role for market mechanisms. Some of Trotsky's arguments prefigure those of Hayek and may have been derived from von Mises - impossibility of calculation and accounting without money, the impossibility of a synoptic plan thougth of according to the same problematic as von Mises - the 'single mind' that would draw up the coherent plan would have to have god like powers to do it19. The theoretical closeness of Trotsky to Hayek in economics extended to advocacy of the gold standard:

There the lack of a stable gold ruble is one of the main causes of our many economic troubles and catastrophes. It is impossible to regulate wages, prices and quality of goods without a firm monetary system. An unstable ruble in a Soviet system is like having variable molds in a conveyor-belt factory. It won't work.

Only when socialism succeeds in substituting administrative control for money will it be possible to abandon a stable gold currency. Then money will become ordinary paper slips, like trolley or theater tickets. As socialism advances, these slips will also disappear, and control over individual consumption – whether by money or administration – will no longer be necessary when there is more than enough of everything for everybody!

Such a time has not yet come, though America will certainly reach it before any other country. Until then, the only way to reach such a state of development is to retain an effective regulator and measure for the working of your system. As a matter of fact, during the first few years a planned economy needs sound money even more than did old-fashioned capitalism. The professor who regulates the monetary unit with the aim of regulating the whole business system is like the man who tried to lift both his feet off the ground at the same time.

Soviet America will possess supplies of gold big enough to stabilize the dollar – a priceless asset. In Russia we have been expanding our industrial plant by 20 and 30 percent a year; but – owing to a weak ruble – we have not been able to distribute this increase effectively. This is partly because we have allowed our bureaucracy to subject our monetary system to administrative one-sidedness. You will be spared this evil. As a result you will greatly surpass us in both increased production and distribution, leading to a rapid advance in the comfort and welfare of your population.20

This had some halting grasp of what was needed but mixed up with a lot of nonsense. He seemed to think that non convertible paper currency is only possible with complete administrative control - the history of modern capitalism shows what an error that is. He misunderstands a remark by Marx that Owens labour tokens were no more money than a theatre ticket. This is was not because they were printed on paper, but because a labour account system involves credits which could only be gained by direct labour, and which did not circulate. Paper money does circulate and can perfectly substitute for gold currency. By saying that you can only abolish money when you can afford to distribute everything ad libitum is to make the same error as Khrushchev who also thought that the key was to have massive levels of production. This puts the abolition of money and commodity production into some indeterminate far distant future since human wants and desires grow with the possibility of meeting those desires. Before computers were invented, there was no demand for home computers, before TV was invented, no demand for flat screen sets etc.

Stalin was at least closer to Marxism when he attributed the continued existence of money in the USSR to the combination of two forms of property: collective farm poperty and state property. After all agriculture had been reorganised in state farms, according to Stalin, then commodity production could be dispensed with. My own view is that this oversimplifies the question since it leaves aside a number of important functions of money in the soviet planning system:

  1. The divergence in pay rates between different trades and proffessions and the extent to which this was gender based,
  2. The use of monetary aggregates as plan targets,
  3. The problem of deciding what mix of consumer goods to produce

To get rid of money it would not be enough just to bring the agricultural sector into full socialisation. It would be necessary to develop detailed planning in kind techniques, something that was probably impossible for a complex economy prior to the development of computers21. Even to attempt it with computers in the 1960s would have been enormously costly in the short run before its full benefits would have been achieved. The Soviet computing pioneer Glushkov realised in the early 60s that in order to achieve an effectively planned communist economy something akin to what we have later come to know as the internet would be needed.

Glushkov proposed to the Soviet government the first step in implementing this complex large scale project: to create a Comprehensive Computer-Aided Economy Management System (in Russian: Obschya-Gosudarstvennaya Avtomatizirovanaya Sistema, or OGAS). He hoped that the Soviet government would support this initiative, because the existing paper means and methods of Soviet economic management had been obsolete since the 1940s and could not effectively support the growth of the national economy, which was already complex and top-heavy. Glushkov was aware that developing OGAS would necessitate accelerating broad development of computing technology and scientific methods of economic management, and creating a powerful network of about two hundred regional and ten thousand local computer centers throughout the nation. It would also require complete computerization of the work places for specialists in science, technology, and administration at industrial enterprises, branches of government and other institutions – this was Glushkov's ultimate goal.

Soviet Prime Minister Alexei Nikolaevich Kosygin approved this idea and Glushkov, with his characteristic enthusiasm, began work on the OGAS project. Today, one may say that his plan was premature because computer technology was not very sophisticated and the society was not ready for it back then. According to his calculations, the implementation of OGAS would take fifteen to twenty years and require about scientific control of the economy would strip away their power and change the nation's destiny. Moreover, OGAS would not receive support from the Soviet bureaucratic system, which was based on administrative tyranny, especially when it came to making the most important national decisions. It was also a challenge to the West – they understood that OGAS would shield the Soviet Union from economic collapse or worse, the Soviet Union might create a modern and efficient system of planned economic management. This idea caused the Soviet press and Western mass media to attack Glushkov in the 1970s, attempting to discredit him in the eyes of the Soviet government and block the realization of his plan, which aimed to radically transform our society.22

Equivalence economy

A key stumbling block for Woods is Dieterich's idea of an equivalence economy, an idea which Dieterich takes over from Arno Peters. Woods claims that Peters and Dieterich do not understand the Marxian theory of surplus value and are reverting to a Proudhonian concept of socialism.

Following in the footsteps of Proudhon, Dieterich imagines that the profits of the capitalists are some kind of swindle, which he calls unequal exchange. This is merely an extension of the same vulgar idea, that the capitalists obtain their profits from exchange by buying cheap and selling dear (that is, through swindling the public). The whole idea of Dieterich and his genial mentor Arno Peters is that by establishing the "true price" of a commodity by calculating the amount of labour expended on its production, we can expose this swindle and thus create the necessary level of consciousness to introduce 21st Century Socialism.23

This is certainly a misunderstanding. Woods claims that Dieterich and Peters borrow without acknowlegement the ideas of Ricardian socialist Gray24. Peters gives a clear account both of the history of the labour theory of value and of the Marxian theory of surplus value in his short book „Das Äquivalenz-Prinzip als Grundlage der Global-Ökonomie“. He covers the ideas of Smith, Ricardo and Gray before going on to look at Marx's development of the labour theory of value. In particular he points out that for Marx the exploitation of labour is not based on cheating25.

There is no unacknowledged borrowing by Peters, he gives a clear account of Grays ideas, and distinguishes Marx's ideas from these.

Within the confines of bourgeois law, the wage contract is fair and not the result of cheating, it appears to be a commodity exchange like any other. That is the juridical appearance of the contract. But as Marx points out law can never rise higher than the set of economic relations it reproduces. Behind the appearance of 'freedom, Bentham and the rights of man', lies the reality of an exploitative social relationship in which the worker's give say 10 hours of labour a day to their employer and get back only 5 in wages. This is exploitative relationship is what Marx exposes as going on behind the appearance of fair exchange in the labour market.

If labor is taken as the substance of value, then the value of labor itself is always unity. An hour of labor is worth an hour of labor. Since hourly wages vary, and since the goods that can be bought with an hour's wages invariably cost less than an hour to make, it is clear that either

  1. workers are systematically cheated by being paid less than the value of their labor. This was the conclusion of Gray and later that of Rodbertus;26
  2. or wages are not actually the price of labor, but the cost of hire of the ability to work. This was the view adopted by Marx.

Marx's view has perhaps more logical elegance. Whichever view one adopts, the conclusion is much the same: capitalism leads to workers' being exploited.

The cause of exploitation lies in the power of a class or an entity to subjugate others and make them produce a surplus product (objects) or a service (sexual, house slaves etc.), that is then appropriated by the dominant forces; in capitalism, in the form of surplus value. Our ETP demand that workers must have the right to the full value of their labour, leaves no room for private or state-elite appropiations of that surplus. Thus there can be no dominant class.27

Exploitation is being forced to do unpaid work for others. In some cases unpaid labor appears as such: the work of the slave for the master or a wife for her husband. It may be disguised in terms of love or duty, but that it is unpaid is beyond question. In the case of wage labor, it is only possible to detect exploitation if you know how many minutes' work are required to produce the goods that can be bought with an hour's wages. Since this is difficult to work out, workers are unlikely to realize just how much they are exploited. Although the labor contract between employer and employee is in theory a voluntary one, it is in practice entered into under duress. The employer is in a much stronger position and in practice dictates the terms of employment. The worker often faces the alternative of unemployment. Someone who has been unemployed for a while, or who fears unemployment, will be glad of any job and won't be too particular about the conditions. The employer does not face the same constraints. There are usually many applicants for each job, so that if some people try to negotiate their rate of wages there will be others ready to undercut them.

But there are others reason for Marx's insistence on the idea that the labour contract was not based on cheating. One of these is ideological and the other is political.

The ideological reason is revealed in the subtitle of Capital – a Critique of Political Economy. The book is an imaenent critique of the ideas of the political economists which aims to show that even if he makes what Bordiga called the generous assumption that the wage contract is fair, he can still demonstrate, using the concepts of the political economists themselves that exploitation takes place. Capital starts with an analysis of the commodity form and the exchange relation which Marx shows to have the logical form of an equivalence relation. It is the nature of a systematic system of exchange that establishes the notion of equivalence and fair exchange: basically the idea that in equivalent exchange a sequence of exchanges is commutative. If I exchange x of A for y of B and then y of B for z of C, I can always reverse the process and exchange the z of C back for x of A. And indeed, in a well developed market arbitrage tends to ensure that this is the case.

Having established that you have an equivalence relationship, this implies, according to Marx, that there must be a hidden third element that is present in equal amounts on both sides of the equation. This is a purely logical inference, analogous to the inference of energy as a conserved quantity between freely exchanged states of motion.

Marx then asserts, empircally correctly, that the conserved substance is labour time. But whatever the conserved substance, even if he said it was oil or energy, there would arise a paradox in your value system when you attempt to define the value of this conserved substance. It helps to understand the paradox if we perform the thought experiment of considering some alternative value basis than labour28.

Apart from the fact that alternative candidates for 'that which is conserved in commodity exchange' show a relatively poor performance empirically, compared to labour time, there are also some theoretical problems with such alternative value systems.

The first problem is definitional. Consider, for example, the system in which the value of a commodity is defined as the amount of oil used to produce it, directly or indirectly. What then is the value of oil itself? We must either say it is unity, or it is the amount of oil required to produce a unit of oil, which must be less than one barrel per barrel for a viable oil industry.

In the latter case, we find that if we use the normal method of computing the value of an industry's inputs – that is


where vi is the per unit value of commodity i and xij the amount of the ith commodity needed to produce one unit of commodity j – we get a recursive definition of the value of oil whose fixed point is a value of 0. It tends to zero as on each iteration of our calculation we find that it takes less than one unit of oil to produce one unit of oil. Were this not the case the economy would collapse. This then means everything else takes on a value of zero. Oil value would then be trivially conserved in all exchange transactions.

Allin Cottrel and I have done experimental tests using British input output tables to compare the predictive power of different value bases, and we find that labour is a much better predictor of observed prices than anything else.29

When computing the oil values of different commodities we gave an ad hoc definition of the value of oil as unity. This is arbitrary, since it involves treating oil differently from other inputs such as electricity or corn; but we do have something empirically testable. If oil values are conserved then 1 barrel of oil should purchase commodities that required 1 barrel of oil for their production. We know this is not true in practice, for were it so, the revenue obtained from selling 1 barrel of oil's worth of corn would be entirely consumed in purchasing the oil and other means of production required to grow it. Profits would have to be zero.

How, one may ask, is this problem avoided in the case of labour time? In the history of socialist economic thought, two solutions have been proposed. Rodbertus30 in effect argued that labour time has a value of unity, but that labour is sold by the worker to the capitalist at less than its value. Rodbertus subscribed to a basically Malthusian 'iron law of wages', according to which wages could never rise above subsistence level for any extended period. (Alternatively, one could ground the claim that labour is sold below its value on the argument that their monopoly of the means of production enables the capitalist class to enforce unequal exchange on the workers.) Marx, of course, solved the problem in a different way, by distinguishing between labour, the activity, and labour-power, the capacity to work. According to Marx it is labour-power, not labour, that is sold by the worker to the capitalist; and labour-power sells at its value–that is, the total labour time necessary to produce and reproduce the worker's capacity to work.

Neither of these strategies makes much sense for a commodity such as oil. In relation to Rodbertus's variant, there is no reason to suppose that the oil industry is forced to sell its product below value, while in relation to Marx's, it is hard to see how a parallel distinction between oil and oil-power could be motivated. The fundamental point in the background to these objections is that commodities such as oil, electricity and so on are just ordinary products of capitalist industry. There is no good reason to single any one of them out for asymmetrical treatment. Labour (or labour-power), on the other hand, is the only commodity that is (a) essential to the working of any capitalist economy while (b) not itself produced under capitalist conditions of production. Put differently, the agent selling oil is an ordinary capitalist, facing other capitalists at par; but the agent selling labour is a worker, separated from the means of production and hence facing the capitalist at a disadvantage–a point made by Adam Smith almost as emphatically as by Karl Marx.

As testable scientific hypotheses Marx and Rodbertus theories are indistinguishable. They produce no testably different predictions. The differences between them are essentially ideological and political. If you want to conduct an imaenent critique of political economy as Marx did, they you stick to the idea that there is a distinction between labour and labour power. And politically Marx did not want to say workers were cheated in the contract because that would lead to an essentially trades unionist response - demanding a fair day's pay for a fair day's work, when he believed that the goal of the worker's movement should be abolition of the wages system.

If Woods thinks that there is a scientific as opposed to ideological difference between Marx and Rodbertus theories of exploitation here is a challenge to him. First let him identify an experimental statistical procedure that would allow one theory to be falsified and the other verified. Secondly let him perform the experimental test on say the UK or the US economic statistics and tell us which theory comes out best.

In general Marx's Capital makes a number of clear and testable predictions, here are some:

  1. That prices will strongly correlate with embodied labour of commodities.
  2. That a general rate of profit will form that is independent of organic composition of capital.
  3. That the average rate of profit will fall if wages rise, other things being equal.
  4. That the accumulation of capital depends on the growth of the proletariat. These are proper scientific hypotheses, that is to say they are potentially falsifiable.

All of them have at various times been subjected to statistical tests31. If the difference between Marx and Rodbertus theories of exploitation is testable then it is scientifically important. If it is not testable, then it is not a scientific question.

Labour credits

A central argument of Dieterich is that socialism should involve a move from a monetary economy to an economy based on labour credits. Dieterich cites Peters and Zuse32 as helping develop this concept. I and Allin Cottrell had independently written about this concept a few years earlier in our book Towards A New Socialism. This proposal to move to a labour token token economy is what Peters and Dieterich call equivalence economy and provides a key target of Wood.

It was a common assumption of nineteenth-century socialism that people should be paid in labor credits. We encounter the idea in various forms in Owen, Marx, Lassalle, Rodbertus and Proudhon. Debate centred on whether or not this implied a fully planned economy. The Critique of the Gotha Programme contains a particularly clear account of the idea:

[T]he individual producer gets back from society-after the deductions- exactly what he has given to it. What he has given it is his individual quantum of labour. For instance, the social working day consists of the sum of the individual hours of work. The individual labour time of the individual producer thus constitutes his contribution to the social working day, his share of it. Society gives him a certificate stating that he has done such and such an amount of work (after the labour done for the comunal fund has been deducted), and with this certificate he can withdraw from the social supply of means of consumption as much as costs an equivalent amount of labour. The same amount of labour he has given to society in one form, he receives back in another.33

With the enthusiasm of a pioneer, Owen tried to introduce the principle into England via voluntary co-operatives. Later socialists concluded that Owen's goal would be attainable only with the complete replacement of the capitalist economy. Whilst Marx was very complimentary about Owen, he was critical of the schemes of Proudhon and Rodbertus. It is worth considering the Marxian critique of 'labour money' schemes; for there may appear to be a tension between the latter critique and Marx's own proposals. Indeed, the 'critique of labour money' is open to a (mis)reading which takes it as critical of any attempt to depart from the market system, towards a direct calculus of labour time. This reading has been made by writers as far apart as Karl Kautsky and Terence Hutchison.

The basic object of Marx and Engels's critique might be described as a 'naive socialist' appropriation of the Ricardian theory of value. If only, the reformers argue, we could impose the condition that all commodities really exchange according to the labour embodied in them, then surely exploitation would be ruled out. Hence the schemes, from John Gray in England, through a long list of English 'Ricardian socialists', to Proudhon in France, to Rodbertus in Germany, for enforcing exchange in accordance with labour values.

Marx criticizes Proudhon's scheme in his Poverty of Philosophy, and deals with John Gray in his Contribution to the Critique of Political Economy, while Engels tackles Rodbertus's variant in his 1884 Preface to the first German edition of Poverty of Philosophy. Between Marx in 1847 and Engels in 1884 we find a consistent line of attack on such proposals.

From the standpoint of Marx and Engels, such schemes, however, honourable the intentions of their propagators, represent a Utopian and indeed reactionary attempt to turn back the clock to a word of, simple commodity production' and exchange between independent producers owning their own means of production. The labour-money utopians failed to recognize that although labour content governs the long-run equilibrium exchange ratios of commodities under capitalism, the mechanism whereby production is continually adjusted in line with changing demand, and in the light of changing technologies, under the market system, relies on the divergence of market prices from their long-run equilibrium values. Such divergences generate differential rates of profit, which in turn guide capital into branches of production where supply is inadequate, and push capital out of branches where supply is excessive, in the classic Smith/Ricardo manner. If such divergence is ruled out by fiat, and the signalling mechanism of market prices is hence disabled, there will be chaos, with shortages and surpluses of specific commodities arising everywhere.

One point which emerges repeatedly in the Marxian critique is this: according to the labour theory of value, it is socially necessary labour time which governs equilibrium prices, and not just 'raw' labour content. But in commodity-producing society, what is socially necessary labour emerges only through market competition.

Labour is first of all 'private' (carried out in independent workshops and enterprises), and it is validated or constituted as social only through commodity exchange. The social necessity of labour has two dimensions. First of all, we are referred to the technical conditions of production and the physical productivity of labour. Inefficient or lazy producers, or those using outmoded technology, will fail to realize a market price in line with their actual labour input, but only with the lesser amount which is defined as 'necessary'. Secondly, there is a sense in which the social necessity of labour is relative to the prevailing structure of demand. If a certain commodity is overproduced relative to demand, it will fail to realize a price in line with its labour value - even if it is produced with average or better technical efficiency. The proponents of labour money want to shortcircuit this process, to act as if all labour were immediately social. The effects within commodity-producing society cannot but be disastrous.

Now the lesson which Marx and Engels read to the labour-money socialists, concerning the beauties of the supply/demand mechanism under capitalism and the foolishness of the arbitrary fixing of prices in line with actual labour content, are obviously rather pleasing to the critics of socialism. It appears that Kautsky also read the critique of labour money as casting doubt on the Marxian objective of direct calculation in terms of labour content, so that by the 1920s the figure widely regarded as the authoritative guardian of the Marxian legacy in the west had effectively abandoned this central tenet of classical Marxism.

From the account of the critique of labour money given above, the limits of that critique should be apparent. What Marx and Engels are rejecting is the notion of fixing prices according to actual labour content in the context of a commodity- producing economy where production is private. It is my view that Woods' critique of the labour accounting proposals of Dieterich is a contination in the tradition of Kautsky and classical social democracy whereas Dieterich is attempting to go back to pre-Kautsky Marxism. In an economy where the means of production are under communal control, on the other hand, labour does become 'directly social', in the sense that it is subordinated to a preestablished central plan. Here the calculation of the labour content of goods is an important element in the planning process. And here the reshuffling of resources in line with changing social needs and priorities does not proceed via the response of profit-seeking firms to divergences between market prices and long-run equilibrium values, so the critique of labour money is simply irrelevant.

This is the context for Marx's suggestion for the distribution of consumer goods through labour credits. Both of Dieterich and the late Arno Peters advocated the abolition of commodity production and its replacement by conscious planning as is made clear by this dialogue between them.

Question: You write in your book, "Das Ãquivalenzprinzip als Grundlage der Globalökonomie", that the world-wide investigation of the demand, the steering of the production and the distribution of goods would be managed by computer. How would this planning look in concrete terms? A world-wide organization of the style of the UN or the FAO?

Answer: Investigation of demand is dependent on the development of computer tech- nology and its general availability. It will therefore differ between regions but the goal is the fastest possible recording of individual need . Each individual region has its own recording center and first tests if it is possibile to the satisfy demand from its own production facilities. If this is not possible, national production facilities get used. For demand studies, production facilities and distribution this will give the smallest regional planning institutions (like communes), above it bigger regions (like districts), even bigger regions (like states) and biggest regions, analogous to federations or continental unions. Above this cybernetic network stands the central planning institution, that covers the whole world.

Question: With your proposal are commodity relationships eliminated, or would products continue be commodities?

Answer: Commodities are goods dedicated for sale, this means that they arrived on the world with the emergence of trade, and that they will disappear with its end (end of the market economy). Then (in the equivalent economy), production of goods will only take place to meet needs, and they will be consumed by the producer, or will be exchanged at par ( based on the economic distribution of equivalents).34

The significance of labor credits is that they establish the obligation on all to work by abolishing unearned incomes; they make the economic relations between people transparently obvious; and they are egalitarian, ensuring that all labor is counted as equal. It is the last point that ensured that they were never adopted under the bureaucratic state socialisms of the twentieth century. What ruler or manager was willing to see his work as equal to that of a mere laborer?

Labor credits are payment for work done The difference between a labor-token system and the hire of labor-power can be shown via some contemporary illustrations. Suppose you engage a self-employed plumber to fix the toilet. The plumber will judge how long it will take and quote on that basis. On completion of the job you pay the plumber for parts and labor.

You do not purchase his ability to work for a day, you pay for the actual work done. If he does not finish the job he does not get paid-it was up to him to judge how long it would take. Self-employed, he has an incentive to get his estimates right.

Suppose, on the other hand, you call out a repairman employed by a service company to fix the heating. You are likely to be charged for time actually taken. The service company need have no control over how hard or efficiently the repairman works, as the system of charging means that it can never lose. The company purchases his labor-power at £10 per hour and sells it on to you at £40. In this case you are being re-sold labor-power, not the labor actually performed.

Finally, suppose that you took out a maintainance contract for £80 per annum. The service company is now selling you the promise of work actually done, labor, and has the responsibility and incentive to ensure that the work is done efficiently and to time.

Payment in labor credits implies payment for work actually done as in the first and third case. When Owen proposed such payment for artisans, this was unproblematic. Proof of work done was provided by the product delivered to the 'labor exchange'. In a modern economy it implies detailed estimates of time required under conditions of average skill to perform a task.

Heinz Dieterich seems to be fascinated by information technology, but the fact that modern capitalism has developed this technology does not at all signify a reduction of the working day, although logically, it ought to do so. What is the reason for this contradiction? Long ago Marx explained that under capitalism the introduction of new technology, far from leading to a reduction of the working day and a lessening of the burden of labour, signifies precisely the opposite: the introduction of new technology under capitalism always leads to an increase in the hours worked.

Comrade Dieterich thinks that inventions like the computer, the Internet and cybernetics will solve all our problems and lead straight to socialism.35

Comrade Heinz of course thinks no such thing, and Alan will be able to find no quote from him saying such nonsense. The point is that computer technology is necessary in order to

  1. Compute the labour values of all the goods in an economy. To do this you must iteratively solve of the order of millions of linear equations. Hard to do by hand, but easy for computers. In Towards a New Socialism and other publications Allin and I provide estimates of the algorithmic costs of doing this.
  2. Perform the in kind calculations necessary for an integrated economic plan and thus replace monetary calculations in the planning process. This is what Glushkov was on about in th 1960s, and was what Zuse talked about in his discussions with Dieterich.

Peters says:
The transition toward the equivalent economy is facilitated and activated by the rapid computerization of economy, administration and private life, since the interconnection of production, distribution, consumption and the use of services can be guaranteed by means of the computer: estimation of needs world wide(including the relative ordering of these needs), steering of production (including the construction of new production facilities), and the distribution of the goods and services, could be managed by computers just as they are now. The inventor of the computer, professor Konrad Zuse, called this economic order "online-socialism", when it combines the equivalence principle with the labour theory of value.36

Woods claims that the proposal to pay everyone in full for the labour that they put in runs into insuperable problems:
However, having sternly proclaimed the absolute and unassailable nature of the equivalence principle, Arno Peters immediately begins to backtrack: "This simple, easily understood, process (! ), which transforms the basis of economics, is subject to a number of conditions.

One will have to include all human activities that transcend the self- supply of individuals. It is above all a question of activities that are today included under the heading of 'services': the work that is carried out by doctors, judges, nurses, typists, postmen, lawyers, teachers, factory managers, lorry drivers, directors, road-sweepers, cooks, ministers, hairdressers, journalists and printers; in short, all the activities that do not enter directly into commodities."37 Immediately, what was supposed to be an absolute and unassailable principle turns out to be conditional. There are people like teachers, nurses, doctors and lorry drivers who do not produce commodities and surplus value, but are nevertheless of great importance to society. How do we calculate the value of their labour power?

Apart from teachers, nurses, artists and ballet dancers, the equivalent economy, it seems, cannot do without the services of judges, lawyers, bureaucrats, policemen and factory managers. How is the value of their wages to be calculated? However we answer this question, it is evident that their wages must come from the wealth produced by the working class, and therefore must be deducted from the surplus value.

In the case of necessary social services like education and health, as well as roads, street lighting, street cleaning, sewers and waste disposal, water supply, etc., these are normally paid for out of taxes. Taxes are taken by the state either from the wages of the working class and middle class or from the profits of the capitalist. In either case, they are ultimately taken from the surplus value produced by the working class. Thus, the absolute of meaning in the original German of Peters being translated to Spanish by Dieterich and then into English by Woods. My own translation of the passage from Peters on which this is derived is:

"Remuneration of services based on working time, this simple, clear process, is in itself, the foundation of the tranformed economy but has certain prerequisites: All human activities, that go beyond the individual self-sufficiency , must be included into the labour theory of value. This relates to activities that are today called "services": for example the work of doctors, judges, nurses, typists, mailcarriers, lawyers, teachers, foremen, drivers, directors, sweepers, cooks, ministers, hairdressers, journalists, printers - in short: all activities, whose results are not directly integrated into goods.

When we have worked out the embodied labour time and, in consequence, the value of every good, we will be able to reduce them to a common denominator with services using embodied time. This conmensurability of services with productive labour, that one can only achieve deriving both from an objec- tive, absolute measure of value( taken from the Labour Theory of Value ), subordinates the whole economy to uniform principle, and their circuits can close on an equivalent basis: a base that always begins with the individual and ends with them; a base that in the era of the global economy - that it resides in the condition that each human being has the same category, the same value and the same rights – it includes all individual, inde- pendently of the activity type that carry out." (Peters Op. Cit, p 23)

As translated by Woods it appears to say that lorry drivers dont produce a commodity. Lorry drivers do produce a commodity - transport services - which is sold on the market like any other commodified service, so even in a mixed economy like the UK lorry drivers are not in the same situation as public employees like doctors and teachers. The original makes it clear that Peters was talking about goods as in the economic opposition goods/services not commodities. and unassailable principle of equivalence falls to the ground at the first hurdle. Under Socialism of the 21st Century the worker will not receive the complete and undiminished value of the labour he has expended on production.38

There is a real and important issue here, the question of taxation which I will get into further down, but before I get onto that I will first try to deal with what I think is a confusion in comrade Alan's quote above about what is surplus and necessary labour.

Necessary labour time is that part of the social working day that is necessary to reproduce the working population. It includes all labour whose useful product is consumed by the working population. Surplus labour is labour whose useful product is not consumed by the working population. If we look at contemporary capitalist society it is relatively easy to identify examples of labour whose useful product39 is not consumed by the working population: the labour that goes into the production of Rolls Royce cars, luxury yachts, fighter jets, and the labour advertising workers, commercial lawyers, and soldiers. These are all what socialists would consider to be part of the waste of resources brought about by capitalism since they meet only the individual or collective needs of the propertied classes. But it also includes labour that may go into the future enhancement of productive resources including labour that produces a net increase in productive capital stocks and labour expended in scientific research. These activities are what socialists have traditionally seen as part of the progressive historical role of capitalist economy.

But that leaves out part of the social labour done : work done to support and care for those who are too old and sick to work themselves. From the standpoint of the productive economy, this is unnecessary. If due to some political cataclysm a regime were to come about that reimposed slavery, then care for the old and the sick might be dispensed with. They, along with the 'feeble minded' might be sent to extermination camps without loss to the economy. The Hitler government went a long way along this path, but it is a course of action that would be repugnant to any contemporary society. So that part of the economy that goes to meet the care needs of those unable to work for themselves does count as surplus labour. Health care to the elderly and chronic sick is economically surplus but morally necessary, education and health care for children by contrast is economically necessary.

These things are relatively easy to understand so long as we look at the social division of labour. When we look at the monetary accounting by which these things are represented it becomes more complex. Alan Woods says that: "Taxes are taken by the state either from the wages of the working class and middle class or from the profits of the capitalist. In either case, they are ultimately taken from the surplus value produced by the working class."

I dont think this is strictly true. On the one hand, some activities paid for out of taxes are necessary to reproduce the working population and thus, as part of the real wage, constitute necessary labour time rather than surplus. But more generally Woods is attempting to use concepts from one domain in another where they do not precisely match. For the sort of pure capitalist economic model described by Marx in the first volume of Capital, there is a straightforward identity between surplus value accruing to the employer and surplus labour. All products are assumed to take commodity form so all labour is accounted for in the exchange value of the corresponding product. In a real capitalist country today that simple model no longer applies. Due in no small part to the political influence of the labour movement, there are significant branches of the division of labour whose product does not take commodity form. These vary from country to country and over time, but for a long time in Britain for example, health care, education, roads and broadcasting were not commodities. In these circumstances the division between variable capital and surplus value, appropriate for a pure capitalist economy no longer gives an exhaustive account of national income. If one looks at national accounts, these parts of the division of labour are given an 'imputed value' equal to the wage bill and their expenditure on other commodity inputs. In terms of labour values this means that they are undervalued in the national accounts. If you compare an identical private hospital to a public one, the private hospital will have its contribution to national income evaluated in terms of the medical services it sells, the public one in terms of its wage bill and the purchases of equipment and drugs etc it makes. The private hospital, in which the surplus labour worked by the medical staff assumes the form of monetary surplus value, will appear to add more value to the economy. Suppose that the average hourly wage in a hospital is £10 per hour, and that the average exchange value created by an hour's labour was £20. A private hospital with an on duty staff of 500 people will be creating a flow of services whose added value could be sold for £10,000 per hour. An NHS hospital employing 500 staff at an average wage of £10 per hour will show in the national accounts as contributing an imputed value of only £5000 an hour.

The existence of a significant public sector delivering non commodity goods and services means that the identity surplus value = surplus labour no longer holds accross the whole economy. This is true quite independently of the mix of direct and indirect taxes that the state uses to fund public services.

Let us now look at the question from the standpoint of a socialist economy using direct labour value accounting.

Some goods and services would, according to Marx's formula, be supplied to people in return for labour credits. Suppose you go to the cooperative store and get a new holovision set, for which you are debited 11 hours of work. Those 11 hours have to cover all of the labour that society has had to put in to making the holovision : the work of those who directly constructed it, the work that went into providing the components, part of the work that went into the machinery necessary to make it, a share of the work that went into designing it etc. The work that goes into it will involve a huge number of different trades and skills. So we have to add up an enormously complex set of different types of activities and a huge number of different skills. At first sight these seem incomparable, all these varied professions : optoelectronic fabricators, laser specialists, fourier technicians, train drivers and track engineers on the railways used to transport it to your town, work in the wind farms that provided power to the holovision factory. What unifies them is that all these are human activity and humans are so adaptable that almost any child could have been trained up to perform any one of these jobs. They are all parts of the labour expended by the human social organism.

These labours form a network. It was one of the key insights of the Italian marxist economist Piero Sraffa that this the network of productive activities in an economy can be divided into two parts which he called the basic and non-basic sectors. An industry is part of the basic sector if its output is used directly or indirectly to make all other products. For example the steel, electricity and plastics industries are all part of the basic sector, whilst theatres, munitions or Rolls Royces are non-basic. The work done in the basic sector constitutes a circular network of dependence in which each branch of the basic division of labour depends on every other branch. The labour value of any product depends on the labour performed in every part of the basic sector and in consequence a socialist economy can only work out what the labour values of individual products are by simultaneously working out the labour values of all the products in the basic sector. This entails solving large systems of simultaneous equations, something which, when Allin and I wrote our book on socialist economics in 1990 or so, could only be done on a few super computers. Nowadays it is possible to solve for labour values in an economy of 1 million distinct basic products using off the shelf Intel Xeon systems in about 1 minute40.

In Sraffa's model of the economy there is only one type of labour, what Marx called simple labour. In a real economy there are many different trades each with their proper skills. Some people have claimed that the existence of heterogeneous labour makes the application of the Marxian labour theory of value to socialism incoherent: … every hour of work put in would carry with it the right of taking for oneself such amount of goods as entailed an hour's work.

Yet such a manner of regulating distribution would be unworkable, since labor is not a uniform and homogeneous quantity. Between various types of labor there is necessarily a qualitative difference, which leads to a different valuation according to the difference in the conditions of demand for and supply of their products. For instance, the supply of pictures cannot be increased ceteris paribus, without damage to the quality of the product. Yet one cannot allow the laborer who had put in an hour of the most simple type of labor to be entitled to the product of an hour's higher type of labor. Hence, it becomes utterly impossible in any socialist community to posit a connection between the significance to the community of any type of labor and the apportionment of the yield of the communal process of production.41

Woods has the same concern as Mises when he asks:

There are people like teachers, nurses, doctors and lorry drivers who do not produce commodities and surplus value, but are nevertheless of great importance to society. How do we calculate the value of their labour power?

There are, I think, a number of misconceptions in a question like this.

  1. Mises defends a subjectivist value theory in which value arises from the subjective evaluation of goods by consumers. In his analysis of how a market economy works, higher subjective evaluation of a given type of product works back via supply and demand to a higher pay rate for the specialised type of labour that produces it. Hence he is concerned about the difficulty that a socialist economy which dispenses with the market might have both in evaluating products and thus with rewarding the producers in line with that evaluation.
  2. Woods is supposedly working in the context of the labour theory of value. From this standpoint whether a person produces a commodity or not is irrelevant to the question of what the value of their labour power is. According to the Marxian theory, their labour power is a commodity which has a value independent of the use to which it is put.
  3. There is a deeper problem here in that we need to clarify how we calculate the value created by different categories of labour. This is the problem of heterogeous labour in the Marxian theory of value which has engendered a great deal of controversy42. I will look at this in more detail.

The classical political economists, including Marx, accepted that different types of labour added more exchange value per hour to the commodities they made. Simple labour would add less value than complex labour. Smith, Ricardo and Marx all seem to have accepted that in practice the value creating ability of different labours would be roughly in proportion to the wage rates that the workers earned. When applied to empirical data this appears to be correct43.

Theoretically it left Marxist economics open to the argument of circularity: it was aiming to give an objective source of price in labour, but to estimate the quantity of labour used, you have to resort to price data on relative wages. When considering socialist economies, and the possibility of using the labour theory of value there, these theoretical objections are certainly significant. If labour values can only be determined in the last resort by recourse to the market what is the basis for Marxian economists objecting to an ever increasing role for the market in socialist economies44.

I believe, however, that Morishima45 did provide a satisfactory solution to this problem. What he said is that skilled labour is itself something that is produced. It is produced by the labour of educators, the labour of the person studying, and by the innanimate goods and educational resources used up during training. In this sense each type of skilled labour embodies a certain enhanced number of hours of simple labour. Suppose that a person spends 3 years as a student and that for each student the education system has to directly and indirectly employ 1/3 of a person46. Suppose that their working life after qualifying is 40 years, then it implies that for each person working with a degree, society must have 3/40ths of a student enrolled at college and 1/40th of a person employed in the education system. Thus for every 1 person working with a college degree society has to allocate 1/10 of a person to the higher education system.

This brings out clearly what Marxian value means - it means how much additional direct and indirect employment is required to produce a certain output. This was brought out particularly clearly Morishima at the start of the 1960s when discussing socialist economies47. Looking at it the reverse way round, we could say that the work of a college graduate counted for 10% more value than that of a non graduate. It is important to realise that labour value as an objective measure of social cost is quite distinct from what people get paid. If it were true that a college graduate's labour contributed 10 % more value per hour than a non graduate it does not follow that either in a socialist or a capitalist economy they will be paid 10% more.

Table 1: % hourly pay gap in the UK to employees with GCSE or equivalent level of education, age 22 to 64.

  Median hourly pay Pay gap to GCSE
Degree 16.10 85%
Higher education 12.60 45%
A Levels 10.00 15%
GCSE grades A*-C 8.68 0%
Other qualifications 8.07 -7%
No qualification 6.93 -20%

Source: The Guardian who in turn obtained it from the Labour Force Survey, October-December 2010

In a capitalist economy the differential is likely to be much greater as shown in Table 1. Bowles and Gintis argued that it was unrealistic to apply Morishima's theory of complex labour as a produced output as a means of explaining wage differentials in capitalist society. Basically they argue that wage differentials reflect the overall power system engendered by the process of exploitation. Wage differentials reflect the hierarchical authority, racial and sexual divisions within the workforce that ensure that the process of extracting profits can go on efficiently. The much larger scale of wage differentials than would be justified in terms of embodied labour lends credibility to their arguments.

In a socialist economy on the other hand there is no reason why graduates should be paid any higher as an hourly rate than non graduates. True their labour costs society more, but that cost is a cost in education that has already been born by the provision of education and by the provision of student maintainance grants so there is no reason why society should pay for it twice over : once when providing education and the second time in higher remuneration.

So the simple answer to Woods is that there is no particular problem deciding what to pay workers, whether skilled or unskilled, providing public goods or consumer goods - they can all be paid the same hourly rate of one hour per hour. But to return to the original issue raised by Woods, the issue of free public services and how they are to be accounted for under socialism.

The analysis of complex labour developed by Morishima indicates that if you were to distribute goods to consumers at a labour price equal to all the direct and indirect labour required for their production, then this price would include the cost of educating and training. So education would already be paid for by its contribution to the value of the product. But there would still be many free services which simply enter into personal consumption, and there would be social overhead costs : old age pensions, disability benefits etc. How should these be paid for under socialism?

If work is paid for at par, an hour for an hour, there has to be some sort of personal taxation to cover free services. Woods objects that if there is any taxation this would violate the principle of equivalence:

Thus, the absolute and unassailable principle of equivalence falls to the ground at the first hurdle. Under Socialism of the 21st Century the worker will not receive the complete and undiminished value of the labour he has expended on production.

It is not clear why Woods sees this as a problem. Neither Peters nor Dieterich deny that taxation will be necessary to cover social services and unproductive overheads of public administration. Some individual workers may not get the equivalent back in social services that they contribute in taxes, but taken as an average they will. Not everyone requires an expensive surgical operation, but by paying taxes for public health services they pay for the risk that they might have to resort to surgery. It is not clear why this should be seen as violating equivalence and it is a particularly cheap sort of criticism since Woods seems to imply, though he does not state it, that taxes can be abolished under socialism. The Soviet and orthodox Trotskyist position is that a socialist economy should retain money, but this implies a need for some sort of monetary taxation to provide public services. In the USSR the main form of taxation was indirect taxtion - the turnover tax - plus special taxes on certain goods like alcohol. Woods avoids going into whether he favours such indirect taxes or whether he favours direct taxes. The Soviet form of taxation makes it appear that individuals do not pay taxes - since the taxes are immediately levied on state enterprises. But indirectly consumers did pay tax because consumer goods prices were raised to compensate for the turnover tax. Does Woods think that this was superior to taxes on income as proposed by Dieterich?

Woods then goes on:
Let us ask how this equal exchange is achieved in practice. Presumably there will be some kind of labour bank that will issue certificates based on the hours worked, which can be exchanged for commodities containing the same amount of labour- time. The labour time needs to be authentically verified, which, despite the existence of computers, is not as easy as Dieterich imagines. In effect, these certificates would be a kind of money. In reality they are only promissory notes, which at the end of the day must be exchanged for commodities in a definite ratio. But all history shows that in order to perform its function as a medium of exchange, money must be acceptable in society. People must accept that it actually is worth the amount that is printed on it – that it is "as good as gold". Otherwise the notes in circulation are merely printed bits of paper.

How can this "labour money" circulate outside the bank? How does it become convertible?48

Woods is mistaken in thinking that labour certificates would be money by another name:

The question — Why does not money directly represent labour-time, so that a piece of paper may represent, for instance, x hours' labour, is at bottom the same as the question why, given the production of commodities, must products take the form of commodities? This is evident, since their taking the form of commodities implies their differentiation into commodities and money. Or, why cannot private labour — labour for the account of private individuals — be treated as its opposite, immediate social labour? I have elsewhere examined thoroughly the Utopian idea of "labour-money" in a society founded on the production of commodities (l. c., p. 61, seq.). On this point I will only say further, that Owen's "labour-money," for instance, is no more "money" than a ticket for the theatre. Owen pre-supposes directly associated labour, a form of production that is entirely in consistent with the production of commodities. The certificate of labour is merely evidence of the part taken by the individual in the common labour, and of his right to a certain portion of the common produce destined for consumption. But it never enters into Owen's head to pre-suppose the production of commodities, and at the same time, by juggling with money, to try to evade the necessary conditions of that production.49

The aim of labour accounts is not to create a new form of money or medium of exchange, but to create a mechanism for the distribution of products in a planned economy. The accounts would be non transferable. Dieterich suggests that they would be electronic like credit cards. The labour credits could only be used to obtain goods from the communal stores. They would not circulate. They would not be a universal equivalent against which privately produced commodities would be produced. Rather than circulating, the credits would simply be cancelled out when you withdrew something from the communal store. This basic idea was understood even by the old socialist Bellamy whose novel 'Looking Backward', gave an account of a 19th century time traveler arriving in a future 21st century socialist Boston. He envisaged goods distribution working by social credit cards, seen in typical 19th century style as punchable cards. People went to the communal stores and selected items from catalogues. A certain number of units of credit where then cancelled out from their cards by punching holes through them, The goods were then distributed to people's houses via pneumatic tubes. It was a sort of socialist cross between Argos and Amazon, with punched cards substituting for electronic credit cards. If we did not have electronics, our labour accounts would have to work Bellamy fashion by punching holes or cancelling out slots with a stamp. When a labour credit is cancelled out it does not circulate, it simply ceases to exist.

Cooperatives and reforms

One of the key accusations levied by Woods against Dieterich is that the latter is a reformist who wants to keep capitalist property intact and that as an advocate of cooperatives, Dieterich is proposing an outdated and ineffective strategy to the workers movement.

The accusation of reformism seems a bit pointless. The polarity revolutionist/reformist is a hangover from the early days of the Communist International. Back in the days when the international socialist movement split into Communist and Social Democratic wings, the question of whether socialism would come to power by armed revolution or by winning support in elections was indeed a key issue. But the only communists in Europe who ever took armed revolution seriously as a strategy were those in Spain and the Balkans. The Spanish lost their civil war, the Yugoslavs and Albanians were successful, and the Greek CP at least made a serious attempt at it. Other European communist parties operated legally and peacably just like the Social Democratic parties from which they had originally broken away. In Asia of course it was different, and in the 1960s the Chinese CP denounced the European communists for what the Chinese saw as their capitulation to a reformist concept of a peaceful road to socialism.

The only parties which have seriously tried organise armed revolution in the world recently were Maoist ones in India, Nepal, Phillipines and Peru.

An accusation of reformism levied against Dieterich by the CPI (Maoist) might carry some weight, from a left social democrat like Woods50 it is like the pot calling the kettle black. The real dispute between Woods and Dieterich is not about reform versus revolution, but about which strategy of reform would be best. Woods, in common with the main left tradion of the British Labour Party, favours a policy of nationalisation of industry. The Labour Party card that Woods used to carry stated as the aims of the party:

To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.

He does not like Dieterich's alternative appoach in which the abolition of capitalist exploitation is given first priority. In Woods' approach the nation state is given pride of place. It is the nation state that is to take possesion of firms and whole industries. In contrast, Dieterich and Peters do not place the nationalisation of industry at the center of concern; instead they emphasises the rights of workers to the full value added by their labour. Dieterich proposes a radical restructuring of monetary policy to move the whole economy towards a non-money 'equivalence economy' based on working time and he envisages this transition as taking place not at the level of the nation state but internationally. Initially at a continental level, for example within a democratised European Union51.

Dieterich's long term goal is an economy is based on the deliberate and conscious application of the labour theory of value, in which consumer goods are priced in terms of the hours and minutes of labour it took to make them, and in which each worker is paid labour credits for each hour worked. The consistent application of this principle eliminates economic exploitation. Industry would be publicly owned, run according to a plan and not for profit. Retail enterprises for example, work on a break-even rather than profit making basis. Decisions would taken democratically, at local, national and Union levels, in particular decisions about the level of taxation and state expenditure. Such democratic decision making he intends to use to prevent the replacement of private exploitation with exploitation by the state52.

Woods objects that Dieterich's does not advocate the immediate confiscation of the property of shareholders. But this is a hollow objection. If the social relation of exploitation were abolished as Dieterich proposes, then shares would yield no return and be worthless. A more telling counter objection to Woods' conventional social democratic strategy is that nationalisation leaves the wage labour relation intact. The private capitalist owner is replace by the state, but workers are still wage labourers. They don't get the full value they create. State firms still run at a profit, it is just that now the profit goes to the state rather than private shareholders.

I dont deny that it is better if the state rather than private owners took the profit employees produced. Private owners, at least in developed countries, spend most of their dividends on luxury consumption. The state would not do that. It is likely to channel most of the profit back into reinvestment. That is one reason the Chinese economy, which is largely state owned grows so fast. But despite the change in ownership a state company is still a capitalist firm and workers have no effective control over the distribution of income between profits and wages.

This inevitably gives rise to a conflict of interest between employees on one side and the state as employer on the other. These conflicts, if history is any guide, do not have progressive outcomes. In the East European economies, where most industry was nationalised, or in China, this conflict of interest was suppressed because the state did not allow strikes, and the official trades unions were tightly controlled by the governing party. But this control did not prevent labour struggles from breaking out. In Poland in 1970, 1976 1980, 1988 there were big strike waves prompted by price rises and by demands for independent trades unions. The political end result there was a victory by the free market right and a process of rolling privatisation of the economy.

The existence of a large nationalised sector, and a government commited to regulating the economy to ensure near full employment puts workers collectively in a strong position. It was remarkable during the 70s, that when initial attempts to suppress strikes by police attacks failed, the government very rapidly made concessions to strikers. In some cases the prime ministers were even forced to resign — (Gomulka and Heath).

This was not something peculiar to East Europe. By the mid 1970s, the Labour Party in the UK had nationalised a substantial part of the capital stock of the country, and unlike in Poland, the trades unions remained independent of Party control. There ensued a rapidly intensifying wave of trades union militancy for higher wages. That in turn led to inflation and in combination these two processes dicredited socialism in the eyes of the electorate who turned instead to the right wing policies of Margaret Thatcher.

Back in the 70s Trotskyist factions like the one Woods belonged to in the Labour party were optimistic about the end results of such trades union militancy, whether it was happening in the UK or in Poland. In retrospect this optimism seems naieve. The fundamental reason why the right triumphed in Britain, Poland and the rest of Europe after this was that only the right had a coherent economic theory of how the economy ought to be run.

We can criticise free market liberalism for its economic consequences, but at the time it was the only coherent theory being advanced in public debate. Neither the official parties of the labour movement : the Labour Party, the Polish Workers Party, the Swedish Social Democratic Workers' Party etc, nor the various Trotskyist left factions of the social democratic parties had a coherent alternative theory of how a modern economy should operate. This contrast sharply with the situation in the 1940s when the workers parties first came to power. The Polish government for example had able socialist economists like Kalecki and Lange53 as members or advisers, and Harold Wilson a minister in the 1945 British Labour Government and later Premier was one of the outstanding Oxford economists of his generation before moveing into politics54. Within the Labour Party, to the extent that Woods' group had an economic policy it was essentially the same as that of Lange, they favoured more extensive nationalisation within an economy which retained money and commodities. Trotsky lacked Lange's intellectual sophistication as an economist. His ideas on the gold standard would now put him on the lunatic right, would have seemed laughable to Lange or Wilson had they payed them any attention. But if you compare the sketchy policy prescriptions presented in Trotsky's Soviet Economy In Danger, one can see that in broad outline his policies coincided with those set out in Lange's On the Economic Theory of Socialism.

But Lange and Trotsky's model of socialism because it retains the money wage relation, whilst eliminating unemployment, is faced with the alternatives of either curbing trades unions as Jaruzelski did or facing constant inflationary pressures as Wilson did. The Western Trotskyists were generally very critical of Jaruzelski. But he was following the logic of the system. Trotsky when he was still in a position of power and influence in the USSR was perfectly open about saying that his vision of socialism involved the full militarization of labour:

The foundations of the militarization of labor are those forms of State compulsion without which the replacement of capitalist economy by the Socialist will for ever remain an empty sound. Why do we speak of militarization? Of course, this is only an analogy – but an analogy very rich in content. No social organization except the army has ever considered itself justified in subordinating citizens to itself in such a measure, and to control them by its will on all sides to such a degree, as the State of the proletarian dictatorship considers itself justified in doing, and does. Only the army – just because in its way it used to decide questions of the life or death of nations, States, and ruling classes – was endowed with powers of demanding from each and all complete submission to its problems, aims, regulations, and orders. And it achieved this to the greater degree, the more the problems of military organization coincided with the requirements of social development.

The competition of capitalist with capitalist imparted a certain very limited reality to the fiction of freedom of labor; but this competition, reduced to a minimum by trusts and syndicates, we have finally eliminated by destroying private property in the means of production. The transition to Socialism, verbally acknowledged by the Mensheviks, means of the game of buying and selling, the movement of market prices and wages – to systematic distribution of the workers by the economic organizations of the county, the province, and the whole country. Such a form of planned distribution presupposes the subordination of those distributed to the economic plan of the State. And this is the essence of compulsory labor service, which inevitably enters into the programme of the Socialist organization of labor, as its fundamental element.55

Reading this, we seem to have moved a long way from the 'free association of producers' advocated by Marx, though it is similar to the national labour service that Bellamy advocated. Contrast this to Dieterich's proposal: European law should recognise that labour is the sole source of value and that in consequence workers, and their Unions, will have a claim in law against their employers if they are paid less than the full value of their labour.

Following such a law being passed, there would be a huge wave of worker activism as workers sought to end the cheating and deceit to which they and their ancestors had been subjected. It would also bring about a very large increase in real wages, cementing support for the socialist government.

Note that at this stage the establishment of the right to full value created would not mean the elimination of wage differentials. A legal right to the full value created would be a collective right of employees as a whole within a company. Such a system would certainly create strong moral pressures towards the equalisation of rates of pay, but the process by which this came about would be a matter for future collective bargaining and future civil rights legislation. Just as there is now legislation against gender discrimination in pay, a future European society is likely to legislate against other forms of pay inequality56

At this first stage of the transition to socialism in Dieterich's programme, Woods is right, the main form of production would be cooperatives. All firms in which workers had availed themselves of the new rights would become coops. But already exploitation and the wage relation have been abolished. Woods' and Lange's programme by contrast, does not abolish the wage relation and the economic contradiction that goes with it. Instead of being exploited by private firms, workers would have to work for the profit of the state. Woods makes a big deal of being opposed to the state bureaucracy but proposes an economic structure that hands over a large part of the value workers produce directly to the state and which, in consequence, is bound to increase the power of the state.

The first stage of Dieterich's programme would create an economy a bit like Yugoslavia when it was still socialist. Money would still exist, Euro notes would have been overprinted with time values equal to the mean amount of time required to produce that amount of value. For instance a 10 Euro note would be worth something like 20 mins. The experience of Yugoslavia indicates that an economy based on cooperatives can work well for a long time and that it allowed substantially more freedom than the Bolshevik state socialist model. But it did suffer from a number of weaknesses from a socialist standpoint:

  1. Over time there was a differentiation between more and less prosperous coops.
  2. More seriously this extended to a differentiation between prosperous and less prosperous regions: key factor in the eventual breakup of Yugoslavia.
  3. The system was unable to provide full employment.

Dieterich advocates that over time this cooperative economy be transformed into a fully planned economy working using non transferable labour credits. He does not stipulate exactly how this is to be achieved but it is possible to envisage a schema similar to that advocated back in the 1920s by Neurath. Neurath advocated a planned economy based on industries rather than nation states.

In Europe one might see a process of industrial merger beteen coops across the continent so that there is a Europaischebahn-Verein, a merged Air-Europe, an Association des constructeurs automobiles europens etc. An Association des Travailleurs Laitire Europenne would be running what was Farmelat, Campina, Dannone etc. This eliminates the problem that some producers within an industry would be more efficient and successful than others. When all dairys are run by a common continental syndicat there can be a move to common rates of remuneration and a common technological level accross all of them. Workers in the more advanced ones could give techical advice and support to their brothers and sisters in less advanced plants.

This, I think, is the sort of 'free association of producers', that Marx was on advocating. It gives employees collectively the experience of industrial planning before moving on to a more general socialisation. The continental industrial unions would colletively establish a planning council equiped with computing facilities to allow cybernetic regulation of the economy.

The European trades union movement would obviously have a key interest in promoting this sort of continental merger to advance the values of fraternity equality and co-operation. Once the worker's syndicates had established a international planning network accross the continent, the sort of thing that Glushkov was aiming at, at that point one could move on to the abolition of money and the establishment of non-transferable labour credits.

Assume that from stage 1 the Euro is tied to the labour hour ( currently it is worth about 2 mins) and the time value of the Euro notes printed on them. This would have acted as propaganda against the system of wage labour. Next a proposal is put to popular referendum to abolish the existing monetary system and with it all debts and interest on debts. This would polarise the population between a majority who would benefit from the cancellation of debts and the residual capitalist rentier class who no longer had any productive role. Assuming support can be won for the proposal, a continent wide system of labour credits would be brought into place. These would be non transferable to prevent the re-emergence of speculation and money-lending etc and could only be used to get goods produced by the great workers industrial associations.

At this point we will have reached what Marx called the first stage of communist society.

  1. Woods, REFORMISM or REVOLUTION, p 45.
  2. Woods, op. cit. p45.
  3. Zhdanov, Speech to the 1934 Soviet Writer’s Congress.
  4. Dieterich, The Alternative of Cuba: Capitalism or New Socialism
  5. Woods, op, cit., p51.
  6. Dieterich, op. cit.
  7. Woods , op. cit., p 52.
  8. Dieterich, op. cit.
  9. Marx, Capital, Vol.3, Chapter 47 http://www.marxists.org/archive/marx/works/1894-c3/ch47.htm (6 of 21) [23/08/2000 16:05:25]
  10. Engels Socialism : Utopian and Scientific.
  11. Engels, op. cit.
  12. For the utopian socialists, the way to usher in the new society was education and propaganda, that is, by the educational work of individuals and institutions. The class struggle did not enter into it. ( Woods, op. cit., p 142).
  13. Woods, p51.
  14. This starts with Neurath. Economic plan and calculation in kind. Otto Neurath: Economic Writings 1904-1945, 2004, is replied to by von Mises. Economic calculation in the socialist commonwealth. In F A Hayek, editor, Collectivist Economic Planning. Routledge and Kegan Paul, London, 1935. Remak in „Kann die Volkswirtschaftslehre eine exakte Wissenschaft werden?“. Jahrbücher für Nationalökonomie und Statistik, 131:703–735, 1929, introduces for the first time a detailed mathematical procedure to solve the problem and proposes the use of electronic calculation. Other significant contributions in the inter-war period are the state market socialists Dickinson. Price Formation in a Socialist Community. The Economic Journal, 43(170):237–250, 1933 and Lange. On the Economic Theory of Socialism. University of Minnesota Press, 1938, the left communist Appel. Fundamental Principles of Communist Production and Distribution. Movement for Workers’ Councils, von der Kollektivarbeit der Gruppe Internationaler Kommunisten – GIK [Allgemeine Arbeiter Union Deutschlands - AAUD], 1990 (1930) and the Soviet mathematician Kantorovich. Mathematical Methods of Organizing and Planning Production. Management Science, 6(4):366–422, 1960 (1937).
  15. See for example Joseph Ball, “The Need for Planning: The Restoration of Capitalism in the Soviet Union in the 1950s and the Decline of the Soviet Economy”, Cultural Logic, 2010.
  16. Dieterich, op. cit.
  17. Trotsky, The Soviet Economy in Danger, 1934.
  18. See the english translation: J. Appel, Fundamental principles of communist production and distribution, 1990 , Movement for Workers’ Councils.
  19. For a criticism of the Mises/Hayek perspective see : Cockshott and Cottrell, Information and economics: a critique of Hayek [PDF] - Research in PoliticalEconomy, 1997 or Cockshott, Von Mises, Kantorovich and in-natura calculation - Intervention. European Journal of Economics, 2010
  20. Trotsky, If America Should Go Communist, 1934.
  21. On this see, Cockshott and Cottrell, Calculation, complexity and planning: the socialist calculation debate once again , Review of Political Economy, 1993 or Spufford, Red Plenty, 2010
  22. Malinovsky, Pioneers of Soviet Computing, 2006.
  23. Woods, op. cit., p167.
  24. Woods, p 148.
  25. Marx widersprach. Er ging davon aus, dass die menschliche Arbeit in der kapitalistischen Gesellschaft zur Ware geworden sei (die er im Unterschied zur Arbeit »Arbeitskraft« nannte), die mit ihrem jeweiligen Marktpreis (= Lohn) voll bezahlt ist. Er sagte: »Dass der Wert, den ihr Gebrauch während eines Tages schafft, doppelt so groß ist als ihr eigener Tageswert, ist ein besonderes Glück für den Käufer, aber durchaus kein Unrecht gegen den Verkäufer«. Und er versicherte sogar, es würden bei diesem Kauf »die Gesetze des Warenaustausches in keiner Weise verletzt, Äquivalent wurde gegen Äquivalent ausgetauscht«. Hier verwechselte Marx, wie die klassische Ökonomie, wertgleich (äquivalent) mit preisgleich (äquipretiär). Was Ricardo Profit nannte, bezeichnete Marx als »Mehrwert«. Dieser Mehrwert steht für Marx im Einklang mit dem Wertgesetz, und wenn der Arbeiter den von ihm geschaffenen Mehrwert nicht erhält, wird ihm kein Unrecht zugefügt. (Peters, op. cit., p18.)
  26. Rodbertus, Das Kapital , Paris,1904.
  27. Dieterich, email Saturday, February 18, 2012.
  28. In science experiment is the best tutor. What follows is a lesson I learned when actually trying to compare the labour and oil values for sectors in the UK economy.
  29. Cockshott and Cottrell, Labour time versus alternative value bases: a research note,Camb. J. Econ. (1997) 21 (4): 545-549.
  30. Rodbertus, Das Kapital , Paris,1904.
  31. On my reading of the empirical literature propositions 1,3,4 have been verified and 2 falsified.
  32. Zuse was the German computer pioneer who arguably built the first stored programme computer during the 2nd world war. Dieterich published Gespräche mit Konrad Zuse, an interview with him on the subject taken shortly before Zuse died.
  33. Marx, Critique of the Gotha Programme of German Social Democracy, emphasis added to show that Marx employs the equivalence principle.
  34. Dieterich, Der Socialism des 21 Jahrhunderts, 2006, p106.
  35. Woods, op.cit, p161.
  36. Peters, op. cit, in Dieterich op. cit.
  37. Dieterich, Hugo Chávez y el socialismo del siglo XXI, p.108 translated by Woods, Dieterich is quoting Peters here, I believe that there has been some loss
  38. Woods op. cit. pp. 173 ,174.
  39. ’use value’ in Marx’s terminolugy.
  40. Cottrell, A., Cockshott, W.P. , and Michaelson, G. (2009) Cantor diagononlalisation and planning. Journal of Unconventional Computing, 5 (3-4). pp. 223-236. ISSN 1548-7199
  41. von Mises, Economic Calculation in the Socialist Commonwealth, page 8.
  42. For example: Morishima, Marx’s Economics, 1973, in particular pages 190..192;Bowles and Gintis, Heterogeneous Labor and the Labor Theory of Value - Cambridge Journal of Economics, 1977; Steedman, Heterogeneous labour, money wages, and Marx’s theory, History of Political Economy, 1985.
  43. See Cockshott, Cottrell and Michaelson, Testing Marx: some new results from UK Data, Capital and Class, 55, 1995, in particular pages 107..109.
  44. This was essentially the point made by the Austrian school economist Brewster in his review Towards a New Socialism? Quarterly Journal of Austrian Economics, 2004
  45. op. cit, p192.
  46. Given college staff/student ratios these figures are in the right ballpark
  47. Morishima, Aggregation in Leontief matrices and the labour theory of value – Econometrica: journal of the Econometric Society, 1961.
  48. Woods, op, cit, p. 194.
  49. Marx, Capital Vol 1, page 96 of the Marxist Internet Archive edition.
  50. Woods was formerly a member of the most left wing faction in the Labour Party in Britain and has more recently been a member of the Socialist Party. This was formed by Labour Party members who opposed Tony Blair’s rewriting of the Labour Party constitution to elminate its historic commitment to socialism.
  51. Peters, like Cheng Enfu with whom Dieterich is apparently collaborating, went further and advocated socialist economic planning at a world scale.
  52. Dieterich et al, EU am Ende? Unsere Zukunft jenseits von Kapitalismus und Kommandowirtschaft, 2011.
  53. By the early 60s Lange was Polish vice president.
  54. Lange was to the left of Wilson and favoured nationalising the whole economy as fast as possible whereas Atlee and Wilson were gradualists but even this gradualist programme meant that by the late 1970s the UK state owned among other things the system of energy production and supply: coal, oil, gas, nuclear power and hydro electricity; much of the transport system: roads, railways, buses, airlines, airports, ports; the communication system: radio, TV, post, telephones; the majority of the housing stock; and many heavy industries: steel, shipbuilding, aircrat construction, car production.
  55. Trotsky, Terrorism and Communism, chap 1.
  56. Dieterich et al, EU am Ende.

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