Part 4 of 8

3. Economic Calculation in the Socialist Commonwealth

Are we really dealing with the necessary consequences of common ownership
of the means of production? Is there no way in which some kind of economic
calculation might be tied up with a socialist system?
In every great enterprise, each particular business or branch of business is to
some extent independent in its accounting. It reckons the labor and material
against each other, and it is always possible for each individual group to strike a
particular balance and to approach the economic results of its activities from an
accounting point of view. We can thus ascertain with what success each
particular section has labored, and accordingly draw conclusions about the
reorganization, curtailment, abandonment, or expansion of existing groups and
about the institution of new ones. Admittedly, some mistakes are inevitable in
such a calculation. They arise partly from the difficulties consequent upon an
allocation of general expenses. Yet other mistakes arise from the necessity of
calculating with what are not from many points of view rigorously ascertainable
data, e.g. when in the ascertainment of the profitability of a certain method of
procedure we compute the amortization of the machines used on the assumption
of a given duration for their usefulness. Still, all such mistakes can be confined
within certain narrow limits, so that they do not disturb the net result of the
calculation. What remains of uncertainty comes into the calculation of the
uncertainty of future conditions, which is an inevitable concomitant of the
dynamic nature of economic life.
It seems tempting to try to construct by analogy a separate estimation of the
particular production groups in the socialist state also. But it is quite impossible.
For each separate calculation of the particular branches of one and the same
enterprise depends exclusively on the fact that is precisely in market dealings that
market prices to be taken as the bases of calculation are formed for all kinds of
goods and labor employed. Where there is no free market, there is no pricing
mechanism; without a pricing mechanism, there is no economic calculation.
We might conceive of a situation, in which exchange between particular
branches of business is permitted, so as to obtain the mechanism of exchange
relations (prices) and thus create a basis for economic calculation even in the
socialist commonwealth. Within the framework of a uniform economy knowing
not private ownership of the  means of production, individual labor groups are
constituted independent and authoritative disposers, which have indeed to behave
in accordance with the directions of the supreme economic council, but which
nevertheless assign each other material goods and services only against a
payment, which would have to be made in the general medium of exchange. It is
roughly in this way that we conceive of the organization of the socialist running
of business when we nowadays talk of complete socialization and the like. But
we have still not come to the crucial point. Exchange relations between
production goods can only be established on the basis of private ownership of the
means of production. When the “coal syndicate” provides the “iron syndicate”
with coal, no pric e can be formed, except when both syndicates are the owners of
the means of production employed in their business. This would not be
socialization but workers’ capitalism and syndicalism.
The matter is indeed very simple for those socialist theorists who  rely on the
labor theory of value.
As soon as society takes possession of the means of production and
applies them to production in their directly socialized form, each
individual’s labour, however different its specific utility may be,
becomes  a priori  and directly social labour. The amount of social
labour invested in a product need not then be established indirectly;
daily experience immediately tells us how much is necessary on an
average. Society can simply calculate how many hours of labour are
invested in a steam engine, a quarter of last harvest’s wheat, and a 100
yards of linen of given quality ... To be sure, society will also have to
know how much labour is needed to produce any consumption-good. It
will have to arrange its production plan according to its means of
production, to which labour especially belongs. The utility yielded by
the various consumption-goods, weighted against each other and
against the amount of labour required to produce them, will ultimately
determine the plan. People will make everything simple without the
mediation of the notorious “value.”
9
Here it is not our task once more to advance critical objections against the
labor theory of value. In this connection they can only interest us in so far as they
                                             
9
Friedrich Engels, Herrn Eugen Dührings Umwälzung des Wissenschaft, 7th ed., pp. 335 f.
[Translated by Emile Burns as Herr Eugen Dühring’s Revolution in Science--Anti-Düring (London:
Lawrence & Wishart, 1943).]
are relevant to an assessment of the applicability of labor in the value
computations of a socialist community.
On a first impression calculation in terms of labor also takes into
consideration the natural non-human conditions of production. The law of
diminishing returns  is already allowed for in the concept of socially necessary
average labor time to the extent that its operation is due to the variety of the
natural conditions of production. If the demand for a commodity increases and
worse natural resources must be exploited, then the average socially necessary
labor time required for the production of a unit increases too. If more favorable
natural resources are discovered, the amount of socially necessary labor
diminishes.
10
 The consideration of the natural condition of production suffices
only in so far as it is reflected in the amount of labor socially necessary. But it is
in this respect that valuation in terms of labor fails. It leaves the employment of
material factors of production out of account. Let the amount of socially
necessary labor time required for the production of each of the commodities P
and Q be 10 hours. Further, in addition to labor the production of both P and Q
requires the raw material a, a unit of which is produced by an hour’s socially
necessary labor; 2 units of a and 8 hours’ labor are used in the production of P,
and one unit of a and 9 hours’ labor in the production of Q. In terms of labor P
and Q are equivalent, but in value terms P is more valuable than Q. The former is
false, and only the  latter corresponds to the nature and purpose of calculation.
True, this surplus, by which according to value calculation P is more valuable
than Q, this material sub-stratum “is given by nature without any addition from
man.”
11
 Still, the fact that it is only present in such quantities that it becomes an
object of economizing, must be taken into account in some form or other in value
calculation.
The second defect in calculation in terms of labor is the ignoring of the
different qualities of labor. To Marx all human labor is economically of the same
kind, as it is always “the productive expenditure of human brain, brawn, nerve
and hand.”
12
Skilled labour counts only as intensified, or rather multiplied, simple
labour, so that a smaller quantity of skilled labour is equal to a larger
quantity of simple labour. Experience shows that skilled labour can
always be reduced in this way to the terms of simple labour. No matter
                                             
10
Karl Marx, Capital, translated by Eden and Cedar Paul (London: Allen & Unwin, 1928), p. 9.
11
Karl Marx, Capital, translated by Eden and Cedar Paul (London: Allen & Unwin, 1928), p. 12.
12
Karl Marx, Capital, translated by Eden and Cedar Paul (London: Allen & Unwin, 1928), p. 13 et
seq.
that a commodity be the product of the most highly skilled labour, its
value can be equated with that of the product of simple labour, so that it
represents merely a definite amount of simple labour.
Böhm-Bawerk is not far wrong when he calls this argument “a theoretical
juggle of almost stupefying naïveté.
13
 To judge Marx’s view we need not ask if it
is possible to discover a single uniform physiological measure of all human
labor, whether it be physical or “mental.” For it is certain that there exist among
men varying degrees of capacity and dexterity, which cause the products and
services of labor to have varying qualities. What must be conclusive in deciding
the question whether reckoning in terms of labor is applicable or not, is whether
it is or is not possible to bring different kinds of labor under a common
denominator without the mediation of the economic subject’s valuation of their
products. The proof Marx attempts to give is not successful. Experience indeed
shows that goods are consumed under exchange relations without regard of the
fact of their being produced by simple or complex labor. But this would only be a
proof that given amounts of simple labor are directly made equal to given
amounts of complex labor, if it were shown that labor is their source of exchange
value. This not only is not demonstrated, but is what Marx is trying to
demonstrate by means of these very arguments.
No more is it a proof of this homogeneity that rates of substitution between
simple and complex labor are manifested in the wage rate in an exchange
economy--a fact to which Marx does not allude in this  context. This equalizing
process is a result of market transactions and not its antecedent. Calculation in
terms of labor would have to set up an arbitrary proportion for the substitution of
complex by simple labor, which excludes its employment for purposes of
economic administration.
It was long supposed that the labor theory of value was indispensable to
socialism, so that the demand for the nationalization of the means of production
should have an ethical basis. Today we know this for the error it is. Although the
majority of socialist supporters have thus employed this misconception, and
although Marx, however much he fundamentally took another point of view, was
not altogether free from it, it is clear that the political call for the introduction of
socialized production neither requires nor can obtain the support of the labor
theory of value on the one hand, and that on the other those people holding
different views on the nature and origin of economic value can be socialist
                                             
13
Cf. Eugen von Böhm-Bawerk, Capital and Interest, translated by William Smart (London and
New York: Macmillan, 1890), p. 384. [See the English translation by George Huncke and Hans F.
Sennholz (South Holland, Ill.: Libertarian Press, 1959) p. 299, where the phrase reads “a bit of
legerdemain in the theorizing line that is astounding in its naiveté.”]Economic Calculation 22
according to their sentiments. Yet the labor theory of value is inherently
necessary for the supporters of socialist production in a sense other than that
usually intended. In the main socialist production might only appear rationally
realizable, if it provided an objectively recognizable unit of value, which would
permit of economic calculation in an economy where neither money nor
exchange were present. And only labor can conceivably be considered as such.