Part 6 of 8

5. The Most Recent Socialist Doctrines and the Problem of 
Economic Calculation

Since recent events helped socialist parties to obtain power in Russia,
Hungary, Germany and Austria, and have thus made the execution of a socialist
nationalization program a topical issue,
17
 Marxist writers have themselves begun
to deal more closely with the problems of the regulation of the socialist
commonwealth. But even now they still cautiously avoid the crucial question,
leaving it to be tackled by the despised “Utopians.” They themselves prefer to
confine their attention to what is to be done in the immediate future; they are
forever drawing up programs of the path to Socialism and not of Socialism itself.
The only possible conclusion from all these writings is that they are not even
conscious of the larger problem of economic calculation in a socialist society.
To Otto Bauer the nationalization of the banks appears the final and decisive
step in the carrying through of the socialist nationalization program. If all banks
are nationalized and amalgamated into a single central bank, then its
administrative board becomes “the supreme economic authority, the chief
administrative organ of the whole economy. Only by nationalization of the banks
does society obtain the power to regulate its labor according to a plan, and to
distribute its resources rationally among the various branches of production, so as
to adapt them to the nation’s needs.”
18
 Bauer is not discussing the monetary
arrangements which will prevail in the socialist commonwealth after the
completion of the nationalization of the banks. Like other Marxists he is trying to
show how simply and obviously the future socialist order of society will evolve
from the conditions prevailing in a developed capitalist economy.  “It suffices to
transfer to the nation’s representatives the power now exercised by bank
shareholders through the Administrative Boards they elect,”
19
 in order to
socialize the banks and thus to lay the last brick on the edifice of socialism.
Bauer leaves  his readers completely ignorant of the fact that the nature of the
                                               
17
[The reader will remember that Mises is writing in 1920.]
18
  Cf. Otto Bauer, Der Weg zum Sozialismus (Vienna: Ignaz Brand, 1919), p. 26 f.
19
Cf. Otto Bauer, Der Weg zum Sozialismus (Vienna: Ignaz Brand, 1919), p.
banks is entirely changed in the process of nationalization and amalgamation into
one central bank. Once the banks merge into a single bank, their essence is
wholly transformed; they are then in a position to issue credit without any
limitation.
20
 In this fashion the monetary system as we know it today disappears
of itself. When in addition the single central bank is nationalized in a society,
which is otherwise already completely socialized, market dealings disappear and
all exchange transactions are abolished. At the same time the Bank ceases to be a
bank, its specific functions are extinguished, for there is no longer any place for it
in such a society. It may be that the name “Bank” is retained, that the Supreme
Economic Council of the socialist community is called the Board of Directors of
the Bank, and that they hold their meetings in a building formerly occupied by a
bank. But it is no longer a bank, it fulfils none of those functions which a bank
fulfils in an economic system resting on the private ownership of the means of
production and the use of a general medium of exchange--money. It no longer
distributes any credit, for a socialist society makes credit of necessity impossible.
Bauer himself does not tell us what a bank is, but he begins his chapter on the
nationalization of the banks with the sentence: “All disposable capital flows into
a common pool in the banks.”
21
 As a Marxist must he not raise the question of
what the banks’ activities will be after the abolition of capitalism?
All other writers who have grappled with the problems of the organization of
the socialist commonwealth are guilty of similar confusions. They do not realize
that the bases of economic calculation are removed by the exclusion of exchange
and the pricing mechanism, and that something must be substituted in its place, if
all economy is not to be abolished and a hopeless chaos is not to result. People
believe that socialist institutions might evolve without further ado from those of a
capitalist economy. This is not at all the case. And it becomes all the more
grotesque when we talk of banks, banks management, etc. in a socialist
commonwealth.
Reference to the conditions that have developed in Russia and Hungary under
Soviet rule proves nothing. What we have there is nothing but a picture of the
destruction of an existing order of social production, for which a closed peasant
household economy has been substituted. All branches of production depending
on social division of labor are in a state of entire dissolution. What is happening
under the rule of Lenin and Trotsky is merely destruction and annihilation.
                                               
20
Cf. Mises, Theorie des Geldes und der Umlaufsmittel (Munich and Leipzig: Duncker &
Humblot, 1912), p. 474 ff. [See the English translation by H.E. Batson, The Theory of Money and
Credit (Indianapolis: Liberty Classics, 1980), [Compare p. 411 of the 1980 English edition.]
21
Cf. Otto Bauer, Der Weg zum Sozialismus (Vienna: Ignaz Brand, 1919), p. 24 f.29
Whether, as the liberals
22
 hold, socialism must inevitably draw these
consequences in its train, or whether, as the socialists retort, this is only a result
of the fact that the Soviet Republic is attacked from without, is a question of no
interest to us in this context. All that has to be established is the fact that the
Soviet socialist commonwealth has not even begun to discuss the problem of
economic calculation, nor has it any cause to do so. For where things are still
produced for the market in Soviet Russia in spite of governmental prohibitions,
they are valued in terms of money, for there exists to that extent private
ownership of the means of production, and goods are sold against money. Even
the Government cannot deny the necessity, which it confirms by increasing the
amount of money in circulation, of retaining a monetary system for at least the
transition period.
That the essence of the problem to be faced has not yet come to light in Soviet
Russia, Lenin’s statements in his essay on Die nächsten Aufgaben der
Sowjetmacht best show. In the dictator’s deliberations there ever recurs the
thought that the immediate and most pressing task of Russian communism is “the
organization of bookkeeping and control of those concerns, in which the
capitalists have already been expropriated, and of all other economic concerns.”
23
Even so Lenin is far from realizing that an entirely new problem is here involved
which it is impossible to solve with the conceptual instruments of “bourgeois”
culture. Like a real politician, he does not bother with issues beyond his nose. He
still finds himself surrounded by monetary transactions, and does not notice that
with progressive socialization money also necessarily loses its function as the
medium of exchange in general use, to the extent that private property and with it
exchange disappear. The implication of Lenin’s reflections is that he would like
to re-introduce into Soviet business “bourgeois” bookkeeping carried on on a
monetary basis. Therefore he also desires to restore “bourgeois experts” to a state
of grace.
24
 For the rest Lenin is as little aware as Bauer of the fact that in a
socialist commonwealth the functions of the bank are unthinkable in their
existing sense. He wishes to go farther with the “nationalization of the banks”
                                               
22
 [Mises is using the term “liberal” here in its nineteenth-century European sense, meaning
“classical liberal” or libertarian. On liberalism see Mises’s Liberalism: In the Classical Tradition,
translated by Ralph Raico (Irvington-on-Hudson, N.Y.: Foundation for Economic Education,
1985).]
23
Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 12 f.,
22ff. [English translation, The Soviets at Work.--This edition.]
24
  Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 15.
[English translation, The Soviets at Work.--This edition.]
and to proceed “to a transformation of the banks into the nodal point of social
bookkeeping under socialism.”
25
Lenin’s ideas on the socialist economic system, to which he is striving to lead
his people, are generally obscure.
“The socialist state,” he says “can only arise as a net of producing and
consuming communes, which conscientiously record their production and
consumption, go about their labour economically, uninterruptedly raise
their labour productivity and thus attain the possibility of lowering the
working day to seven or six hours or even lower.”
26
 “Every factor, every
village appears as a production and consumption commune having the
right and obligation to apply the general Soviet legislation in its own way
(‘in its own way’ not in the sense of its violation but in the sense of the
variety of its forms of realisation), and to solve in its own way the
problems of calculating the production and distribution of products.”
27
“The chief communes must and will serve the most backward ones as
educators, teachers, and stimulating leaders.” The successes of the chief
communes must be broadcast in all their details in order to provide a good
example. The communes “showing good business results” should be immediately
rewarded “by a curtailment of the working day and with an increase in wages,
and by allowing more attention to be paid to cultural and aesthetic goods and
values.”
28
We can infer that Lenin’s ideal is a state of society in which the means of
production are not the property of a few districts, municipalities, or even of the
workers in the concern, but of the whole community. His ideal is socialist and not
syndicalist. This need not be specially stressed for a Marxist such as Lenin. It is
not extraordinary of Lenin the theorist, but of Lenin the statesman, who is the
leader of the syndicalist and small-holding peasant Russian revolution. However,
at the moment we are engaged with the writer Lenin and may consider his ideals
separately, without letting ourselves be disturbed by the picture of sober reality.
                                               
25
Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 21 and
26. [English translation, The Soviets at Work.--This edition.] Compare also Bukharin, Das
Programm der Kommunisten (Zürich: no pub., 1918), pp. 27 ff.
26
Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 24 f..
[English translation, The Soviets at Work.--This edition.]
27
Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 32.
[English translation, The Soviets at Work.--This edition.]
28
Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 33.
[English translation, The Soviets at Work.--This edition.]
According to Lenin the theorist, every large agricultural and industrial concern is
a member of the great commonwealth of labor. Those who are active in this
commonwealth have the right of self-government; they exercise a profound
influence on the direction of production and again on the distribution of the
goods they are assigned for consumption. Still labor is the property of the whole
society, and as its product belongs to society also, it therefore disposes of its
distribution. How, we must now ask, is calculation in the economy carried on in a
socialist commonwealth which is so organized? Lenin gives us a most inadequate
answer by referring us back to statistics. We must
bring statistics to the masses, make it popular, so that the active population will
gradually learn by themselves to understand and realize how much and what kind
of work must be done, how much and what kind of recreation should be taken, so
that the comparison of the economy’s industrial results in the case of individual
communes becomes the object of general interest and education.
29
From these scanty allusions it is impossible to infer what Lenin understands
by statistics and whether he is thinking of monetary or in natura computation. In
any case, we must refer back to what we have said about the impossibility of
learning the money prices of production-goods in a socialist commonwealth and
about the difficulties standing in the way of  in natura  valuation.
30
 Statistics
would only be applicable to economic calculation if it could go beyond the  in
natura calculation, whose ill-suitedness for this purpose we have demonstrated. It
is naturally impossible where no exchange relations are formed between goods in
the process of trade.
 
                                               
29
  Cf. V.I. Lenin, Die nächsten Aufgaben der Sowjetmacht (Berlin: Wilmersdorf, 1919), pp. 33.
[English translation, The Soviets at Work.--This edition.]
30
Neurath, too , imputes great importance to statistics for the setting up of the socialist economic
plan. Otto Neurath (Durch die Kriegswirtschaft zur Naturalwirtschaft [Munich: G.D.W. Callwey,
1919], pp. 212 et seq.).