The misconceptions of the past

A Critique of "Theses for The Theory of Socialist Commodity Production"

During the four decades of "the building of socialism" in the former SFRJ (Socialist Federal Republic of Yugoslavia), during the second half of the twentieth century, there had been formulated more economic theories of socialism than in all the other self-proclaimed "socialist" countries of Eastern Europe and elsewhere. One should seek an explanation for this in the particular geographic position and historical context within which the ex-SFRJ existed - on the border between capitalism in the West and Stalinism in the East, and enjoying the strong support that the Titoist bureaucracy did enjoy among the masses, which enabled it to "build it's own way in socialism", a model different from the one dictated by Moscow to other countries of Eastern Bloc. The frequent ideological U-turns of the State and Party apparatus were sometimes motivated by changes in political relations with the Eastern Bloc and the imperialist powers, and were sometimes forced by internal economic problems; and these, in turn, produced similar U-turns in economic and legislative theory. So, in the '50s, in the minds of the Yugoslav economists, the socialist economy was conceived as one that was centralised, and directed by the state and the planning institutions; in the '60s as a market-orientated one; in the '70s as "self-managing"; and, in the end, the complete ideological capitulation of the bureaucracy found its statement in the theory of "a mixed economy" (the co-existence of state, common and private ownership) and the complete restoration of capitalism. The absurdity of the claim that such theoretical leaps were a statement of the logical phases of "the building of socialism" and that they were in accordance with advances in the development of productive forces (the claim that was used to justify every new inconsistency or complete contradiction of the new theory in relation to the old one) is shown by the fact that the last element of that "logical chain of events" ended with the propagation of the restoration of capitalism itself!

It is true that there had been some theories that did not advocate continuity with the previous fantastic grand theories of the Yugoslav economists but declared themselves to be the immediate and logical continuation of Marx's own theory. So, it sometimes occurred, as in the famous debate over the nature of prices in the socialist economy, that two, three and sometimes even more theories produced contradictory conclusions, all deduced from the same quotes of Marx's Capital. Referring to Marx was not only a prestigious act in itself, but was also a statement of the striving to find, in his critique of the capitalist system and in his deduction of the inevitability of the socialist transformation of society, solutions for the construction of this new, socialist, system that was to be built in practice. Marx's explicit warnings that it would not be in accordance with his scientific method for him to propose such solutions did not in the least prevent these economists from 'finding' these solutions in his writings anyway. And it is precisely that which is the fundamental defect of all of their theories!

One can properly begin to tackle the problems of the organization of a socialist economy only after the issue of the POLITICAL character of the socialist revolution has been settled. By the act of expropriation of the capitalist class, all resources of society are put under the political control of the working class. Therefore, the democratic participation of the workers in the governing of society is the indispensable mechanism for ensuring that resources will be used in the interests of society as a whole. This is the only way that the real needs of society can be identified, and the only way in which to harmonise the planning of production, distribution and consumption. Without the continuous democratic participation of the working class, those who are ruling in the name of the working class - as one can see in the examples of Stalinism and Titoism - necessarily become alienated from the working class, try to subordinate the economy to their own private interests, and attempt to turn their bureaucratic privileges into their own private ownership. The objection that socialism cannot be built immediately, or that the immediate complete abolition of private property is impossible, implying that the revolution must be conducted in phases, does not change the essence of things - that each and every one of these phases must be directed by the active participation of the workers, that is, democratically.

Therefore, the Yugoslav economists were given an impossible task in that they were being forced to find solutions inside the existing bureaucratised political system, while one of the most fundamental solutions to all the problems facing the Yugoslav economy was precisely in the abolition of the existing bureaucratised political system: through a political revolution by the working class.

The planning of production should be one of the fundamental features of the socialist economy. Indeed, if we look at the post-World War II economy of Yugoslavia, even before the fighting was over, the nationalisation of property and the building of state planning institutions was underway. The state regulated all the important elements of the process of social reproduction. Already in mid-'50s, however, paradoxically, the thesis that commodity production is not incompatible with socialism began to gain in importance, and it progressed to the thesis that commodity production is necessary in socialism. This is "paradoxical" only at a first glance, because it was inevitably caused by bureaucratisation. The bureaucracy, alienated from the real conditions of life of the majority of society, proved incompetent in successfully producing the detailed plans of the process of social reproduction, and sooner or later it had to declare that events, over which it had completely lost control, were the "objective development" of the socialist economy and to leave the running of the economy to the economy itself by re-introducing some form of market mechanism. Or, as Vladimir Bakaric put it at the Fifth Congress of the SSRNH: "We have confessed long ago that, in our economy, it is the law of value that reigns supreme."

This thesis of the necessity of the commodity character of production under socialism turned into the fundamental premise of all the economic theories of the '60s. One of the many theories of the Yugoslav economists based on this premise, and one that is especially interesting, is: Theses for The Theory of Socialist Commodity Production by Miladin Korac, that, "analyses the pure form of socialist production". He writes: "Therefore, the real line of development of Yugoslavia can be used as a basis from which we can, for the final goal of theoretical analysis, derive the basic relation of socialist commodity production, and use it - on the basis of the law of value - to deduce the other concrete categories of socialist commodity production. When this fact is established, it is possible, using Marx's method, to determine a framework within which the law of value works in socialism and to analyse the objective tendencies of the movement of socialist commodity production, i.e. tendencies that work independently of the conscious actions of people within the planned direction of the economy as a whole. And this analysis is all the more necessary because the knowledge of the objective tendencies of the development of commodity production is a required condition for successful planning."

The complete further theoretical construction is based on the claim that the basic relation of socialist production can be derived from the development in reality of the Yugoslav economy. And this whole theoretical construction falls to the ground because this initial claim is wrong. As it turned out several decades later, this "real line of the development" of the Yugoslav economy ended in the restoration of capitalism. Mr Korac made a major error in the deduction of this fundamental (for his theory, and for the thesis of the necessity of commodity production in socialism) conclusion. This error is caused by the complete exclusion of Yugoslavia from the international context, that is, by its complete isolation from the rest of the world, as if it was self-sufficient and separate from the economic and political development and influences of mighty world capitalism, as well as from Stalinism. The Yugoslav economy did not develop in a vacuum, but through interactions with these external factors, which were sometimes of decisive importance, as, for example, were the events of 1948. Already in this, Mr Korac abandoned Marx's dialectical method - this was no longer historical materialism, which observes its phenomenon of interest in the totality of relations with other phenomena, not in isolation from them. In addition to this, the line of development of the economy of Yugoslavia was substantially different from the line of development of other "socialist" countries, so one has to ask oneself a question - why should conclusions about the objective tendencies of the development of socialism be extracted from the Yugoslav experience, and not the Russian, Chinese or Cuban? According to Mr Korac, it was, "precisely," because, "the reality of Yugoslavia serves as a model to modern Marxist economic thought almost in the same way as England served as a model to Marx, in his own time, for his own analysis of the capitalist mode of production." In other words, the economy of Yugoslavia was already then in the phase in which the other "socialist" countries would find themselves in the future, because "even partial changes of the old system of management caused the significant rise in importance of the market mechanism in socialist countries", and Yugoslavia already had more developed market relations than they did. But, once again events in subsequent decades proved Mr Korac wrong - not only in that the Eastern Bloc did not follow the path of Yugoslavia, but also in that it collapsed before Yugoslavia did. There is, in his ideas, no trace of the application of Marx's method of analysis, there is only the schematic copying of Marx's conclusions. Every one of these countries had its own specific place in the international division of labour, a different potential to influence events on a world scale or to resist them, and most importantly, there was a different role of the subjective factor in each of them. The forms of "socialism" that developed within them, and their transformations, therefore, must be analysed in a global context as elements of a unique historical process (the dialectical connection of the development of these and capitalist countries), and not as successive schematic phases through which socialism would have to pass.

Since nowhere in the text is it clarified what this basic relation of socialist commodity production really is, which is, supposedly, deduced from the development of the Yugoslav economy using the above-described erroneous analytical method, Mr Korac deprives us of the opportunity of checking his deduction of "the form of the functioning of the law of value under socialism, and the concrete categories of socialist commodity production." Instead, he turns to "the socialist enterprise" as the basic economic unit of socialist commodity production: "Using this approach, our starting point must be the socialist enterprise (factory) as a commodity producer - an enterprise in which the socialist relations of production are fully established, i.e. in which the workers' collective as a whole is at the same time the producer and first appropriator of products."

"If, similarly to what Marx did, we assume that this enterprise has the necessary factors for production (i.e. that the working collective manages the means of production given to it for use, or that it can buy them on the market), and that it can sell what it makes, then our problem is reduced to the analysis of the process of the production of commodities and of the conditions for the permanent reproduction of both the material goods and the relations that exist within this company. Since, however, Marx's analysis of the process of the production of commodities (as a unique process of the production of use values and values) is valid for every historical form of commodity production, we can use it as an axiom in considering the second question, i.e. in the analysis of the process of reproduction within the socialist commodity enterprise."

To define the socialist ("self-managed") enterprise in this way implies a definite legal and institutional context which is not, and cannot be, an objective and universal feature of socialist society. On the contrary, it was only one in a row of the ideological experiments of the state bureaucracy, with its corresponding legal and economic elements. Sometimes, this "socialist enterprise" was denied ownership over the means of production it used, sometimes its earnings were appropriated by the state, and sometimes its activities on the market were severely limited. Mr Korac raises this imaginary enterprise to the pedestal of the universal mode of the organization of labour in socialism, unconsciously depriving the laws of socialist commodity production - which he wishes to explore - of their historical character! And yet, this does not prevent him from "confirming the validity of the thesis of the classics of Marxism: that socialism is only the transitory, lower phase of communism."

He needed to invent this "self-managed" enterprise because it was, notionally, a solution to the riddle of socialism. If expropriation of surplus value through profit on capital was the fundamental problem of capitalism, then giving equal managing rights to everyone in the enterprise puts this surplus value into the hands of the immediate producers. And, voila' - there is no more exploitation.

On the other hand, this socialist enterprise is now identical to today's capitalist corporation, because the criteria for the distribution of income is internalised in both cases (although on a different basis) - by the number of shares in capitalism, and by the legal position of the worker in socialism. Why is this of significance? Primarily because all the external relations between enterprises remain identical to those in capitalism, since all the laws of commodity production from Marx's analysis are transferred in identical form to Mr Korac's socialism. Price mechanisms remain intact, so Mr Korac can conclude that, since price oscillates around the value of a commodity in socialism too:

V = PV + NV
(value = transferred value from the means of production + newly added value through labour)

and thus: V = MTP + D
(value = material cost of production + earnings*)

[* - earnings are often defined in "socialist" economic theory in Yugoslavia as the sum of both necessary and surplus value created by workers during production. This term was devised to express the idea that workers inside the enterprise fully own what they produce, so that there is, allegedly, no exploitation. It refers to the total sum of the income of the enterprise after the material costs are deduced, and not to the individual earning of a single worker. This was a very popular concept among theoreticians. Basically, earnings = wages + profit.]

So, instead of the capitalist division of newly-produced value to workers' wages and owners' profit, it (newly-produced value) is fully in the hands of the workers, in the form of earnings, which they can divide between accumulation and spending according to their will. And since greater accumulation allows for greater income in the future, workers will be motivated to save under socialism - which allows for further progress. Now Mr Korac can proudly say that he has proved that "the system of socialist commodity production is self-perpetuating". At the same time, though, he has created a set of the same problems for his model that every capitalist corporation has. For example, the different composition of the means of production (capital intensivity) forces enterprises to move from one to another branch of industry, which Mr Korac "solves" by renaming the law of equalisation of profit margins "the law of the equalisation of earning rates", and by reintroducing Marx's concept of cost of production. Further deduction, of course, leads him to the discovery of the tendency for the rate of profit to fall as inevitable. And then he can do nothing else, but postpone the remedy for this incurable disease of capitalism, with which he has infected his own socialist model, to some future, communist society: "We could say that the tendency of earning rate to fall is evident in the manifestation of the historical and transitory character of socialism based on commodity production."

But he could not shake off as easily the tendencies of the concentration and the centralisation of capital, as well as the problem of monopolisation, which are also the by-products of the market mechanism:

"Socialist commodity production, however, because of its imminent internal driving forces... also shows this tendency of the further concentration of the means of production. And this concentration and its uneven distribution make the productive and market structure of socialist commodity production 'imperfect' - because of its internal competitive forces. This 'imperfection' produces, even independently of the subjective inclinations of agents in production and exchange, 'monopolist tendencies', which, through higher prices, lead to the distribution of national income.... differently to the way that this would be achieved if market prices were regulated by the law of [socialist] cost of production."

And, as if this has not sufficiently undermined his model of the socialist economy, the problem of the further redistribution of the national income emerges: "The existence of commodity production implies trading...The engagement of material and human resources in this non-productive area means, in the final analysis, the reduction of social productive capacity."

Essentially, none of the problems of capitalism that Marx pointed to in his analysis, was solved in Mr Korac's theory. For this reason, he makes excuses for himself by claiming that he is only analysing "the objective economic tendencies" of socialism. But, these were not objective tendencies, these were the consequences of the formal copying of Marx's critique of capitalism. As stated before, by declaring the socialist enterprise (factory) in which the working collective was "the first appropriator of produce", Mr Korac formally solved the problem of the exploitation of the workers and put surplus value back in the hands of the workers. But, this cannot be the true solution for socialism, because his "socialist collective" remained the market agent exposed to the laws of commodity production - in the same way, one can formally solve the problem of exploitation by putting the means of production in the hands of every worker (making them his own property), i.e. by restoring the system of individual commodity production. And although it occurred to no one who was sane to propose this, since everyone knows that competition in this system necessarily leads to capitalism as a more developed system of commodity production, there were theoreticians who proposed the system of "collectivist" commodity production exposed to the same mechanism of competition. Would not this system produce exactly the same results - the concentration of the means of production in the hands of a constantly decreasing number of market agents, and the PROLETARIANISATION of those who lose on the market?! In other words, the atomisation of market agents - even if they are "socialist enterprises", which is presupposed by Mr Korac in his theory, and which was the unrealistic presumption even of his own time (not to mention in today's fantastic levels of the concentration and centralisation of capital) - must sooner or later produce monopolisation - a tendency of which he was aware - and by this, the destruction of the laws of commodity production. Then market prices are no longer the statement of the value of the product, and surplus value redistribution and exploitation emerge once again, despite the fact that the workers are formally the owners of the means of production.

Thus it is clear that Mr Korac's model cannot be the model of a genuine socialist economy, nor can it be rescued by his claim that the planned activities of society must be based on the acknowledgement of his "laws of socialist commodity production". This kind of commodity production cannot be incorporated into socialism. And since mankind still has not dealt with decadent capitalism, which it must do unless it wants to be thrown back to barbarism - as the history of the twentieth century illustrated to us that it is on the verge of doing - the question of socialist revolution is still very relevant. The future socialist revolution must be international, with the democratic participation of the working class in the governing of society. Only in this way will it be possible to create a genuine socialist society, which is able to rationally manage the resources it has; which uses planning - and that must be its fundamental feature, not a mechanism for the correction of commodity production - for the rational management of a highly developed and concentrated means of production that would have to continue to be developed further in order to increase the material wealth of society.