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A Contribution to the Critique of Attempts to Construct a System of Economic
Calculation for the Socialist Community
We may divide the various attempts, which have been made to think out a system of
economic calculation which would work under Socialism, into two main groups. In
so doing we leave out of count works based on the labour theory of value which are
misleading from the very outset. The first would contain those which may be designated
syndicalist constructions, the second those which try to evade the impossibility
of solving the problem by assuming that economic data do not change. The error in
both groups of proposals should be clear from what we have said above
The following criticism, which I have made of two typical constructions of this
kind, is intended to add further elucidations.
In an article entitled "Sozialistische Rechnungslegung" (Socialist Accounting)
Karl Polányi has attempted to solve what he calls "the problem of socialist accounting"
which is, according to him, "generally recognized to be the key problem of the socialist
economy." Polányi first admits unreservedly that he considers the solution of the
problem impossible "in a central administrative economy." His attempt to solve
the problem is designed only for 'a functionally organized socialist transition-economy."
This is the name he gives to a type of society corresponding approximately to the
ideal of the English Guild Socialists. But his concept of the nature and possibilities
of his system is, unfortunately, no less nebulous and vague than that of the Guild
Socialists themselves. The political community "is considered to be 'the owner of
the means of production'; but no direct right of disposing of production is implied
by this ownership." This right belongs to associations of producers, elected by
workers in the various branches of production. The several individual producers'
associations are to be amalgamated as the Congress of producers' associations, which
"represents the whole of production." Confronting this is the "Commune," as the
second "functional main association of society." The Commune is not only the political
organ, but also the "real bearer of the community's higher aims." Each of these
two functional associations exercise "within its own sphere the legislative and
executive functions." Agreements between these functional main associations constitute
the highest power in society.
Now the defect in this system is the obscurity in which it evades the central problem—Socialism
or Syndicalism? With the Guild-Socialists, Polányi expressly assigns to society,
to the Commune, ownership of the means of production. In doing so he seems to think
he has said enough to save his system from the charge of Syndicalism. But in the
next sentence he withdraws what he has said. Ownership is the right of disposal.
If the right of disposal belongs not to the Commune, but to the producers' association,
these are the owners, and we have before us a syndicalist community. One or the
other it must be; between Syndicalism and Socialism there can be no compromise or
reconciliation. Polányi does not see this. He says: "Functional representatives
(associations) of one and of the same person can never irreconcilably conflict with
each other; this is the fundamental idea of every functional constitution. For the
settlement of each conflict, as it arises, either joint committees of the Commune
and the Producers' Association are provided or a kind of Supreme Constitutional
Court (co-ordinating organs), which has, however, no legislative power and only
limited executive power (guarding law and order, etc.)." This fundamental idea
of the functional form of constitution is, however, wrong. If the political parliament
is to be formed by the votes of all citizens, with equal voting rights for each—and
this condition is implied by Polányi and all other similar systems—then the parliament
and the congress of producers' associations, which is the result of an electoral
structure quite differently built up, may, easily, conflict. These conflicts cannot
be settled by joint committees or by law courts. The committees can settle the quarrel
only if one or other of the main associations preponderates within them. If both
are equally strong, the committee can come to no decision. If one of the two associations
preponderates the ultimate decision lies with it. A law court cannot settle questions
of political or economic practice. Law courts can give judgment only on the basis
of already existing norms, which they apply to individual cases. If they are to
deal with questions of utility, then they are in reality not law courts but supreme
political authorities, and everything we have said about the committee is true of
If the final decision rests with neither the Commune nor the Congress of Producers'
Associations, the system cannot live at all. If ultimate decision lies with the
Commune, we have to deal with a "central administrative economy," and this, as even
Polányi admits, could not calculate economically. If the Producers' Associations
decide, then we have a syndicalist community.
Polányi's obscurity on this fundamental point allows him to accept a merely apparent
solution as an actual workable solution of the problem. His associations and sub-associations
maintain a mutual exchange-relationship; they receive and give as if they were owners.
Thus a market and market-prices are formed. But because he thinks he has surmounted
the unbridgeable gulf between Socialism and Syndicalism, Polányi does not perceive
that this is incompatible with Socialism. We might say much more about other errors
in the details of Polányi's system. But in view of his fundamental mistake they
are of little interest, as they are peculiar to Polányi's train of thought. That
fundamental mistake is, however, no peculiarity of Polányi's; all guild socialist
systems share it. Polányi has the merit of having worked out this system more clearly
than most other writers. He has thus exposed its weakness more clearly. He must
also be given due credit for having realized that economic calculation would be
impossible in a centralized administrative economy with no markets.
Another contribution to our problem comes from Eduard Heimann. Heimann is a believer
in an ethical or religious Socialism. But his political views do not blind him to
the problem of economic calculation. In treating this, he follows the arguments
of Max Weber. Max Weber had seen that this was the "absolutely central" problem
for Socialism, and had shown in a detailed discussion, in which he rejected Otto
Neurath's pet dreams of "calculation in kind" ("Naturalrechnung") that rational
economic action was impossible without money and money-accounting. Heimann therefore
tries to prove that one could calculate in a socialist economy.
Whilst Polányi proceeds from a system allied to the English guild socialists, Heimann
develops proposals parallel to the German ideas for a planned economy. It is characteristic
that the arguments, nevertheless, resemble Polányi's on the only point that matters:
they are regrettably vague just where they ought to be explicit about the relationship
between the individual productive groups, into which the society organized according
to planned economy is to be divided, and society as a whole. Thus he is able to
speak of trade taking place as in a market, without noticing that the planned
economy, completely and logically carried through, is tradeless and that what might
be called buying and selling should, according to its nature, be described quite
otherwise. Heimann makes this mistake because he thinks that the characteristic
mark of the planned economy is above all the monopolistic amalgamation of individual
branches of production, instead of the dependence of production on the unitary will
of a central organ. This mistake is all the more astonishing as the very name "planned
economy" and all the arguments brought forward to support it stress particularly
that the economic direction would be unitary. Heimann does indeed see the hollowness
of the propaganda which works with the catchword "anarchy of production." But
this ought never to have allowed him to forget that just this point and nothing
else, is what sharply divides Socialism from Capitalism.
Like most writers who have dealt with the planned economy, Heimann does not notice
that a planned economy logically carried out is nothing more than pure Socialism
and differs from the strictly centrally organized socialist community only in externals.
That under the unitary direction of the central authority the administration of
individual branches of production is entrusted to seemingly independent departments
does not alter the fact that only the central authority directs. The relations between
the individual departments are settled, not on the market by the competition of
buyers and sellers, but the command of authority. The problem is this: that there
is no standard by which one may account and calculate the effects of these authoritarian
interventions, because the central authority cannot be guided by exchange-relationships
formed on a market. The authority may indeed base its calculations on substitution-relations,
which it determines itself. But this decision is arbitrary; it is not based, as
are market prices, on the subjective valuations of individuals and imputed to the
producers' goods by the cooperation of all those active in production and trade.
Rational economic calculation cannot therefore be based upon it.
Heimann achieves an apparent solution of the problem by invoking the theory of costs.
Economic calculation is to be based upon cost computations, prices are to be calculated
on the basis of the average costs of production, including wages, of the works attached
to the accounting-office. This is a solution which might have satisfied us two
or three generations ago. It is not enough nowadays. If by costs we mean the loss
of utility which a different use of the factors of production could have avoided,
it is easy to see that Heimann is moving in a circle. In the socialist community
only an order from the central authority could enable industry to use the factors
of production elsewhere, and the problem is just whether this authority could calculate
so as to decide upon such an order. The competition of entrepreneurs who, in a social
order based on private property, try to use goods and services most profitably,
is replaced in the planned economy—as in every imaginable form of socialist society—by
actions-according-to-plan of the supreme authority. Now it is only by this competition
between entrepreneurs, trying to wrest from each other the material means of production
and the services of labour, that the prices of the factors of production are formed.
Where production is to be carried on "according to plan," that is, by a central
authority to whom everything is subject, the basis of calculation of profitability
vanishes; only accounting in kind remains. Heimann says: "As soon as real competition
exists on the market for consumers' goods, the price-relationships thus determined
spread from there through all the stages of production, provided that pricing is
effected reasonably; and this happens independently of the constitution of the parties
in the markets for producers' goods." This, however, would only be the case if
there were genuine competition. Heimann conceives society to be the association
of a number of "monopolists," that is, of departments of the socialist community,
to each of which is entrusted the exclusive working of a delimited field of production.
If these buy producers' goods on the "market," it is not competition, because the
central authority has in advance assigned to them the field in which they are to
be active and which they must not leave. Competition exists only when everyone produces
what seems to promise the best profit. I have tried to show that this can only be
ensured by private ownership in the means of production.
Heimann's picture of the socialist community considers only the current transformation
of raw materials into consumers' goods; it thus creates the impression that the
individual departments could proceed independently. Far more important than this
part of the productive process is the renewal of capital and the investment of newly-formed
capital. This is the central problem of economic calculation, not the problem of
disposing of the circirculating capital already in existence. One cannot base decisions
of this sort, which are binding for years and decades ahead, on the momentary demand
for consumers' goods. One must look to the future, that is, one must be "speculative."
Heimann's scheme, which enlarges or restricts production mechanically and automatically,
so to speak, according to the present demand for consumers' goods, fails here entirely.
For to solve the problem of value by going back to costs would suffice only for
a theoretically conceivable state of equilibrium, imaginatively conceivable but
empirically non-existent. Only in such an imaginary state of equilibrium do price
and costs coincide, not in a changing economy.
For this reason, in my judgment, Heimann's attempt to solve the problem, which I
submit I have shown to be unsolvable, breaks down.
Archiv für Sozialwissenschaft, Vol. LI, pp. 490-95.
Ibid., Vol. XLIX, pp. 377-420.
Ibid., pp. 378 and 419.
Archiv für Sozialwissenschaft, Vol. XLIX, p. 404.
Ibid., p. 404 n20.
Heimann, Mehrwert und Gemeinwirtschaft,
kritische und positive Beiträge zur Theorie des Sozialismus (Berlin, 1922).
Max Weber, Wirtschaft und Gesellschaft,
op. cit., pp. 45-9.
Heimann, op. cit., pp. 184 ff.
Ibid., p. 174.
Heimann, op. cit., p. 185.
Ibid., pp. 188 ff.
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