Collectivist Economic Planning

II THE PROBLEM OF VALUE IN THE SOCIALIST COMMUNITY 1

By N. G. PIERSON

(Translated by G. Gardiner.)

A STRIKING and somewhat disquieting characteristic of our time is the fact that so little attention is paid, particularly by the younger generation, to problems of theoretical economics. It is the more striking because, in view of the present enthusiasm for social legislation, just the contrary might have been expected. As long as things are permitted to take their own course and the activity of the State is restricted to the maintenance of order—apart from the provision of education, the execution of public works, and so on—then only scientific interest will provide a stimulus to theoretical economic research. A practical stimulus only appears when people begin to have doubts as to the usefulness of the laissez-faire principle. Then they must know, if they are to avoid fundamental errors in their plans for improving conditions, what effect may be expected to result from a given action under given circumstances; in other words, they must know the significance of the most important economic laws and how these laws operate. Any innovation which was not based upon such knowledge would be a leap in the dark; and it is the aim of theoretical economics to provide us with this knowledge. The workman who does not wish to improve his tools need not concern himself with mechanics, and the landlord who is content to leave his house as it stands need not study architecture. But the present generation desires radically to improve the social mechanism and is at least far from satisfied with its structure. How, then, may we explain the fact that, with certain exceptions, so little attention is paid to economic theory?

In order to give a complete answer to this question, various circumstances would have to be considered. It appears to me, however, that the explanation lies principally in the growing sympathy with socialism which is displayed by the younger generation. Theoretical economics seeks to elucidate the construction of society, but present society, in the opinion of many, is doomed; and whoever believes this cannot be attracted to the scientific study of something whose early disappearance is certain. Who will look for the connection between the wages of labour and capital when he regards the wage system as a form of slavery and discovers the source of interest in an injustice? Who will devote himself to problems which arise out of the free play of supply and demand, when he seeks to place individuals in quite a different economic relationship to each other than that determined by the law of supply and demand? Who will attempt to unveil the secrets of the exchanges and the money market, when he believes that bill brokerage is a symptom of disease and money an unnecessary evil? People who profess such opinions believe that more serious questions, matters of more vital interest, claim the attention of thoughtful men; and if we ask what problems they have in mind we are referred to the works of Karl Marx. Social legislation, according to them, is useful, but only a makeshift. A complete renewal of society must be the goal.

In this essay I hope to show that it is a mistake to believe on these grounds that the efforts of theoretical economics are unnecessary. This branch of knowledge can never be neglected—not even in the event of socialism being carried into practice. As to whether socialism can be carried into practice I shall not decide here. But for the sake of argument let us suppose that it is. In this case, admittedly, many of the problems which now demand our attention would disappear, but this is by no means true of all the problems, nor of the most important; these would merely assume other forms. It is not to be believed that the best economic writings of our day would in such circumstances become worthless; they would be referred to, and not in vain, for advice on many important questions. One problem above all would remain and, appearing in the most diverse forms, would call for a practical solution. I mean the problem of value.

The problem of value? These words will astonish many of my readers; this will be the last thing they expected. The problem of value in a socialist society? Surely, if socialism is realized, there will be no value phenomena and therefore no value problem. Then everything will be a mere question of technique. This opinion is, in actual fact, very widely held, but however popular it is, and however frequently and dogmatically stated, it is nevertheless profoundly erroneous. And from more than one point of view the error is grave. There is first of all the scientific aspect of the matter. If the view which I am opposing were correct, then everything which has been taught by the foremost thinkers in recent years on the idea of value would have to be completely revised. Secondly, there is the objection that this theory obscures any clear understanding of the conditions of life in any society—makes, in fact, such an understanding impossible. Whoever believes that under the regimen of socialism value has no important task to perform fails to apprehend these conditions of life; he confuses a particular form of social life with life itself and lacks a sufficiently clear appreciation of the duties which the government of a socialist state would have to discharge.

To many readers of this journal all this will appear self-evident. Others, however, may require a more detailed elucidation of what has been said, and this I hope to offer in these pages. A short digression may first however be permitted. As, in this essay I shall speak continually of socialism, I should like to explain what is to be understood by this term.

There are various kinds of socialism. The first, if I may be permitted the expression, is the socialism of hope. No serious thinker can study our social system without becoming aware of its defects, and a recognition of these may make so deep an impression upon him that he may begin to have doubts as to whether the existing social structure can last. If in addition he believes wholeheartedly in the progress of human nature and in the evolution of altruistic motives, then he may eventually reach the point of predicting that these motives will one day become dominant; and to this he may perhaps subjoin a second prediction which says that a renewal of the social order will one day follow of its own accord. The second prediction is not inseparable from the first; indeed, it is not difficult to adduce reasons for maintaining that the first precludes the second. Let us assume that mankind has attained so high a degree of moral rectitude that social evils which arise out of a defective moral sense have either disappeared or at least considerably diminished. Alcoholic excess has become rare. Among the workers a sense of duty reigns supreme; everywhere concern is felt for the future, and to-morrow is no longer sacrificed to to-day. The entrepreneurs conduct themselves as only the best of them behave to-day. Poor relief is organized better and provides real assistance for those in need. Social legislation bears the stamp of the higher ethical code which is gradually being enforced. In such circumstances would there be a call for a reorganization of society? Or would it then be realized—what has so long and so often been pointed out—that the chief cause of poverty lies not in the social organization but in men themselves; in the fecklessness and thoughtless conduct of some and in the dissipation and indifference to the common good of others? Is it not further possible that our descendants having attained so lofty an ethical plane, would hesitate to introduce measures which might involve a lower standard of living for the majority? Admittedly there are perils which threaten morality in the present order of society; but this is common to any conceivable social order. Communism, for example, might encourage negligence, idleness or even habitual theft, while on the other hand sagacity and the power of organization might be lost under this system. To predict, therefore, that there will be a considerable improvement in moral standards in no way compels us to predict that society will be reorganized on new principles. Logically the two predictions are independent of each other. In actual fact, however, the first is often linked to the second, and thus arises that socialism of hope which, as I have said, attracts so wide a following to-day. Its partisans have no clear conception of what the future will bring forth. If we suggest to them that they should at least give an account of the general lines upon which they would proceed to a solution of the various practical problems which would confront socialism, then we are regarded with an air of pity; we have failed to appreciate their point of view. Some vague feeling tells them that the social order in which we live to-day cannot endure, and that there are hidden moral forces in humanity which as they wax stronger will evolve a better system. They make no attempt, however, to expound this better system nor, in their view, should they be asked to do so. Thus it is even possible to describe this form of socialism as poetical socialism. Yet the best plan of all is to follow the advice of Cairnes and to deny it the name of socialism altogether. John Stuart Mill, in his autobiography, numbered himself among the socialists, because he believed that certain ideals would be realized in the distant future. In this connection Cairnes pointed out that true socialism does not consist of a body of ideals which can only be realized if human nature and the conditions of human life are radically transformed. Socialism subsists in the recommendation of certain modes of action and in the utilization of the authority of the state for particular purposes.2 This appears to me also as the correct view. If, for the purposes of this essay, we describe socialism in this way, then no misunderstandings will arise on account of nomenclature.

Pure communism is just as vague in its conception and just as dogmatically presented as the socialism of hope. In so far as it relates to family life, communism must be sharply distinguished from socialism, but its principles as to the division of income have had the full support of certain socialists.

If the rights already acquired in the existing system are left out of consideration, then there remain alternative principles upon which to base the division of income: a division which is independent of services rendered and a division which takes services rendered as its measure. There is no third method; and whoever calls himself socialist must, if he wishes to avoid confusion, decide for one or the other. This does not mean that a decision for the second principle implies starvation for those who cannot perform services. The implication is rather that those who cannot perform services will receive only the bare means of subsistence. The first principle is that of communism. It dissolves the connection between work performed and income received. That you must work, it says, is one thing; that you receive food, clothing and the means of subsistence is another. The second principle is that of society as it exists to-day—though it is not confined to such a society.

The first principle presupposes an obligation on the part of everyone to work. In the programme of the disciples of Marx and Lassalle which was laid down in Gotha in 1875 and which demanded a division “according to equal rights and the reasonable requirements of the individual”, there are included the significant words “with the obligation to work”. If the State is to provide us with all our needs, then it must dispose of all labour at its own discretion, otherwise its task will be impossible. It must be in a position to place us where our work is required and it must not be so far influenced by our wishes that they interfere with its plans. Only the second principle is compatible with a free choice of vocation. Whoever does not wish to relinquish this freedom must oppose communism. This is not to say that he must approve of the existing social system. So far as the principles of the division of income are concerned, it is quite possible, assuming certain adaptations, to imagine a social order which lies between the present system and communism, and which is related to both. Indeed, there is room here for several systems, some of which tend towards the left and others towards the right, and all of them being entitled to the name of socialism.

It is this third kind of which I desire to give an account. It is not to be spoken of with too easy a contempt. Let us not allude to deformed and bastard systems. Where has it been laid down that a social order which is not the logical application of an economic doctrine cannot be practicable? Why should we not take over from communism and the existing social order just what we choose, if in this way we can attain the system we desire? I am not suggesting that such a course of action would be wise or good; I merely affirm that it should not be condemned a priori, I do not doubt that in practice this procedure might meet with insuperable difficulties, but I believe we can only be certain of this when we have decided what features of each system are to be appropriated. Many of them will be compatible with one another, many will not; others will only adjust themselves with difficulty. Socialists of the third group will have to enlighten us on this point. As long as they fail to do this completely we shall have to reserve our judgment on their system as a whole and confine our criticism to such of the parts as have been more or less clearly elaborated.

We are, however, entitled to insist that socialists shall be consistent; that is to say, when they are put to the question, they must not take up the standpoint first of one group of socialists and then of another; this would make any fruitful discussion impossible.

Now in what follows let me make certain assumptions. Let me assume that you, reader, are an energetic propagandist and that you are doing your best to secure for socialism a position of influence in the State. You are foremost in prosecuting the class-war. This war is based upon Marx’ doctrine that capital receives a share of the product which is not due to it and that it exists therefore at the expense of the worker. When socialists make use of the expression “capitalistically organized society” they mean a society in which all the means of production are in the hands of the capitalists. This state of affairs, they maintain, must be transformed, the lords must be dethroned; and as those in power are not ordinarily prepared to abdicate of their own free will they must be forcibly deposed in the class-war. Such a war necessarily leads to a political revolution. What must take place then—“on the morrow of the revolution” as Kautsky expressed it briefly in Delft3—has in part been communicated to us by this leader of the Marxian school. To know this was even more important than to know the points at which he considered intervention to be desirable.

Now you, reader, are fighting in word and deed on behalf of these ideas, and we therefore ask you a few questions. You are asked to clear up certain very important matters which you and those who think with you have allowed to remain obscure. You are asked how you would propose to order things once it was decided to introduce socialism. That you refuse to answer. You do not accept the notion of introducing socialism. Socialism you say, will come of its own accord in the natural course of evolution, and once this fact is grasped it is clear that difficulties which would otherwise be insuperable will not arise at all. “The uninterrupted evolution of society which makes no sudden jumps, even though it sometimes appears to do so, must itself overcome them. The social democrats proceed upon the assumption that human society, like nature as a whole, is governed by the principle of evolution, of evolution to higher forms. The later stages of society must always be more advanced than those which have preceded them. From this it follows that the intermediate stages and the transitional forms must adjust themselves to the conditions which they find in existence when they arise.” 4

This I find perplexing. Whether evolution never “makes jumps” is a problem in itself upon which the most recent researches of Professor Hugo de Vries have thrown much light; but it is certain that the socialists who talk in this way are “making jumps” day by day as they participate in the class-war, and their intention that society shall do the same is as clear as possible. Why do they devote themselves so ardently to propaganda if their work will in any case be done for them by the evolution of society? And why is a Kautsky called into being to tell us what will happen “on the morrow of the revolution”? If nature is working on our behalf even to the extent of removing “obstacles” which would otherwise be “insuperable”, then the life of the socialist must be easy indeed. Yet you, reader, as a socialist, do not seem to conceive it as such.

Before making my second assumption, let me say a few words by way of introduction. Much ill is spoken of communism, and not without reason: few people, I believe, take it altogether seriously to-day. But we must grant it one thing: for the grave problem of unemployment it offers something more than a solution; for in a communist society the problem cannot arise. If the enjoyment of income is entirely divorced from any rendering of services, it is quite true that great poverty and even starvation may occur; but this distress will be common to all and will not be confined to those whose work has become temporarily superfluous. Unemployment—I use the word in its technical sense—can only arise in a society in which income depends on service of one sort or another; and that precisely is what is absent from communism.

This system therefore deals finally with the problem of unemployment; but—and let us mark this fact—this is true of no other system than communism. The unemployment problem is not solved merely by placing the means of production in the hands of the State. In the State factory there will not always be employment for the same number of workers. Seasonal variations, changes in taste and fashion, temporary shortages of raw material and excessive stocks due to overestimating the requirements of consumption and export—all these circumstances must arise in any society, however it may be constructed. It may indeed be established that workers who are discharged in such cases shall continue to receive a certain income. Such an income, however, cannot in principle be distinguished in any way from relief, and it is possible without the aid of socialism to mitigate the hardships of unemployment by means of public assistance, labour exchanges and unemployment insurance. Only under communism is it impossible for unemployment—again in its technical sense—to arise.5

Then what shall we say of socialists who, proving with every utterance that pure communism is not their objective, nevertheless include among the advantages of their system the disappearance of unemployment. Surely they are decking themselves out in other people’s finery ! Their behaviour is comparable to that of people who appeal to the continuity of evolution while pressing on to the greatest of all revolutions. If this continues, the last trace of clarity will vanish from the dispute; nothing will remain about which argument is possible. To-day the disputant will champion the class-war; to-morrow (when he has realized to what this war must lead) he will support the socialism of hope; the day after tomorrow (when he wants to make converts) he will advocate communism; and so at last (when the absurdities of communism and its demoralizing effects have been demonstrated) he will return to his original position. But this will not do. It is not only essential to know what aim one is pursuing, but also to make it possible for others to know as well.

I have permitted myself this lengthy digression before proceeding to my main study, in order to show that socialism is not to be regarded as a single whole. Even if we ignore “poetical” socialism there still remain the other two, and the distinction between these will have to be kept clearly in mind when we are discussing a socialist society. Such a society may, so far as the division of income is concerned, rest upon a strictly communist foundation; but it may also retain the principle of the division according to work done, even though it may not recognize as work done all that the existing system understands by these words. In other directions also the socialist society may be in part similar and in part dissimilar to the existing order—may be, in fact, a mixture of various elements. How closely this mixture can resemble the existing system has been indicated in the discussion of Kautsky’s speech at Delft in the May number of this journal.6

It should not be thought that in demanding consistency from socialists I am accusing them of insincerity. Their fault is that they have not always made themselves sufficiently clear as to their own ideals. Thus a certain nonchalance, which is often a peculiarity of their ex-positional writings, also appears in their polemics. For example, Herr Troelstra, in his Theorie en Beweging, ascribes the rejection by the bourgeoisie of the surplus value theory to the fact that this theory is “a standing protest against the ethical feelings of which the bourgeoisie delights to boast”: yet he surely cannot mean this statement to be taken literally. He knows as well as anyone with what weighty arguments—though he may refuse to recognize them—the surplus value theory has been assailed, and he knows how entirely genuine are the ethical feelings of many of those to whom he refers. When he speaks, a few pages later, of the “bourgeois economic doctrine” which “sees the harmony of all interests as a consequence of free competition” here, again, we are not to take his words literally. He must be quite well aware that the doctrine of Bastiat, which he has in mind, was not approved of by a single writer of repute among the “bourgeois” economists, but that it has in fact been most energetically contested by many of them. Accurate thinking is by no means one of the principal virtues of the social democrats and thus they are guilty of a certain negligence in the exposition of their system. They are not always clear themselves as to what it permits and what it most rigorously excludes. It is possible for them to jump from one point of view to another without themselves being conscious of the change. Onlookers, however, cannot help wishing that they were conscious of it, in order that a considered utterance as to principle might be possible.

We economists—I would add: of the school of Alfred Marshall, as there is no one in the field of thought or endeavour whom we would more willingly recognize as our master and leader—we economists keep an open mind with regard to socialism. Of those who profess that faith we ask only one thing: persuade us ! Yet we cannot be persuaded as to the practicability of any system unless we are first made aware of what it involves and are then given an opportunity of judging whether it would function properly. Do the protagonists of socialism wish to persuade us that the system would work, or do they not? If they do not, then why all this literature and agitation? If they do, why do they not grasp the weapons which lie at hand? That they fail to do so I can only ascribe to the fact that their system has not been thoroughly thought out. Their point of view with regard to the value problem, which I referred to above, and which I have never seen contradicted from socialist sources, makes this appear very probable. The proof that this point of view cannot be maintained may serve to clear up certain points, and it may provide some socialists with a clearer idea of what is demanded of them by a serious student of their opinions.

I

It is international trade which must first of all claim our attention. This, as is well known, is governed under the present system—and so long as the State does not interfere—by the reciprocal relations of various value phenomena. International trade as it is carried on to-day automatically provides the solutions to a number of practical problems of value. It is now my task to show that some of these problems would persist in the event of the means of production, or at least the more important of them, falling into the hands of the various States. In this case it would be the task of the governments concerned to maintain such trade either on the basis of an agreed code or by negotiation.

Here is one problem of value: who shall furnish the capital necessary for such trade? Let us state the problem in more detail. If the Netherlands send manufactured goods to Java, and receive in exchange coffee and rice, this business can be transacted in three ways: (1) Java first sends us the coffee and rice, and only when these goods have been received, perhaps only when they have been partly consumed, do we consign the equivalent. (2) The Netherlands first export manufactured goods to Java and await the arrival of the equivalent. (3) Both countries ship their products at approximately the same time, so that they meet half-way. In the first case Java furnishes the capital, in the second the Netherlands, while in the third each does its share. From the point of view of mankind in general there is no doubt as to the proper solution of this problem. There are peoples who could take no part whatever in international trade if they had to supply the necessary capital, because they do not possess it. Others might be in a position to put up the capital, but only by withdrawing it from other purposes from which it could not well be spared. They possess capital, but not nearly enough, and this expresses itself in the rate of interest which is higher with them than elsewhere. A third group of nations, on the other hand, possesses an abundance of available capital, and here the rate of interest is low, sometimes very low. In such countries it is possible for many entrepreneurs to produce commodities and to wait months for payment, while in the meantime their employees’ wages have to be paid; and if in the meantime one of them comes to need capital, there are always persons willing to lend it. Divers credit institutions make a regular business out of the provision of such credits. It is clear that it is the third group of peoples which must provide the capital necessary for international trade, and that the free play of supply and demand will determine automatically to what extent they shall do so.

The manner in which supply and demand perform their task is perhaps not clear to everyone; many years ago I explained the matter in these columns, and I will now offer a very abridged version of what I then said.7

There exists, as is well known, a difference between the value of long- and short-term bills; this difference is determined by the rate of interest ruling in the domicile of the drawee and not of the drawer, though the latter, in special cases, may exert a certain influence. From this it follows that it cannot as a general rule be profitable to draw bills from a place with a low rate of interest on a place with a high rate. Anyone who is acquainted with exchange business knows also that when the rates of interest in two places are generally different then the long-term bills always run in one direction, namely, from the place with the high rate on the place with the low rate. One never finds a regular quotation for long-term bills in the opposite direction, as there is no regular supply of these. When we consign goods to a place with a higher rate of interest we do not draw a bill, but wait for the remittance. When we consign goods to a place with a lower rate of interest we are glad to draw a bill against them. Now let us consider what this means. A merchant in Batavia exports coffee to the Netherlands and draws a long-term bill in settlement of the amount. For this bill he finds a buyer, either another merchant or a banking institution. If it be a merchant, then he buys it because he has to remit money; and why has he to remit money, if not for goods which he has received? If, however, he has received goods, then the capital which has to serve as the equivalent of the coffee has gone to Java before the coffee has left it. And this is equally true if the bill has been purchased by a banking institution; for how can the banking institution pay for the bill if it has no capital, and from what other source can it have obtained the largest part of its capital if not from the payments of share- and bondholders in Europe? I believe that we need have no hesitation in designating as active the trade of peoples who await the receipt of remittances and who therefore commence the export; while the trade of the others may be described as passive. Peoples with abundant capital resources do active business, peoples with limited capital resources do passive business. This arrangement is to the advantage of both parties, since capital will be less useful in places where it is abundant than in places where it is scarce. It is clear that a problem of value has to be solved here. We must avoid employing capital in commerce when its services would be more productive in other directions. We must avoid employing capital for purposes in which it would be less productive than in commerce. And we have seen the mechanism of which society avails itself in regard to these two aspects of the problem.

But this mechanism would not require further consideration in these pages if its expedience and its implications did not claim our attention. We have to investigate not so much the manner in which the problem is solved as its content and practical significance in the widest sense. These will remain the same even if international exchange becomes commerce between States. Then no less than now will the general interest of mankind demand that only such capital be applied to international trade as cannot be more productively employed in other branches of earning; only such capital in fact as would not perform services of greater value elsewhere. We value things by considering the advantages which, because they are scarce already, would arise if they were not present. The value of the function of capital in every country and in every branch of earning depends therefore upon the degree in which the country or the branch of earning are in need of capital. The various governments will have to look for a measure which will enable them to form a judgment as to this, and such a judgment will be in substance a determination of value. This is what I wished to prove. It is not a purely technical problem which is here in question, but rather a decision as to the most profitable way of employing material things; and the rightness of such a decision must depend upon the rightness of the evaluation which preceded it.

What has been said of trade is equally true of the means of transport without which no trade is possible; especially of shipping. These also should be furnished by the peoples who—so far as their character, their situation and other circumstances permit—possess the most capital in relation to their needs. And so it happens to-day. The entrepreneurs seek out the most profitable branches of earning and unless legislation brings about an artificial change capital and labour flow to where, in relation to other branches of business, they will receive the greatest reward for their services. There are peoples who, if possible, leave the business of shipping to others; and they have good reasons for doing so as they would only be able to carry on a shipping business if they withdrew capital from more profitable employment. The conduct of such States as encourage the building and running of ships by means of subsidies is therefore absurd; they are forcing production into the wrong channels. A people does not necessarily make a bad bargain if it exports goods and so pays for the services of foreign ships. Where this is not to be ascribed to a lack of knowledge or enterprise it is both a proof and a consequence of a wise assessment of the means by which the greatest income may be obtained with the least exertion.

European capital, as is known, has another rôle outside Europe besides that which has just been discussed; it is employed in building railways and in establishing and operating agricultural and industrial undertakings. The interests of the capitalists provide the stimulus; but from the point of view of humanity the useful consequences are what we have just indicated. If on account of a reconstruction of society the forces which to-day transport capital into distant parts should disappear, then something else will have to take their place. The practical problem of value which is automatically solved in these cases would not disappear if its automatic solution were made impossible; it would remain in its entirety. Then no less, it would subsist in the question: how is the necessary capital to be brought to those places where its functions are of especial value? I describe this as a value problem because such a movement of capital should not be of a magnitude greater than the purpose demands. The movement itself would be pure technique; but the movement to an extent necessitated by the occasion, such that the interests of the one party are not sacrificed to those of the other, this is much more than technique. To-day these movements are controlled automatically; excessive efflux of capital from Europe causes the rate of interest to rise and thus restricts the flow. It would be the duty of the socialist State to find a criterion which in this respect would provide the necessary guidance.

Hitherto I have spoken exclusively of capital whose function is international over a period of years. Capital which is invested in commerce, in shipping, or in foreign enterprise as a rule retains its character for an extensive period, even though its owners may frequently and its component parts may continuously change. In international trade, however, capital also renders temporary services. From the numerous examples which might be adduced I select the most striking: I will assume that in a country which is not among the grain-exporting lands there is a failure of crops.

Here it is important to examine with proper care what difficulties would arise in such a case and what twofold task international trade would have to fulfil.

I say twofold task. Any text-book will tell us that in the case of a harvest failure prices will rise, while every country which is in a position to deliver grain will exert itself to consign part of its stocks to the State in which the shortage has occurred. The significance of this phenomenon should not be underestimated; in such cases international trade performs invaluable services. But if it did no more than this it would only have done half of its work; it would supply the means of subsistence to those who could purchase grain, but that would not be enough. What is chiefly to be feared in the case of a failure of crops? The danger is that productive work will slacken and unemployment will increase, so that the poor will be unable to buy grain. In what countries are the effects of famine most severe? In those countries in which labour for wages is the exception and labour for the immediate satisfaction of the workers’ needs is the rule. If in a particular year such labour is insufficiently productive, then only charity can help; for stocks are usually inadequate. In such regions our much reviled capitalism is insufficiently developed. Yet even in countries where capitalism is advanced a serious situation would arise—at any rate for a section of the populace—if in the event of a harvest failure overseas countries did nothing more than export grain. It is no paradox to maintain that the actual import of grain, while on the one hand it prevents great suffering, on the other hand sows the seed of trouble. For this grain is not given away; it must be paid for. Capital of equal value must leave the country, and in this way the wages fund may be considerably diminished. The course of events will be as follows. As a result of the heavy withdrawals of capital the rate of interest rises and consequently a number of undertakings become temporarily unprofitable. A slump occurs in the building trade and certain factories go on half time. The construction of new works is abnormally slack and improvements of land are suspended. It should, however, be noted that the cause of the slump is not the raising of the rate of interest but the diminution of capital resources. Raising the rate of interest only determines what branches of industry will be injuriously affected by the diminution; and we shall see that it provides a very salutary corrective. This corrective will never be altogether sufficient, but thanks to international exchange trade it can accomplish much.

The immediate effect of raising the rate of interest is that the means of exchange is more economically used; thus money becomes available. If, moreover, the bank is well supplied with gold, so that it may increase its note issue without difficulty, then this also may help to overcome the embarrassments which have arisen. But in the acute case which we have assumed more is required; foreign countries must assist. They send grain; but they must also help in the matter of payment so that the wages fund is not drawn upon too heavily. In a country which possesses many saleable foreign securities the raising of the rate of interest will depress their price and this will cause an export of securities. This means that a part of the grain will be paid for with securities. For the same reason the quotations of the long-term bills drawn on the country in question will be lowered, so that foreigners who have claims on the country which are not yet due will have an interest in retaining such bills so far as possible; and where they are unable to retain them the long-term bills will be bought by foreign bankers as investments. The trade of the country will become temporarily less active and more passive. If the rise in the rate of interest is considerable, then capital may even be imported from abroad. Thus, though the serious consequences of the harvest failure may not be avoided, in one way or another they may be spread over a longer period, so that they are more easily borne.

A socialistically organized society will at times be confronted with the same difficulties and it will only be able to overcome them if it follows the example (mutatis mutandis) which the existing society has given in such cases. Through its government it will have to borrow capital and pay interest on this capital. An offer to pay interest would certainly be preferable to an appeal to the good will of neighbours. It would then be possible to approach all States without distinction and without having to beg a favour from any of them; and what is still more important, the necessary capital would be obtained from those who could best spare it at the moment. The only question is whether the demand for, and payment of, interest is compatible with socialist principles. The same question, however, will arise in all the cases which have already been discussed, and probably the opinion will long have been reached that when in international trade one people renders services of the sort described, a settlement by means of interest is warranted by the most elementary principles of justice. Where goods are delivered and the equivalent is not received until months after, then the full equivalent is not recovered unless interest is paid. Where ships are built and put to sea in the service of others, freight may be claimed which includes the payment of interest on the value of the ships. He who puts capital at the disposal of agricultural and industrial undertakings is entitled to demand a reward. He is entitled to demand a reward because he offers something that has value. Or is it of no value if a man who is only in a position to trade “passively” is given the opportunity of doing business? If, seeking to exchange foreign goods for his own products and unable to build ships himself, others provide him with the transport? If, wishing to undertake some new enterprise and lacking the necessary means, others put them at his disposal? In such ways as these he may win substantial profits, earnings which he would not willingly forgo, and it is only just that he should give up a part of such income to those who have made it possible. The socialist States would recognize this; probably the first to do so would be those who found themselves compelled to draw upon the capital resources of others. It would soon become clear to them that in their own interest they would have to offer interest payments; while the governments to whom these offers were made would realize that, acting in the interests of those whom they represented, they could not refuse to accept them. Here the fixing of the rate of interest would in any case imply the solution of a value problem; the rate would always be based, on the side of the one party, on an evaluation of the services rendered and, on the side of the other party, on the advantages which would be derived from employing the capital at home.

Enough has been said on this subject; let us turn our attention to another question. Under what conditions would the socialist States trade with one another? Some will probably be inclined to reply that the amount of labour expended on each product should serve as a measure for the quantities to be delivered. But this answer would not get us much further. In passing I may remark that the selection of this measure of exchange would imply the solution of a value problem—though to be sure a false solution. It would regard all work—industrious and indolent, efficient and inefficient—as of equal value; the work of a Chinese coolie, for example, would be regarded as the equivalent of the work of a skilled craftsman. In any case the selection of this measure could hardly come seriously into question, as the amount of work required in the production of any article depends on the circumstances in which it is produced. Less work is required on fertile soil than on unfertile soil; less in a factory furnished with the most up-to-date machines than in one which is not so well equipped. If it is objected that by “work expended” is meant average expenditure, then I reply that this would entitle any country to increase arbitrarily the quantity of goods which it demanded from others: it would be possible to do this by producing on less fruitful ground and by less suitable methods. In this way a higher average expenditure would be attained.

Moreover, it may be questioned whether it would promote the general good if a tariff were established according to which every country could exchange with every other country ad libitum. Would such an arrangement give general satisfaction? Let us suppose that in Java the rice harvest has failed and that there is hardly sufficient rice for the inhabitants; should every other country be permitted to demand as much rice from Java as they thought fit? Or, vice versa, let us suppose that we in Holland are well supplied with textile products and that in Java, a tropical country where the demand for such articles is not unlimited, there is at the moment a greater need of iron products. Would Java be forbidden to say: I will gladly exchange my products for European articles; not however for textiles but for iron goods. Or we may consider the matter from the point of view of our own country. Let us assume that we are abundantly supplied with coffee, having recently received large quantities from Brazil; but that we would willingly increase our stock of other East Indian products. Should we then be prepared to allow Java to take in exchange for coffee as much of our products as they required? I need not adduce further examples to prove that unlimited exchange according to a fixed tariff could not be permitted, and that international trade between socialistic States could only be maintained according to the principles which govern international trade to-day. These principles are as follows: (1) Unconditional recognition of the freedom of everyone to exchange or not to exchange at his own discretion. (2) Exchange on a basis of equivalent services.

If these principles are not maintained, international trade will develop into a sort of international plunder. If a people can be compelled to part with things which they need for things which they do not need at all; if they can be forced to transact business which results in loss; and if such compulsion be expressly sanctioned; then exploitation will become a principle of justice.

Further, when any people concludes an exchange agreement it must be at liberty to make such terms as it deems satisfactory; in one case one condition of exchange may appear advantageous and in another case a different condition; this will depend upon the harvest, the season, and the fluctuations of demand, while the expansion of the population may also exert some influence. Thus the socialist States will have to negotiate with one another; and the practical problems of exchange trade which they will have to solve also in this connection will have to be regarded as so many value problems. Trade between nations, even if carried on by different methods from those we know to-day, will still retain its present character. Its aim and its outcome will be the mutual balancing of international demand.

So far as I can see there is nothing which contradicts this in the principles of socialism or even of communism. Moreover, I do not believe that either system precludes the use of money in international trade. The course of events would not be any simpler if the use of money were abandoned; for bills of exchange, essential to-day, and hardly to be dispensed with in the future, would then cease to exist. The bill, after all, is an international means of exchange, and for so extensive a commerce as trade between nations it is quite indispensable. For if we exclude exchange trade in its narrow sense—that is, with uncivilized or half-civilized peoples—international trade is conducted in such a way that there is an equal balance of payments in respect to all the transactions of each country, but not as between each country. The goods and services which for any reason a particular country has to demand from foreign countries as a whole will exactly balance the goods and services which it must or wants to provide to foreign countries as a whole; but the annual settlement with each single country will show a debit or credit balance. If country A sends us coffee and tea, this is no reason why we should be able to dispose of our butter and cheese in that country. If country B sends us coal, this is no reason why the best possible market for our potato flour should be country B. It would be exceedingly difficult if we had always to seek markets for our goods in the countries from which we required goods, and it would result in our having to accept bad prices. And it would be equally difficult if we could only buy in places where we sell. Thanks to exchange trade, which makes possible a sort of international clearing, this is not necessary. We can pay for the calico which we have bought in Bombay with the meat and vegetables which we have exported to London. Bombay then draws on us, payable in London, and we settle our debt through the English banker with bills on London which the meat and vegetable exporter has given up. We can buy coal in Germany and send sugar to America in settlement; the Americans give us remittances on England which are easily negotiable in Frankfurt or Berlin. Socialists will not imagine that general welfare will be promoted by so fashioning trade that such settlements are impossible; and thus their system will not be able to dispense with bills or—at least for international exchange—with money. But as soon as money and bills come into question, so also do prices and exchange-rates, that is, value phenomena; and such value phenomena always give rise to problems—problems which have to be solved.

II

The questions we have considered hitherto have none of them been purely technical; in all of them the value of things has played a part. But perhaps I shall be reproached. “How should it be otherwise,” it will be asked, “since up till now only exchange has been discussed? Turn your attention from international trade and you will discover no value problems in the socialist society.”

Very well, we will turn our attention to another field of inquiry. We will now discuss the division of income and we will assume that this is effected according to the most advanced method, that of communism. We at once discover a problem which is a value problem in the strictest sense of the word. What is to be regarded as income, and what therefore comes into question when considering the division? Naturally only net income; but the income of the socialist State will also be gross income. Raw materials will be required for the goods which it manufactures, and in the course of manufacture fuel and other things will be consumed and machines and tools will be wholly or partly worn out. The live stock which has been reared will have consumed fodder. In order to calculate its net income the communist society would therefore have to subtract all this from the gross product. But we cannot subtract cotton, coal and the depreciation of machines from yarns and textiles, we cannot subtract fodder from beast. We can only subtract the value of the one from the value of the other. Thus without evaluation or estimation the communist State is unable to decide what net income is available for division.

The following considerations must not be forgotten. Let us assume that railways have been laid down, houses and factories have been erected and enlarged, and steam engines have been built. Meanwhile the workers who have been engaged on the work have had to live. They have received what they needed as their share of the social income from the State warehouses. But have they received too much? Have they created at least as much income as they consumed? If not, then they have received more than was proper, and society has beer, impoverished. That this may have been the case is very possible. Not all work is productive in the economic sense, not even all work which has as its object the increase or improvement of material things. The planting of trees in a richly wooded area, or the laying on of water where there is already abundance of good drinking water would not be production. Now while it is clearly not probable that such gross errors would be committed, other and less perceptible mistakes might well be made continuously. It is possible, for example, to miscalculate demand, to carry out works at too high a cost, to put up buildings in the wrong places and to design them in a manner inappropriate to their purpose. The question which has just been asked can therefore only be answered after an estimation of what the workers have consumed and what they have produced; and the material, etc., which was required for the work, must be taken into account in the reckoning. Thus estimations and evaluations remain indispensable in determining what the communistic society may regard as net income.

It may perhaps be objected that they would not be indispensable if an inventory were made regularly at the end of each year. An inventory of all stocks would be prepared annually, and by comparing this with that of the preceding year the position would be ascertained. The making of an inventory would certainly be essential—and also the strict control of its accuracy—but that would not be enough. The condition of the goods would first have to be considered, and that in itself would entail an estimation. If, for example, it was found that some of the goods were in bad condition, this fact would have to be taken into consideration, and the spoilt goods would not have to be entered as equivalent to the others. Further, account would have to be taken of whether the goods on hand still served a useful purpose. Those which were useless would naturally be written off, but one would have to remember that there are degrees of usefulness. There is another reason why the mere making of an inventory would not be sufficient: the property of a nation is subject to continual fluctuation. I have already given examples of this. Houses and factories may take the place of consumption goods, and between things which vary among themselves it is only possible to make a comparison of value. Finally, I must draw attention to the goods in the warehouses destined to be exchanged for foreign products. Even if the stock of such goods was just as extensive as formerly, the State would be impoverished if the exchange relation between these goods and those required from abroad had moved unfavourably.

I do not wish to conceal the difficulties of making an estimate. These difficulties often appear under the existing system because money value cannot always be used as a measure. A railway, a canal, a museum, a school, or a hospital may be of great value to the community, yet they would not fetch a comparable money price or even a single florin. In examining new proposals for public works we always ask: Is the undertaking worth die sacrifice? We do not ask whether, if it were sold, it would bring in as much as it cost. In many cases the answer to the latter question would be in the negative, but the expenditure would nevertheless be entirely justifiable. Nor do we consider in such cases the utility of the class of things involved considered in the abstract. The hospital which people want to build may, as a hospital, be very useful, but in the site which has been selected it may be superfluous; there may, for example, be sufficient hospitals already. In such cases we consider value in the sense of the significance of specific things or numbers of things with respect to the satisfaction of which we are in need. In the case of the large majority of goods this expresses itself fairly accurately in the money value, at least in regions where exchange trade is highly developed. But in the examples which I have adduced this is not so, and that is one of the reasons why a State or community, in projecting public works which will not bring in a net income, will be wise to finance such works out of ordinary revenue, or if a loan is necessary, to repay it in a given time. But what in the existing society is the exception will be the rule in the communistic society from which exchange is absent, A value criterion will be lacking except for goods which are exported to foreign countries. This difficulty will have to be recognized as such and in one way or another it will have to be overcome. Otherwise, I repeat, the communist State will be unable to determine what it may regard as income.

And there is another problem of value which such a State will have to solve. In order to explain this I must make an assumption as to the manner in which, from the point of view of pure administrative technique, income will be divided in a communist society: I will make what appears to me the most reasonable assumption. As it is unthinkable that the needs of every individual will be taken into account, I will assume that the population is divided into groups as follows: (A) Unmarried persons; (B) Families without children, and so on. The more numerous the groups, the better; yet however numerous they may be, there will always be cases of individuals who are not adapted to any particular group; and conditions fluctuate so continually that no grouping can be perfect. A corrective is therefore indispensable. It may be assumed that each individual will receive certificates good for such things as are deemed necessary for him as a member of his group, these being valid for a definite period (weekly, monthly, yearly certificates, and so on). The corrective will fie in the fact that exchange of certificates will be permitted by the State warehouses. A person who, in his own estimation, has received too few certificates for any particular article will be able to obtain more of them in exchange for certificates for another article. The value problem is already obvious. A person who is willing to part with one thing for the sake of another values the latter more than the former. The value problem is to set up a suitable tariff for such legitimate exchange.

In any case, however, it would not be possible to maintain this tariff. As soon as the value relations between the certificates alter, the tariff would have to be modified accordingly. Such fluctuations must necessarily result from the same causes as alter the value of things in everyday life; and these causes would not cease to operate even if exchange trade were no longer the basis of the economic life of society. Let us suppose that there has been a failure of certain crops in the chief producing countries. Or that a severe winter impedes import and causes an excessive demand for warm clothing and fuel. As a result it is feared that stocks of certain goods may be insufficient. To-day, under such circumstances, the prices of the goods which have become scarce would rise so that their consumption would be restricted. In the communist society some means will have to be found for attaining the same end. A decree will have to be promulgated enacting that a certificate good for so much of such and such a commodity will henceforward be good for only three-quarters or half as much. By the same decree the exchange tariff will have to be altered.

But when this is done it will be observed that something very remarkable happens. To receive less of a thing than was expected is a disappointment for everyone—but not for everyone in the same degree. If, for example, meat is scarce, this will hardly disturb those for whom vegetarian diet serves almost as well; but those who are unwilling to restrict their consumption of meat will look for means which will enable them to continue as usual. There exist no greater differences than in the extent to which men value the enjoyment of particular things. As long as the communist State can supply each person with what he wants, no trading will arise as a result of such differences; but when this is no longer the case trading is inevitable. Then price lists will be circulated which will tell us for how many cigar, tea, or coffee certificates we can buy other certificates. Thus the commercial principle, which such a society sought in vain to abolish, comes once more into the foreground. Profits which the State should have been able to claim for itself fall to individual persons. The phenomenon of value can no more be suppressed than the force of gravity. What is scarce and useful has value. It may well be possible, in a communist society, to make value a source of profit to individuals, but to annihilate value is beyond the power of man. Value is not the effect but the cause of exchange. Things do not have value because they are exchanged; they are exchanged because they have value—more value for some people than for others.

From the most advanced type of socialism I pass now to the less advanced; to the socialism which does not dissolve the connection between services rendered and income, but maintains it in one form or another. What measure for the division of income would be regarded as best by those whose socialism is of this kind I should find it difficult to say. I am not sure they are agreed among themselves. Kautsky’s remarks on the division of income in his speech at Delft are very incomplete. This speech did not fulfil its promise by a long way. On so fundamental a matter as international trade not one word was said, and when the question of the regulation of the wages of labour came up, we receive little more than the intimation that they would be regulated according to the productivity of the labour. Is this now accepted as general theory among those who regard Kautsky as their leader? I do not know whether I may assume so much. It will be well to deal here with another doctrine which has found support, namely, that of labour certificates. According to this theory all work should be rewarded with certificates representing as many hours of work as have been done, and the prices of the goods in the State warehouses should in the same way be measured in hours of work or parts thereof. I shall not undertake a criticism of this system any more than I have undertaken a criticism of the communist division of income. I shall not ask how this system would be applied to articles like meat or milk, or to the rent of houses or to goods which in themselves or in respect to their raw materials are imported from abroad, perhaps in exchange for goods which are also made of foreign materials; or how under such a system the depreciation of machines and the consumption of oil, coal, etc., would be taken into account. Let us confine ourselves to the question which we have chosen to discuss; let us convince ourselves that in the system described the proposition we have just proved is even more clearly illustrated: namely, that it is impossible to prevent the appearance of value phenomena.

The fixing of prices in hours of work would be an evaluation. In accepting this system no attempt would have been made to avoid the value problem or the necessity for its solution; on the contrary, the necessity would have been fully recognized. An estimate in hours of work might be defective, but in any case it would be an estimate. With regard to the mutual co-ordination of all kinds of labour I do not venture to say the same, as in such a society this can only be based upon the notion that higher ability should not be entitled to a higher income; it must not therefore be conceived as a co-ordination in value. The pricing of goods in hours of work, however, cannot admit of any other interpretation, because it cannot be intended that in the socialist State particular individuals should be favoured. Yet what was not intended would certainly be the result. Reality would make mock of an evaluation in hours of work, and would set another in its place. For the value of things does not depend upon the amount of labour they have cost, but on a number of causes, among which the amount of labour plays a part, but not the only part.

With this assertion do I not come into conflict with Ricardo? Even if I did, it would not be the first time that I have joined issue with a man who, not less through his skill than through the weakness of many of his arguments, has succeeded in bedazzling his readers. On this point, however, Ricardo has not been rightly understood. German writers, and not they alone, persist with obstinate conviction in talking of the Ricardo-Marxian value theory. I, however,—no more than Dr. Verijn Stuart in his fine thesis Ricardo en Marx—have never been able to discover the slightest relationship between the doctrines of these two men. They treat of quite different things. Marx seeks to explain the origin of the return to capital; Ricardo seeks to elucidate the reciprocal value relations—the relations—of goods which by the expenditure of capital and work can be increased ad libitum. His theory may be expressed briefly as follows. Let us assume that a hundred products, produced with equivalent labour, are sold; the first for I fl., the second for 2 fl., the third for 3 fl., and the last for 100 fl. In each of these prices 60 per cent, is labour wages and 40 per cent, is interest on capital. It will now be possible to express the value relations between the 100 products in the following manner: 1, 2, 3 . . . 100 or also as: 0.60, 1.20, 1.80 ... 60; and if the wages of each hour’s work are 20 cents, as 3, 6, 9 . . . 300. In short, where the wages and interest contained in each price are in the same relation, and each hour of labour is paid for at the same rate, then the relation between the values of the products will agree with the relation between the number of hours of work necessary to produce them.

This simple theory, whose correctness is self-evident to any one who can multiply and divide, enables Ricardo to arrive at a principle which has only been fully developed by W. C. Mees in his Overzicht van eenige Hoofdstuker der Staatshuishoudkunde. In the case assumed above, the price relations undergo no change if the wages rise at the cost of the interest or if the interest rises at the cost of the wages. Such a rise or fall has an influence on the division of income between capital and labour, but on nothing else. That is what Ricardo wishes to emphasize. If, however, we eliminate this general equality of the relation in which wages and interest make up each price, whatever this relation may be; if, that is, we consider goods in the production of which capital and labour co-operate in very unequal proportions, then the amount of the wages and interest must have a pronounced influence on the value relation of the goods among themselves. The calculation can easily be made; and whoever follows out the lead of Mees may arrive at the most significant conclusions. Yet, what has all this to do with the doctrine of Marx? It always appears to me that those who seek to link the two doctrines misapprehend either the one or the other.

I revert to the system of estimation in hours of labour. What effects would it have? It is not necessary to quote examples of harvest failures, interruptions of trade and other causes of the normal increase of demand for certain goods, in order to show that this method of value determination would lead to the same phenomenon as we saw emerging earlier on: namely, trading. Things which on account of their intrinsic or superficial qualities are more in accordance with taste would have more value than other things which may have cost just as much in labour and they would naturally be in greater demand in exchange for certificates. Those who applied for such goods after the stock was disposed of would have to be satisfied with less valuable articles; many would therefore be prepared to offer more for the goods they wanted. Some might receive furniture produced by unskilled cabinet-makers, or pictures of less merit than those acquired by their neighbours. A farmer might receive an unsatisfactory horse. As long as men are prepared to give a higher price for more suitable and beautiful things than for things which are less suitable and beautiful, then the former will be regarded as more valuable than the latter; and out of this, exchange trade emerges automatically. The state, if it supplied both at the same price, would unintentionally favour certain individuals. And this would also be true if, in the event of a shortage of stocks which could not be rectified in time, the price tariff were left unchanged: speculators would then earn considerable profits by buying up large quantities of the goods in question. That would certainly have its useful side, as it would result in a timely restriction of consumption; but it would be so little in accordance with socialist ideals that a system that had such consequences would not, in the long run, satisfy a socialist community. Thus it would eventually be recognized that Schäffle was right when he recommended in The Quintessence of Socialism that what he (all too briefly) expressed as the “urgency of demand” should be taken into account when determining the value of goods. Socialism of the kind we are discussing would be sufficiently adaptable to enable us to follow his advice; but it will never come to this without strife. The solution of the “value problem” will probably long remain the problem of the day.

Let us now turn to Kautsky’s formula. This socialist leader, as far as I remember, did not tell us at Delft how he conceived that prices would be regulated. Nor did he acquaint us with the principles according to which the productivity of labour would serve as a measure for wages. One would naturally like to believe that he had not overlooked the necessity of distinguishing between gross and net income—in which process, as we have seen, evaluations are inevitable; but he did not tell us how these evaluations are to be made. In order to avoid repetition I will ignore this important point, though it will have to be cleared up eventually. I will turn to another matter. We will assume that the net product has been ascertained. From this is now deducted what is needed for the various duties of the State, as enumerated by Kautsky. There is also deducted what is required to form new capital—a requirement which Kautsky clearly recognized. In passing I may remark that he laid great emphasis on this point. He remembered that the profits and rents which are now gained by entrepreneurs and capitalists remain to a large extent unconsumed, thus forming capital, and he pointed out that in a socialist society the same thing must happen if the society is to endure. But let us proceed. Let us suppose that the necessary deductions have been made: does the worker receive the full balance? If he does, then he receives more than the formula meant to imply, for the productivity of the manual labour, which is only one of the factors of production, is not equivalent to the product of all the factors of production working together. A and B do certain work in common; in this case the productivity of A’s contribution can certainly never be equal to the product of the combined work of both of them, and this remains true when A’s contribution is not manual labour, but consists of managerial functions, of finding the necessary resources, or of providing the means of subsistence during the period of the work.

Let us suppose that twenty or thirty workers have combined to form a productive association. Their output is very limited because they are not aware of the newest technical inventions and because they do not know how to seize the most favourable opportunities for the purchase of raw materials or for the disposal of their products. Then someone who possesses this knowledge joins them and their enterprise is forthwith more successful; is the work of this man not productive?

Or suppose that the association lacks machines. Someone places machines at its disposal, and its income is increased; has he who provided the machines not contributed to the productivity of the association?

Or, finally, let us assume that the members of the association are without the means of support, and can-not therefore venture upon lengthy and protracted undertakings or works whose fruits they will only receive after considerable delay. They cannot, for example, send their goods to India or China, but must confine themselves to working for their own market; moreover, they must demand payment in cash, and this makes sales difficult. Now someone advances them a loan which enables them to seek markets where they will, and to offer long-term credits. This also has a favourable effect on the income of the association. Has the loan not been productive?

Thus the productivity of labour can only be ascertained, even if the net product is known, by means of a calculation; and in this calculation evaluation will have to play its part. For experience does not help us to find this out; we cannot afford, by way of experiment, temporarily to deprive labour of direction and capital. The productivity of the manual work is the value of such work, as opposed to the value of the managerial ability, to the value of the various functions of capital and also, in the case of agriculture, to the value of the advantages which the more fruitful and more favourably situated land offers over and above the worst land in cultivation. Kautsky’s formula, quite scientifically interpreted, will be subscribed to by every economist. No one will object to the worker being assured of the full value of his work: that indeed is the aim of all legislation which seeks to prevent derelictions of justice.

For us economists of the old school, this formula provides the starting-point for much research into the social question. If the value of labour determines its reward, then not only the workers themselves, but all who wish to see an improvement in the workers’ position must strive to raise this value. Here philanthropy and legislation may find a wide sphere of activity. The economic value of labour is very closely related to the moral and intellectual qualities of mankind, and it will be enhanced by all that improves these qualities. It will be enhanced by an increase in the number of efficient entrepreneurs and, gradually, by the growth of capital. When people talk of the increasing oppression which results from the vigorous growth of capital, we may be sure that they have not given sufficient attention to the value problem. Great numbers may mean power in the sphere of political strategy, but with regard to the division of income they are a source of weakness. This the workers are continually discovering to their own cost. The magnitude of the population is the reason why agriculture is extended to unfertile lands and why goods have to be exported at low prices (as otherwise sufficient foreign grain would not be obtained). But the same economic law governs the services of the entrepreneurs and the functions of capital. The more abundantly these services and functions are available, the less will be the profits of the entrepreneurs and the interest on capital, while the value of labour will rise. That the value of labour must also be raised by an economic policy which tends to increase the total income follows from what has just been said, as an increase of the total income of a country always leads, in the long run, to an increase of capital.

I would not venture to assert that Kautsky would admit all this. With some points he would certainly disagree, while to others he would give his hearty support. It is comforting to think that, whatever one’s point of view in social questions, agreement may be reached on at least many of the important constituent problems.

So I reach the end of my study; I hope it will be interpreted as such and not as polemics. Whether the socialists are able to solve the value problems I have put to them may soon be proved. But they will certainly not be successful as long as they fail to appreciate the character and the significance of the problems. And these problems must be solved if we are to be in a position to judge whether the ideas which the socialists are now propagating deserve our support.

On this last point I must insist, while rejecting any appeal to evolution. It is true that no great reform has been undertaken in full knowledge of the difficulties which it might meet and that caution can be carried too far. But no reform will be recommended by serious men as long as they are unable to demonstrate its essential practicability and the probable usefulness of its effects. The same must be demanded of socialists. They recommend, as a first step, the transference of the means of production, or at least the most important of them, to the State. What does this mean? How will the condition of society be affected? Will it be led gradually to higher forms of life or will it meet obstacles which hinder its further development and even prevent it from procuring the necessities of its existence? Will what is proposed bring harmony or chaos? It must be possible to give a satisfactory answer to these questions; and those who cannot do so should abstain from propaganda. They should refrain from provoking a class-war, the aim of which is to bring about the fateful step whose utility is in question. Let such people take their place among the poetical socialists; let them restrict themselves to prophecies and the propagation of moral ideas with which every good-hearted man will agree.

I do not desire to see the debate on socialism closed, but rather to see it grow in significance. With this paper I have sought to contribute something to this end. Continued research is called for and I have indicated certain points to which it should be directed.

 

__________________

8 [This article appeared originally under the title “Het waardeproblem in een socialistische Maatschappij” in the Dutch periodical De Economist (Vol. 41, s’Gravenhage, 1902, pp. 423-56), and was later reprinted in N. G. Pierson’s Verspreide Economische Geschriften, edited by C. A.Verrijn Stuart (Haarlem,1910, Vol. 1, pp. 333-77).—Ed.]

9 Some Leading Principles of Political Economy Newly Expounded, London, 1874, p. 316.

10 [A reference to K. Kautsky’s speech made in Delft on April 24, 1902, and later published in an English translation in a pamphlet, The Social Revolution and on the Morrow of the Revolution, London, 1907.—Ed,]

11 Loopuet in Het Volk of April 20, 1902.

12 W. D. P. Bliss, in A Handbook of Socialism (London, 1895, p. 197) says explicitly: “if any man refused to work he would be left to starve”. As a palliative he adds; “yet with no one to blame but himself, for every man would then have an opportunity to work. By simply doing a few hours of honest work each day for a few years of his life . . . every man would be sure of an honest competence.” I doubt, however, whether Bliss was in a position to prove this last statement.

13 [De Economist, Vol. 41.—Ed.]

14 See De Economist of 1867, Part I, pp. 1-19.

• 1Some of the points on which I can only touch here I have developed at somewhat greater length in my inaugural address on the Trend of Economic Thinking, Economica, May, 1933.
• 2A useful collection of the different allusions to this problem in Marx’s works, particularly in the Randglossen zum Gothaer Programm (1875), will be found in K. Tisch, Wirtschaftsrechnung und Verteilung im zentralistisch organisierten sozialistischen Gemeinwesen, 1932, pp. 110-15.
• 3Cf. L. V. Mises, Interventionismus, Jena, 1929.
• 4E. Cannan, A History of the Theories of Production and Distribution, 1893, 3rd edition, 1917, p. 395. Professor Cannan has later also made an important contribution to the problem of the international relation between socialist states. Cf. his essay on “The Incompatibility of Socialism and Nationalism” in The Economic Outlook, London, 1912.
• 5Cf. particularly F. v. Wieser, Natural Value, London, 1893, passim.
• 6H. H. Gossen, Entwicklung der Gesetze des Menschlichen Verkehrs und der daraus fliessenden Regeln für menschliches Handeln, Braunschweig, 1854, p. 231 : “Dazu folgt aber ausserdem aus den im vorstehenden gefundenen Sätzen über das Geniessen, und infolgedessen über das Steigen und Sinken des Werthes jeder Sache mit Verminderung und Vermehrung der Masse und der Art, dass nur durch Feststellung des Privateigenthums der Massstab gefunden wird zur Bestimmung der Quantität, welche den Verhältnissen angemessen am Zweckmässigsten von jedem Gegenstand zu produzieren ist. Darum würde denn die von Communisten projectierte Zentralbehörde zur Verteilung der verschiedenen Arbeiten sehr bald die Erfahrung machen, dass sie sich eine Aufgabe gestellt habe, deren Lösung die Kräfte einzelner Menschen weit übersteigt” (italics in the original).
• 7A completely neglected attempt to solve the problem from the socialist side, which shows at least some realization of the real difficulty, was made by G. Sulzer, Die Zukunft des Sozialismus, Dresden, 1899.
• 8It was largely owing to this temporary eclipse of analytical economics that the real problems connected with the suggestions of a planned economy have received so surprisingly little careful examination. But this eclipse itself was by no means only due to the inherent weaknesses and the consequent need for reconstruction of the old economics. Nor would it have had the same effect if it had not coincided with the rise of another movement definitely hostile to rational methods in economics. The common cause which at the same time undermined the position of economic theory and furthered the growth of a school of socialism, which positively discouraged any speculation of the actual working of the society of the future, was the rise of the so-called historical school in economics. For it was the essence of the standpoint of this school, that the laws of economics could only be established by the application to the material of history of the methods of the natural sciences. And the nature of this material is such that any such attempt is bound to degenerate into mere record and description and a total scepticism concerning the existence of any laws at all.
• 9The fact that this most influential school of socialism was so closely related to the general antitheoretical tendencies in the social sciences of the time had a most profound effect on all further discussion of the real problems of socialism. Not only did the whole outlook create a peculiar inability to see any of the permanent economic problems which are independent of the historical framework, but Marx and the Marxians also proceeded, quite consistently, positively to discourage any inquiry into the actual organization and working of the socialist society of the future. If the change was to be brought about by the inexorable logic of history, if it was the inevitable result of evolution, there was little need for knowing in detail what exactly the new society would be like. And if nearly all the factors which determined economic activity in the present society would be absent, if there would be no problems in the new society except those determined by the new institutions which the process of historical change would have created, then there was indeed little possibility of solving any of its problems beforehand. Marx himself had only scorn and ridicule for any such attempt deliberately to construct a working plan of such an “utopia”. Only occasionally, and then in this negative form, do we find in his works statements about what the new society would not be like. One may search his writings in vain for any definite statement of the general principles on which the economic activity in the socialist community would be directed.
• 10It is impossible within the scope of this discussion of socialism to enter further into this separate problem of state intervention in a capitalistic society. It is mentioned here only to say explicitly that it is excluded from our considerations. In our opinion well-accepted analysis shows that it does not provide an alternative which can be rationally chosen or which can be expected to provide a stable or satisfactory solution of any of the problems to which it is applied.
• 11But it is evident that as the progress of the analysis of the competitive system revealed the complexity of the problems which it solved spontaneously, economists became more and more sceptical about the possibility of solving the same problems by deliberate decision. It is perhaps worth noting that as early as 1854 the most famous among the predecessors of the modern “marginal utility” school, the German, H. H. Gossen, had come to the conclusion that the central economic authority projected by the communists would soon find that it had set itself a task which far exceeded the powers of individual men. Among the later economists of the modern school the point in which already Gossen based his objection, the difficulty of rational calculation when there is no private property, was frequently hinted at. It was particularly clearly put by Professor Cannan, who stressed the fact that the aims of socialists and communists could only be achieved by “abolishing both the institution of private property and the practice of exchange, without which value, in any reasonable sense of the word, cannot exist”. But beyond general statements of this sort, critical examination of the possibilities of a socialist economic policy made little headway, for the simple reason that no concrete socialist proposal of how these problems would be overcome existed to be examined.
• 12The omnipresence of this problem of value wherever there is rational action was the basic fact from which a systematic exploration of the forms, under which it would make its appearance under different organizations of economic life, could proceed. And up to a certain point from the very beginning the problems of a centrally directed economy found a prominent place in the expositions of modem economics. It was obviously so much simpler to discuss the fundamental problems on the assumption of the existence of a single scale of values consistently followed than on the assumption of a multiplicity of individuals following their personal scales, that in the early chapters of the new systems the assumption of a communist state was frequently used—and used with considerable advantage—as an expository device. But it was used only to demonstrate that any solution would necessarily give rise to essentially the same value phenomena—rent, wages, and interest, etc.—which we actually observe in a competitive society, and the authors then generally proceeded to show how the interaction of independent activities of the individuals produced these phenomena spontaneously without inquiring further whether they could be produced in a complex modern society by any other means. The mere absence of an agreed common scale of values seemed to deprive that problem of any practical importance. It is true that some of the earlier writers of the new school not only thought that they had actually solved the problem of socialism but also believed that their utility calculus provided a means which made it possible to combine individual utility scale into a scale of ends objectively valid for society as a whole. But it is now generally recognized that this latter belief was just an illusion and that there is no scientific criterion which would enable us to compare or assess the relative importance of needs of different persons, although conclusions implying such illegitimate interpersonal comparisons of utilities can probably still be found in discussions of special problems.
• 13But it is evident that as the progress of the analysis of the competitive system revealed the complexity of the problems which it solved spontaneously, economists became more and more sceptical about the possibility of solving the same problems by deliberate decision. It is perhaps worth noting that as early as 1854 the most famous among the predecessors of the modern “marginal utility” school, the German, H. H. Gossen, had come to the conclusion that the central economic authority projected by the communists would soon find that it had set itself a task which far exceeded the powers of individual men. Among the later economists of the modern school the point in which already Gossen based his objection, the difficulty of rational calculation when there is no private property, was frequently hinted at. It was particularly clearly put by Professor Cannan, who stressed the fact that the aims of socialists and communists could only be achieved by “abolishing both the institution of private property and the practice of exchange, without which value, in any reasonable sense of the word, cannot exist”. But beyond general statements of this sort, critical examination of the possibilities of a socialist economic policy made little headway, for the simple reason that no concrete socialist proposal of how these problems would be overcome existed to be examined.
• 14But it is evident that as the progress of the analysis of the competitive system revealed the complexity of the problems which it solved spontaneously, economists became more and more sceptical about the possibility of solving the same problems by deliberate decision. It is perhaps worth noting that as early as 1854 the most famous among the predecessors of the modern “marginal utility” school, the German, H. H. Gossen, had come to the conclusion that the central economic authority projected by the communists would soon find that it had set itself a task which far exceeded the powers of individual men. Among the later economists of the modern school the point in which already Gossen based his objection, the difficulty of rational calculation when there is no private property, was frequently hinted at. It was particularly clearly put by Professor Cannan, who stressed the fact that the aims of socialists and communists could only be achieved by “abolishing both the institution of private property and the practice of exchange, without which value, in any reasonable sense of the word, cannot exist”. But beyond general statements of this sort, critical examination of the possibilities of a socialist economic policy made little headway, for the simple reason that no concrete socialist proposal of how these problems would be overcome existed to be examined.