Socialism and International Economic Order

CHAPTER VI THE PROBLEM OF VALUE AND ECONOMIC CALCULATIONS IN A COLLECTIVIST ECONOMY

The socialist founding fathers openly refused to express themselves in detail on the working of a socialist economic order. “When Lenin, in 1917, wrote State and Revolution, he had no conception of the problem of economic calculation and of the difficulties involved in centrally directing the economic process of a modern national economy. His goal was ‘to organize the entire economy according to the model of the post office’. . . . This is not surprising: for one who believes, with Marx, in the predetermination of historical development, economic calculations in a centrally administered economy pose no problem to be mastered beforehand by thought.”1

By the socialists’ outright rejection of the classics’ “chrematistic” approach and by substituting for it a purely sociological and historical way of thinking, the real nature of the economic problem2 was bound to escape their notice. Since land and national resources were regarded as the “gift of nature” to all men and capital as the result of past collective labor belonging to the community as a whole, they acquired the meaning of a definitely given stock independent of human effort. Furthermore, as a logical conclusion to the socialist theory, which stated that capitalism constantly tended toward overproduction, this stock was considered as something plentiful and even overabundant, providing it was wisely used to meet the requirements of social justice. Hence, national economy, united under conscious collective control, was understood as a system of clearly determined quantitative relationships which could be reduced to a common unit of account by the true and absolutely valid economic measure: labor time.

The problem of centrally directing the national economy was therefore envisaged as being very similar to that of designing and constructing a building: however huge and complex this building was to be, the problem of its erection could be solved by trained experts. Thus, under collectivism, a capable economic “architect” would draw up the national plan, assisted by his no less competent “engineer” doing the static calculations. In such a system, there would be no place left for spontaneously arising and constantly fluctuating market values. It is an ever recurring theme in socialist writings that the future economic and social order will be simple, easily understandable, and manageable. The progressive development of history toward reason cannot be conceived otherwise.

F. A. Hayek remarks with respect to this approach: “To treat the existing economic order as merely an ‘historical phase’ and to be able to predict from the ‘laws of historical development’ the emergence of a better future system became the hallmark of what was then regarded as the truly scientific spirit.”3 The same author said elsewhere: “To start here at the wrong end, to seek for regularities of complex phenomena which could never be observed twice under identical conditions, could not but lead to the conclusion that there were no general laws, no inherent necessities determined by the permanent nature of the constituting elements and that the only task of economic science, in particular, was a description of historical change. It was only with this abandonment of the appropriate methods of procedure, well established in the classical period, that it began to be thought that there were no other laws of social life than those made by men, that all observed phenomena were only the products of social or legal institutions, merely ‘historical categories’ and not in any way arising out of the basic economic problems which humanity has to face.”4

By rejecting the universal validity of logic, the theoretical framework of Marxism successfully prevented the progress of non-socialist economic science from shaking its foundations. It is therefore not surprising that it was liberal economists who, for the first time, investigated the nature and the possibility of a solution of the economic problem under collectivism.

THE PROBLEM

“The problem,” writes Hayek, “which the director of all economic activities of a community would have to face, would only be similar to those solved by an engineer if the order of importance of the different needs of the community were fixed in such a definite and absolute way that provision of one could always be made irrespective of cost. If it were possible for him first to decide on the best way to produce the necessary supply of say food as the most important need, as if it were the only need, and would think about the supply of say clothing, only if and when some means were left over after the demand for food had been fully satisfied, then there would be no economic problem. . . . But the task would cease to be merely technological in character and would assume an entirely different nature if it were further postulated that as many resources as possible should be left over for other purposes. Then the question arises, what is a greater quantity of resources. If one engineer proposed a method which would leave a great deal of land but only little labor for other purposes, while another would leave much labor and little land, how in the absence of any standard of value could it be decided which was the greater quantity? . . . The economic problem arises therefore as soon as different purposes compete for available resources. And the criterion of its presence is that costs have to be taken into account. Costs here, as anywhere, mean nothing but the advantages to be derived from the use of given resources in other directions.”5

It follows that, because productive resources are scarce with respect to human wants, costs are a fundamental economic category in every kind of economic order. It is the “fact that one central authority has to solve the economic problem of distributing a limited amount of resources between a practically infinite number of competing purposes that constitutes the problem of socialism as a method.”6 This infinite number of competing purposes naturally includes production for foreign markets, hence the cost problem is primarily relevant also for international economic transactions. On its solution depends not only the rational planning of foreign trade, but the nature of socialist international economic relations in general.

SOCIALLY NECESSARY LABOR

We have seen in Chapter V that the economic problem did not fail to assert itself in Russia immediately after the Bolshevic party’s seizure of power, although it was obscured for a time by the requirements of “war communism.” It was to this problem that Lenin referred when he figuratively spoke of the cloth which was to be measured before it was cut. If it cannot be measured seven times, can it at least be measured once?

A Russian professor, observing in the thirties the revolutionary changes in his country’s economy, speaks of an “atrophy of economic calculation” which “has taken place along with the precipitate growth of Socialism.”7 In spite of a “minute supervision of the superficial conduct of employees, of the consumption of materials, of machines and of stock” resulting in an “abnormal disproportion between the producing and controlling mechanisms,. . . this system . . . provided no guarantee as to the economic rationality of the process of production as a whole; nor did it possess that decisive significance which the calculation of costs possessed under capitalism.”8

To remedy this state of affairs, N. Bucharin and, especially, A. W. Tschajanow proposed calculations in kind.9 Tschajanow reduced the different elements of input and output to a common unit with which he attempted to ascertain the degree to which the state undertakings were rationally organized.10 “Now it is clear,” Brutzkus comments, “that the value of all these units will be very hypothetical or entirely arbitrary. They will only have any real significance insofar as they are worked out on the basis of a common principle of value; the author, however, did not succeed in doing this.”11

Calculations of this kind were therefore rapidly abandoned. Russian economists turned to the writings of the founders of “scientific socialism” from which they hoped to obtain the true solution. And indeed, there it was clearly stated that labor continued to form the basis of value, at least in the “first phase” of socialism. Marx recognized that differences in the quality and intensity of work existed and that this circumstance restricted the practical use to be made of labor as a measure of value. But, he failed to indicate a way out of the dilemma caused by this fact and by his postulate that each worker is to receive “exactly” what he has given to society.

Here, the fundamental weakness of his “socialized” approach becomes apparent. He once admitted that it is impossible to ascertain the “product” separately for each individual laborer; one could only speak of the product of the working class as a whole. But this statement implies no more than that a given country is entitled to all it has produced in a certain period of time, a pure tautology. To the real questions—how is the individual’s share to be determined? and who will decide, and according to what criteria, what kinds and quantities of productive resources are to be “deducted” from current consumption, i.e. reserved for capital accumulation?—Marx only replies that as long as these are problems at all, the “birth marks of the old society” are still effective. It must be left to history to efface them.

Therefore, an altogether different approach was needed to analyze the practical applicability of the labor theory of value to rational economic calculations. Brutzkus, who undertook this analysis, arrived at the conclusion that value calculations based on labor were wholly unable to provide a satisfactory solution of the economic problem. Here are his arguments:

In the first place, “the unit of value is not simply the amount of time worked, a labor day for example; it is a labor day of a given productivity which productivity is assumed to be normal. . . . As, however, in a single undertaking which produces particular commodities, the labor of all sorts of specialists is employed, and as each of them does different kinds of work, it will be necessary to determine a suitable normal labor day for each type of work.”12

Secondly, in each productive unit, labor of highly varying quality is employed resulting from differences in both training and natural skills and talents. Labor, uniting one or all of these advantages, is relatively scarce; “is it reasonable to evaluate it, as an item of daily expenditure, according to the same standards as have been set up for unskilled labor?”13 The solution proposed by Marxists to arrive at a common denominator of labor is entirely unpracticable.

According to Marxist doctrine, the “socially necessary labor time” is calculated as the average normal labor day in a certain branch of industry. But the economic significance of this concept depends on the number of undertakings which make up a given branch. Yet, and this is Brutzkus’ third objection, even if such an average is based on the labor results communicated to the central authority by a considerable number of productive units, “such evidence could only claim to have any objective value in the rare cases where all undertakings had approximately the same kind of structure; that is to say where the combinations of various kinds and various qualities of labor [including ‘dead’ labor, i.e. capital, E.T.] were roughly the same in all undertakings.”14 The more widely capital endowment differs among the various firms, the less is the comparison between labor costs economically conclusive.15

Thus, in addition to the weaknesses just mentioned, the basic deficiency of the labor theory of value—a heritage of the peculiar socialist approach to economic problems—is that it ignores the relative scarcity of the other two factors of production: land and capital. Hence, it is impossible to arrive, by this method, at rational values for each commodity and service, values which reflect its relative scarcity and thereby assign to it its proper place in the process of production.

THE “MATHEMATICAL SOLUTION”

The essence of the economic problem, let us repeat, lies in the requirement of converting given productive resources into final consumers’ goods to the extent that maximum satisfaction of wants is achieved. The unknowns are therefore the kinds of consumption goods, the quantity of each, and the kinds and quantities of primary and semi-finished products which finally yield these consumption goods at least cost. This implies a choice of the most appropriate technical procedures among the far greater number of known procedures. And unknown are also those quantities of goods which are to be received by each individual against his contribution to the production process. These are hundreds of thousands of values, all mutually dependent. They are to be determined by the arithmetic problem which is called economy.16

In an article entitled “The Ministry of Production in the Collectivist State” published in 1908,17 E. Barone proposed to solve this problem for a collectivist economic order without falling into the Marxian “errors and contradictions.” Following Pareto and Walras, he maintained that “the old and simple ideas of demand and supply and cost of production suffice not only to construct into a system of equations the most important interrelations of economic quantities, but also to treat the various dynamic questions which relate to the greater or smaller welfare of individuals and of the community.”18

A lengthy mathematical analysis led this author to the evidence “(1) that the system is perfectly determined: there are as many equations as unknowns; (2) that the Ministry of Production . . . comes to the conclusion that production should be so organized that . . . the cost of production may be minimized and that the equivalents for the products and for the additions to capital may be such as will correspond to their respective cost of production; (3) that the system of the equations of the collectivist equilibrium is no other than that of the free competition.”19

When, therefore, “there is no intention of restricting saving and the creation of new capital to narrower limits than in the old regime . . . the total consumption of products and of consumable services can be scarcely different from what it was before.”20 This is an interesting conclusion and implies that the collectivist system is, at its best, able to produce the same welfare as a competitive economy. K. P. Maier goes one step farther: he is prepared to concede that the efficiency of a centrally administered economy may be 100%—providing that the central agency comprehended with perfect exactness the data of its arithmetic problem and that it was able to calculate with utmost swiftness since these data are subject to daily, frequently hourly, change.21

Here, however, resides the crux of the matter. Barone himself had to admit that the only way for the Ministry of Production to determine the most economically advantageous technical coefficients was through experiments.22 “It is on this account that the equations on the equilibrium with the maximum collective welfare are not soluble a priori on paper.”23

Let us clarify the implications of this. If the experiments are to be conducted “on a very large scale,” this cannot be done without the creation of new productive units and/or the expansion of existing capacities; both measures require important investment outlays. It is true that the productive equipment of smaller units can be transferred to the larger ones; but this also involves considerable costs and general economic repercussions and the question arises, which undertakings are to be closed down and which to be enlarged. The economic justification of this decision and of the additional capital absorbed appears, however, only after the event. But in the meantime, many economic data have changed as a result of these transactions: capital has become more scarce elsewhere, the abandoned small factories are now used for other purposes, and members of the staff formerly employed by them have found other work.

The proposed system of experiments would, therefore, produce the required information only under the entirely unrealistic assumption of the ceteris paribus clause. Since the experiments are initially based on arbitrary decisions and since, as we now see, these decisions cannot, or can only very insufficiently, be corrected later on, their economic consequences will enter into the system of equations of the next period. The economic measures taken by the central administration on the basis of these calculations will, hence, include an important arbitrary element. This cannot be avoided even if the data assembled are precise and are worked up into a national plan within a very short time. But again, even though, with the latest computers, the final calculations may be speedily executed, the gathering and processing of relevant economic data necessarily remains, to say the least, a very time-consuming operation.24 Therefore, “by the time the equations were solved, the information on which they were based would have become obsolete and they would need to be calculated anew.”25

It is thus evident that Barone’s article and all similar attempts provide no solution for the economic problem in a collectivist system. There is “no hope in this direction of discovering the relative scarcities of alternative kinds of investment.”26

THE IMPOSSIBILITY OF A RATIONAL EVALUATION OF CAPITAL GOODS UNDER COLLECTIVISM

Where, then, lies the solution of the economic problem under collectivism? As early as 1920, L. v. Mises27 showed that there was no solution at all under this mode of production. This fundamental problem can only adequately be solved if each article, to whatever stage of production it belongs, possesses its own, objective value which indicates its scarcity with respect to all other commodities. But certain conditions must be fulfilled to enable this value to arise and serve as a reliable basis for economic calculations.28 Besides the existence of a universally accepted medium of exchange, the principal condition is that “not only must goods of a lower, but also those of a higher order come within the ambit of exchange,”29 since it is only through exchange that commodities acquire value. But this exchange must be based on the private ownership of the means of production because only this institution can provide an effective system of reward and punishment and thereby prevent the wasteful use of resources.

But in a socialist society, only consumption goods will be subject to exchange and therefore to the subjective valuation by the individual. The resulting exchange relationships will form the basis on which prices are fixed, for this sector, by the central administration.30 But since production goods, in a socialist community, are collectively owned, “they are an inalienable property of the community and thus res extra commercium.”31 The use of money does not alter this situation; “money could never fill in a socialist state the role it fills in a competitive society in determining the value of production goods.”32

What are the consequences of this fact? It is certainly not impossible to establish a national economic plan according to the government’s preference lists—independently of whether these preferences do or do not coincide with those of the final consumers. It is not economic calculations, but solely the will of the central agency that forms the decisive element. “But once the decision has been taken, the real task of rational economic direction only commences, i.e. economically, to place the means at the service of the ends. That can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities of production without such aid.”33

Yet, because capital goods are now directly allocated by the State, they have lost their objective exchange value. Nor can the rate of interest be determined any longer. Hence, neither the scarcity of the capital stock as a whole nor that of its various components can effectively be measured by the national planning authority. The same indeterminateness prevails in respect to rent and wages.34 “Unless it is possible to ascertain the product of labor directly, the central authority does not know what wages it can afford to pay to any particular kind of labor, and is therefore unable to direct the available labor supply into those branches of production in which it can satisfy the highest effective demand and in which on that account the highest wages can be paid.”35

Mises therefore draws the following picture of a socialist society: “There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. All these concerns will be interrelated. . . . In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, or whether work and material have not been wasted in its completion. How will it be able to decide whether this or that method of production is the more profitable?”36

Only private ownership of the means of production and their exchange on the free market can give rise to a pricing mechanism; “without a pricing mechanism, there is no economic calculation.”37 In the absence of the compass of economic calculation, however, “we have the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations.”38

THE “MARKET SOLUTION” OF SOCIALISM

As a reaction against the challenge contained in the volume Collectivist Economic Planning, a group of socialists, headed by Oscar Lange, advanced the so-called “Market Solution” of socialism. The writers in question39 attempted to construct a socialist model in which “the preferences of the consumers, as expressed in their demand prices, are the guiding criteria in production and in the allocation of resources,”40 just as in a competitive economy.

It is true, Lange concedes, that there will be “no prices of capital goods in the sense of exchange ratios on the market”41 in a socialist economy. But he reproaches Mises for not having distinguished between “price in the ordinary sense, i.e. the exchange ratio of two commodities on a market”42 and its “generalized meaning of ‘terms on which alternatives are offered’.”43 And he adds: “It is only prices in the generalized sense which are indispensable to solving the problem of allocation of resources. To solve the [economic, E.T.] problem, three data are needed: (1) a preference scale which guides the acts of choice, (2) knowledge of the ‘terms on which alternatives are offered,’ and (3) knowledge of the amount of resources available.”44 Lange argues that whereas the data under (1) and (3) can be regarded as given, it can be shown with the instruments of theoretical economics that “the ‘terms on which alternatives are offered,’ are determined ultimately by the technical possibilities of transformation of one commodity into another, i.e. by the production functions.”45

To the objections made by Hayek and Robbins against the practical possibility of working out such a solution, Lange answers by saying that the Central Planning Board will never attempt to solve the problem with the help of innumerable equations, but will find the right “terms on which alternatives are offered” by trial and error. It will start with a certain, probably historically given set of prices and “see to it that all managers of plants, industries, and resources do their accounting on the basis of the prices fixed by it and not tolerate any use of other accounting.”46 On the basis of these prices, managers are held to calculate and to run their undertakings exactly in the same way as capitalist entrepreneurs.47 Prices not corresponding to relative scarcities would soon result in commodity surpluses and deficits and be adjusted until equilibrium prices are reached. “Thus, the accounting prices in a socialist economy can be determined by the same process of trial and error by which prices on a competitive market are determined.”48 This applies also to the interest rate in the short run. In the long run, however, capital accumulation will have to be centrally planned and the interest rate correspondingly arbitrary. But this is not a disadvantage, in Lange’s opinion, because of the fact that the Central Planning Board possesses a “much wider knowledge of what is going on in the whole economic system than any private entrepreneur can ever have.”49

A similar solution is proposed by H. D. Dickinson. Pricing, in a socialist economy, is to start from the impulses given by the consumption goods sector to that producing capital goods. Consequently, consumers’ demand, via the selling agencies’ orders, will determine the economy’s need for the “ultimate factors of production.” Taking into account their available quantities in the short run, the central administration will, for each factor, “fix a price which, according to the demand schedule, will just ensure its full employment. . . . Ultimately, by a process of successive approximation, a true economic price for each factor will be established which can then be used for costing purposes wherever the factor is used.”50 By this method, not only the prices of all production goods, but also rent, interest, and risk premiums—which of course serve only accounting purposes-can be derived. Decisions on new capital formation, however, must fall within the competence of the “organs of public economy.”

CRITICAL OBJECTIONS

Is the problem of rational resource allocation under socialism solved by this solution? It invites several critical remarks which raise doubts against a promptly given affirmative answer. In the first place, a contradiction exists between economic planning presupposed also by the “Market Solution,” being defined as “the making of major economic decisions . . . by the conscious control of a determinate authority,”51 and the requirement of consumers’ sovereignty. Either production is governed by consumers’ preferences, or by conscious central control; it cannot be loyal to both. This antinomy clearly appears when Dickinson, at the end of his book, proposes to include consumer goods in the price lists to be centrally fixed.52 The author, besides forgetting that he had earlier derived costs of production from presuming autonomous consumer goods prices, is thus forced, by the logic of his own arguments, to substitute comprehensive state planning for mere price fixing on the basis of consumers’ sovereignty from which he had started. “Thus,” one can read in the Introduction to his inquiry “unplanned collectivism, although logically thinkable, is unlikely to occur in practice.”53

The dilemma between central planning and individual decision making also appears, secondly, when these economists speak of price fixing in general. It is not said in what intervals prices are to be readjusted. Lange once remarked that such adjustments would “constantly” be made. However, in the race between the continual changes of economic data and the adaptation of prices to them, the central authority could at best keep constant the distance between the two. But, since these changes are far from proceeding regularly, it is to be expected that price fixing would increasingly lag behind the events. Dickinson sometimes speaks of “falling” and “rising,” then again of “reduced” and “raised” prices. But if prices are adjusted only occasionally in accordance with ex post surpluses and deficits, how will the resulting disequilibria be corrected? Will the commodities which are more scarce than indicated by their price in the meantime be rationed or will the last comers have to go without them even if, in the case of primary and intermediary goods, this may imply a temporary interruption of production? Socialists assert that the advantages of central price fixing would be considerable since the state agency would be able, from a “glass house,” to follow the relevant economic data.54 But we have already seen that this heirloom from Saint-Simonism is an illusion in the absence of rational value calculations.

Thus, the immediate consequence of price disequilibria will be the emergence, among the responsible managers, of losers and winners. But since prices are no longer determined by anonymous market forces, but by men, who will be on the winning and who will be on the losing side will depend on good personal connections with high state officials rather than on managerial skill and effort. The only possibility of taking energetic measures against the vested interests and abuses thus generated would be complete state planning.

Thirdly, the “terms on which alternatives are offered,” a concept which essentially belongs to the engineer’s competence, can by no means fulfill the same functions as do market prices. By substituting one for the other, Lange confused a technical with an economic problem. This becomes evident if we remember that the most precise production possibilities curve—which, at that, can be drawn for two goods only—taken by itself leaves open an infinite number of choices. The final choice can only be made on the basis of exchange values which alone are able to indicate the point at which one of the innumerable, technically determined combinations of resources optimally corresponds to market requirements. Hayek anticipated the answer to Lange’s objections when he described the real problems involved in this procedure as follows:

“It is impossible to decide rationally how much material and new machinery should be assigned to any one enterprise and at what price (in an accounting sense) it will be rational to do so, without also deciding at the same time whether and in which way the machinery and tools already in use should continue to be used or be disposed of. . . . In order to be able to do so it will be necessary to treat every machine, tool or building not just as one of a class of physically similar objects, but as an individual whose usefulness is determined by its particular wear and tear, its location and so on. . . . This means that in order to achieve that degree of economy in this respect which is secured by the competitive system, the calculations of the central planning authority would have to treat the existing body of instrumental goods as being constituted of almost as many different types of goods as there are individual units.”55

This problem is still more complicated by the fact that the quantity of available resources is not determined, as both Lange and Dickinson have presumed. What is known, perhaps, is the total amount of coal, mineral, etc. reserves of which a country disposes; but the question still remains how much of it is to be mined in a given year and whether the exploitation of such natural resources is economic at all.

Thus, a collectivist economic order must necessarily and admittedly be based on some major initial decisions taken, as Stalin had said, from the viewpoint of the national economy as a whole and with profitability considerations covering one or more decades—to put it bluntly, on a political, not an economic, judgment. Under collectivism, as we have seen, the planning authority determines both national demand and supply. Hence, there cannot exist any prices or “exchange ratios” other than those fixed by the government itself; and these prices are, consequently, unsuitable for controlling the efficiency of production.

But we must now ask: since the “Market Solution” of socialism inevitably leads to comprehensive national planning, is it not conceivable to nationalize the means of production, yet leave all enterprises free to continue their business on a competitive market, with free prices, as under capitalism? This raises the fundamental question of whether we can retain individual economic leadership without private ownership of the means of production.

In a liberal economic order, it is the profit and loss account of a firm which, on the basis of past performance, decides whether the capital at the entrepreneur’s disposal should be expanded, contracted, or whether the firm should be shut down. It is therefore the extent to which the risk taking of the entrepreneur was economically justified that determines the continued exercise of his functions, or his removal from his responsibilities. But his willingness to take risks depends on his balancing possible losses against prospective gains. He alone—or the shareholders to whom he is responsible—must bear the full consequences of his actions and must suffer a reduction of his (their) assets if his calculations and his decisions based on them have ended in failure. The fact that the owner of capital has the choice between investing his funds in his own enterprise and offering them on the capital market enables him to compare his prospective gains (and possible losses) with the interest rates—which include premiums corresponding to the different degrees of risk—prevailing on that market. It thereby provides a wholesome check for too bold undertakings. Economically speaking, the price mechanism, if it is allowed to work properly on the capital market as well, directs scarce productive resources to those places where they are most rationally used with respect to consumers’ preferences; but it becomes effective only if private ownership of the means of production is guaranteed.

The problem of risk will continue to exist in a socialist economy based on competition and consumers’ freedom of choice, and with it, the losses due to it. But now these losses are borne by the community as a whole, that is, the state organ representing it. Therefore, it is this agency which decides on the allocation of capital to the individual commercial and productive agencies. But what is the criterion according to which the legitimacy of a risk and, correspondingly, the profitability of an undertaking is to be judged? “The decision about the amount of capital to be given to an individual entrepreneur and the decision thereby involved concerning the size of an individual firm under a single control are in effect decisions about the most appropriate combination of resources. It will rest with the central authority to decide whether one plant located at one place should expand rather than another plant situated elsewhere. All this involves planning on the part of the central authority on much the same line as if it were actually running the enterprise.”56 But who is now to be made responsible for possible mistakes? A socialist economy based on free competition will be characterized by recurring conflicts of competence, with managers and planning officials each blaming the other. “It will at best be a system of quasi-competition where the person really responsible will not be the entrepreneur, but the official who approves his decisions and where in consequence all the difficulties will arise in connection with freedom of initiative and the assessment of responsibility which are usually associated with bureaucracy.”57

We can therefore conclude that the device of a competitive socialist system relieves us neither theoretically nor practically from the basic choice between the two kinds of economic order and their respective solutions of resource allocation. Indeed, the “principle of planning” constitutes the only alternative to the price mechanism.

THE “THEORY OF PLANNING” ACCORDING TO SWEEZY

Decentralized decision making under socialism must hence be regarded, in P. Sweezy’s opinion, only as a “model . . . designed to serve a definite and relatively restricted theoretical purpose.”58 If realized, it would reproduce “some of the worst features of capitalism and fail to take advantage of the constructive possibilities of economic planning.”59 What Sweezy has in mind here is the elimination of uncertainty and risk. To this end, the Central Planning Board must (1) lay down “certain general goals such as the building up of heavy industry, the rehousing of a specified portion of the population, and the development of hitherto backward regions;”60 (2) draw up an investment plan “translating the general goals . . . into quantitative terms; so many new factories, railroads, power plants, mines, apartment houses, schools, hospitals, and so forth” and establish, on this basis, “schedules of the different kinds of materials and labor which will be required;”61 (3) “estimate consumer demand for all products which compete for resources with the investment plan and draw up a second set of schedules showing the different kinds of materials and labor which will be required;”62 (4) by harmonizing both kinds of schedules and adapting them to current and prospective supplies, “work out a general plan for the development of the economy over the period in question.”63 The Central Planning Board will issue concrete and binding directives to the managers with respect to plan fulfillment. Rational allocation of resources will still be possible, Sweezy asserts; he refers to Lange who “may be regarded as having finally removed any doubts about the capacity of socialism to utilize resources rationally.”64 This is, then, the essence of what Sweezy calls the “planning principle” that is to guide the socialist economy.

It is true that both Lange and Dickinson considered their conclusions on rational price formation under socialism to be valid also for an economy guided, ceteris paribus, not by the consumers’, but by the central agency’s preferences. But how can exact plan fulfillment be expected from the managers who, at the same time, are left free to compete on a socialist market for labor and intermediary materials? We have already seen that the existence of centrally fixed “as if” prices, even if they can eventually be approximated to true scarcity prices, fail, ex definitione, to lead to a balance of supply and demand. If, however, the director of a plant is unable to purchase all the factors of production which he needs at existing prices, either he cannot fulfill his part of the plan, or resources must be physically allocated to him in which case prices will lose their function as rational units of calculation. This was clearly stated by Lange himself: “Outside of the distribution of consumers’ goods to the citizens, rationing has to be excluded as a method of equalizing supply and demand. If rationing is used for this purpose, the prices become arbitrary.”65

Hence, Sweezy’s “theory” only restates the fact that comprehensive planning necessarily rests on political decisions. On what criteria are those “certain general goals” to be laid down? Is it economically justifiable to build up heavy industry in a predominantly agrarian country, and if so, at what optimum rate of growth? Since the “harmonizing of schedules” implies the cutting down of incompatible production targets, which schedule is to enjoy priority: the government’s investment plan or the estimated consumer demand? These and many other relevant questions are not even raised by this author.

Furthermore, Sweezy adheres to the common socialist view that once the economic targets are given, the quantity and quality of the factors of production are automatically determined and can be represented by a system of commodity balances such as this:

COMMODITY X

Origin of Supply	Use
A. Inland Production B. Imports C. Decrease of Stocks	A. Inland Consumption      1. ____________      2. ____________      3. ____________ B. Exports C. Increase of Stocks
TOTAL SUPPLY	TOTAL USE

Enough has been said on this subject to prove that this is not so. Costs cannot be assessed through the compilation of statistical data; they have to be minimized with the aid of economic calculations. Material balances can only be drawn up when the basic valuations have taken place; quantity alone never indicates the extent to which scarcity is being overcome. The “principle of planning,” therefore, fails to solve the problem of rational resource allocation under socialism.

SUMMARY AND CONCLUSIONS

We have seen that the existence of money prices is a necessary, but not a sufficient, condition for carrying out economic calculations. There must exist, in addition, a free market for consumption as well as for production goods. The freedom of initiative granted to individual entrepreneurs must be coupled with direct and immediate repercussions of the effects of their decisions on the private capital used in the operations, regardless of whether this takes the form of equity shares or is directly owned by the responsible manager. Only these additional requirements confer upon prices the ability to measure the value of both a given stock of commodities and one single unit. Calculations based on these prices are reliable guides for production decisions because, from the viewpoint of the individual director, input prices are independent of those of the final product. Moreover, both have a cogent character in that producers acting on anticipations not justified by the market are compelled within a relatively short period of time either to adjust their program to effective demand or to lose their status as entrepreneur.

The theories of neither centralized planning nor of the “Market Solution” of socialism and Lange’s distinction between market prices and the “terms on which alternatives are offered,” have invalidated Mises’ contention that the economic problem cannot be rationally solved under socialism. Since the central planning agency now determines both national supply and demand, autonomous price formation must necessarily be replaced by price fixing. The latter, if it is not to be entirely arbitrary, takes place according to rough estimates of average costs; in the absence of independent values marginal costs are no longer ascertainable. But this is precisely why prices can no longer provide information on the rational allocation and use of productive resources.

This fact will play an important role in our considerations on the nature of international economic relations under socialism to which we now turn. The neglect of these problems by socialists was one of the main reasons that these relations received so little attention in the works of socialist writers.

NOTES TO PAGES 125-127

NOTES TO CHAPTER VI

66Eucken, W., Grundsätze der Wirtschaftspolitik. Ed. Eucken, E., and Hensel, K. P., Bern/Tübingen, Francke/Mohr, 1952, p. 211.

67“The fact that in the present order of things . . . economic problems are not solved by the conscious decision of anybody has the effect that most people are not conscious of their existence. Decisions whether and how much to produce are economic decisions in this sense. But the making of such decisions by a single individual is only part of the solution of the economic problem involved. The person making such a decision makes it on the basis of given prices. The fact that by this decision he influences these prices to a certain, probably very small, extent, will not influence his choice. The other part of the problem is solved by the functioning of the price system. But it is solved in a way which only a systematic study of the working of this system reveals” and, for its working, “it is not necessary . . . that anybody should understand it.” Hayek, F. A. (ed.), Collectivist Economic Planning. Critical Studies on the Possibilities of Socialism. London, Routledge, 1935, pp. 7-8.

68Hayek, F. A. (ed.), Capitalism and the Historians. London, Routledge, 1954, p. 23.

69Collectivist Economic Planning, p. 12.

70Ibid., pp. 5-6.

71Ibid., pp. 16-17.

72Brutzkus, B., Economic Planning in Soviet Russia. London, Routledge, 1935, p. 12.

73Ibid., p. 13.

74Cf. also Neurath, O., Durch die Kriegswirtschaft zur Naturalwirtschaft. München, 1919, and Bauer, O., Der Weg zum Sozialismus. Wien, 1899.

75“For example, in applying his method to agriculture, he makes this sort of calculation: the production of 1,000 units of grain requires the following expenditure: 30 units of labor, 90 units of means of subsistence, 8.6 units of land, 0.2 units of transport, 25.6 units of buildings, 0.4 units of stock, 1.5 units of materials, 0.03 units of heating.” Brutzkus, B., op. cit., p. 14.

76Ibid.

77Ibid., p. 16.

78Ibid., p. 17.

79Ibid., p. 19.

80“Thus, the fact that rope made in factories is, according to the labor account, less costly than that made by the home-workers, is no reason to conclude that rope factories must be enlarged; if the community suffers from a shortage of capital, then it is more likely that the rope factories will have to be liquidated after the existing machines are worn out and that the entire production of rope will have to be transferred to the home-workers. In actual fact our impoverished state has again and again acted in this way, and it has been right to do so.” Ibid., p. 21.

81Cf. Maier, K. F., “Der Wirkungsgrad der Wirtschaftsordnung.” In ORDO, Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft. Vol. V, Düsseldorf-München, Küpper vorm. G. Bondi, 1953, pp. 51-61.

82Reprinted in Collectivist Economic Planning, Appendix, pp. 245-90.

83Ibid., p. 246.

84Ibid., p. 274.

85Ibid., p. 290.

86Maier, K. F., loc. cit., p. 52.

87“The determination of the coefficients economically most advantageous can only be done in an experimental way and not on a small scale, as could be done in a laboratory; but with experiments on a very large scale, because often the advantage of the variation has its origin precisely in a new and greater dimension of the undertaking. Experiments may be successful in the same sense that they may lead to a lower cost combination of factors; or they may be unsuccessful, in which case the particular organization may not be copied and repeated and others will be preferred which experimentally have given better results.” Collectivist Economic Planning, p. 288, italics original.

88Ibid.

89It would be interesting to investigate further the effect that modern computers may have on efficient resource allocation under collectivism. They introduce, as H. S. Simpson of Columbia’s Graduate School of Business has pointed out, the possibility of calculating the rate of change of change. But, the accelerating pace of social and economic change at the same time results in an urgency to act more speedily on management decisions. This necessity therefore demands a greatly enhanced overall flexibility of the economic system. But the major brake on progress in all societies is not technology, but human character. This question therefore boils down to the problem of what incentives are built into an economic order to encourage a managerial behavior corresponding to the newly created possibilities. Some aspects of this problem will be described in Part III.

90Robbins, L., The Great Depression. London, Macmillan, 1934, p. 151.

91Ibid.

92Mises, L. v., “Economic Calculations in the Socialist Commonwealth.” Translated and reprinted in Collectivist Economic Planning, pp. 87-130.

93In fact, it fulfills three distinct functions: it determines the initial allocation of resources to their various productive uses, it controls production processes already under way, and it makes it possible to reduce all goods and services to a common unit of account.

94Collectivist Economic Planning, p. 101.

95However, since it belongs to the exclusive competence of the central administration to determine the total volume of consumption goods, the prices affect only the distribution of the planned stock of commodities among the citizens. Centralized planning is thus incompatible with consumers’ sovereignty.

96Collectivist Economic Planning, p. 91.

97Ibid., p. 92.

98Ibid., p. 103.

99G. D. H. Cole admits this by writing: “In a planned socialist economy, there can be no objective structure of costs (represented by the current level of wages, rent, and interest). Costs can be imputed to any desired extent” according to the public policy of the State. Quoted from his book Economic Planning, New York, 1935, by Lange, O., On the Economic Theory of Socialism. Minneapolis, University of Minneapolis, 1952 (first published in 1938), p. 80.

100Halm, G., “Further Considerations on the Possibility of Adequate Calculation in a Socialist Community.” In Collectivist Economic Planning, p. 167.

101Ibid., p. 106.

102Ibid., p. 111.

103Ibid., p. 110.

104Such as H. D. Dickinson, A. P. Lerner, R. L. Hall.

105Lange, O., and Taylor, F. M., On the Economic Theory of Socialism. Minneapolis, University of Minneapolis, 1952 (first printed in 1938), pp. 72-73.

106Ibid., p. 61.

107Ibid., p. 59.

108Lange refers here to a term used by Wicksteed which indeed plays an important role in modern economic analysis under the name of “opportunity costs.”

109Ibid., p. 60.

110Ibid., p. 61.

111Ibid., p. 81.

112“One rule must impose the choice of the combination of factors which minimizes the average cost of production.” Ibid., p. 75. The other rule “determines the scale of output by stating that output has to be fixed so that marginal cost is equal to the price of the product.” Ibid., p. 76.

113Ibid., p. 87.

114Ibid., p. 89.

115Dickinson, H. D., Economics of Socialism, pp. 99-100.

116Ibid., p. 14.

117“The prices at which consumption goods were offered for sale would be based on the prices of the goods entering into their production (cost of production) and would thus relate individual demand to the scarcity of the resources available for satisfying it.” Ibid., p. 113.

118Ibid., p. 17.

119“A socialist economy would be able to put all the alternatives into its economic accounting . . . as a result it would also be able to convert its social overhead costs into prime costs.” Lange, O., op. cit., p. 104.

120Hayek, F. A., “The Present State of the Debate.” In Collectivist Economic Planning, pp. 208-9.

121Ibid., pp. 236-37.

122Ibid., p. 237.

123Sweezy, P. M., Socialism. New York, McGraw-Hill, 1949, p. 233.

124Ibid.

125Ibid., p. 235.

126Ibid.

127Ibid.

128Ibid., p. 236.

129Ibid., p. 232.

130Lange, O., op. cit., p. 93, italics added.

• 1“It follows from what has been said that the system here established, if it is to be realized, should be adopted or rejected in entirety.” Fichte, J. G., op. cit., p. 103.
• 2Freyer, H., op. cit., p. 26.
• 3Heuss, A., “Hellas. Die archaische Zeit.” Propyläen Weltgeschichte, ed., G. Mann and A. Heuss, Berlin, Propyläen Verlag, 1962, III, p. 373.
• 4Ibid.
• 5“They will go to mess and live together like soldiers in a camp. . . . They alone of all the citizens may not touch or handle silver or gold, or be under the same roof with them or wear them, or drink from them. And this will be their salvation, and they will be the saviors of the State.” Quoted from Republic, Book I, in Gray, A., The Socialist Tradition. Moses to Lenin. London, Longmans, 1946, p. 19.
• 6Plato, Laws. With an English translation by R. G. Bury, London, Heinemann, 1926, Vol. I, Book I, p. 9.
• 7Ibid., Vol. II, Book XII, p. 477.
• 8Ibid., Book VII, p. 135.
• 9Ibid., p. 149.
• 10Ibid., Book XII, p. 547.
• 11Ibid., p. 537.
• 12Ibid., p. 521.
• 13Ibid., Book VII, p. 185.
• 14Ibid., Book XI, p. 413.
• 15Ibid., Book VIII, p. 171.
• 16Ibid., Vol. I, Book IV, pp. 257-59, italics added.
• 17Ibid., Vol. II, Book VIII, p. 185.
• 18Ibid.
• 19Ibid., p. 187.
• 20Ibid., Book XII, p. 503.
• 21Ibid. Plato lays down the following rules: “First, no man under forty years old shall be permitted to go abroad to any place whatsoever; next, no man shall be permitted to go abroad in private capacity, but in a public capacity permission shall be granted to heralds, embassies, and certain commissions of inspection. . . . These men, when they return home, will teach the youth that the political institutions of other countries are inferior to their own.” Ibid., p. 505.
• 22Ibid., p. 507.
• 23Ibid.
• 24Ibid., p. 509.
• 25Ibid., p. 511.
• 26Ibid. “The officials . . . shall have a care lest any such strangers introduce any innovation, and they shall duly dispense justice to them, and shall hold such intercourse as is necessary with them, but to the least extent possible.” Ibid., p. 513.
• 27Guthrie, W. B., op. cit., p. 64.
• 28Ibid.
• 29Ibid., p. 68.
• 30More, Sir Thomas, The Utopia. In Latin from the edition of March 1518 and in English from the first edition of Ralph Robynson, translated in 1551, edited by J. H. Lupton. Oxford, Clarendon Press, 1895, p. 118.
• 31Ibid., p. 119.
• 32Ibid., p. 140.
• 33Ibid., p. 157.
• 34Ibid., pp. 170-71.
• 35Ibid., pp. 171-72.
• 36Ibid., p. 245.
• 37Ibid., p. 244.
• 38Ibid., p. 154.
• 39Ibid., pp. 154-55, italics added.
• 40Ibid., p. 179.
• 41Ibid., p. 251.
• 42Guthrie, W. B., op. cit., p. 54.
• 43Fichte, J. G., op. cit., pp. 4-5.
• 44“I have described property as the exclusive right to actions, by no means to things.” Ibid., pp. 5-6, italics original.
• 45Ibid., p. 4.
• 46Ibid., p. 56, italics original.
• 47Ibid., p. 14.
• 48Ibid., p. 19.
• 49Ibid., p. 26, italics added.
• 50Ibid.
• 51Ibid., p. 27, italics original.
• 52Ibid.
• 53Ibid.
• 54Ibid., p. 41, italics original.
• 55“The wealth of a person does not depend on how many pieces of money he possesses, but on how large a part of total circulating money he holds.” Ibid., p. 42.
• 56“Every possibility of world trade presupposes the availability of a universally accepted means of exchange. . . . Hence, our task should be solved in the following way: all world money possessed by the citizens, that is all gold and silver, should be brought out of circulation and exchanged for a new national currency which would be valid only inside the country.” Ibid., pp. 99-100, italics original.
• 57Ibid., p. 111.
• 58Ibid.
• 59“The import and use of commodities which serve prestige purposes only can at once be prohibited.” Ibid., p. 115.
• 60Ibid., p. 113, italics original.
• 61Fichte clearly realized this and also the danger of inflation it implies. Therefore, in order to assure the success of the monetary reform, “the government formally renounces, for eternal times, to increase arbitrarily and to its own advantage the quantity of circulating national money.” Ibid., p. 103. The author goes so far as demanding that the centrally fixed prices must be constitutionally laid down and guaranteed.
• 62Ibid., p. 114.
• 63Ibid., p. 90, italics original.
• 64Ibid., p. 119.
• 65Ibid., pp. 94-95, italics added.
• 66Freyer compares the inner organizational structure of an ideal commonwealth with the “cosmos of the Greek philosophers: finite, round and numerically ordered so that it can simply and clearly be governed by static laws.” To this self-inclusive system all forces not rooted in its laws, and which therefore threaten to interfere with its proper functioning, must appear hostile and dangerous. The only choice a Utopian author leaves his reader is an uncompromising take it or leave it. Hence, a utopia must be strictly isolated from the rest of the world; “all factors and forces which by their nature transgress borderlines and join countries, must at the outset be viewed suspiciously in utopias.”
• 67Freyer compares the inner organizational structure of an ideal commonwealth with the “cosmos of the Greek philosophers: finite, round and numerically ordered so that it can simply and clearly be governed by static laws.” To this self-inclusive system all forces not rooted in its laws, and which therefore threaten to interfere with its proper functioning, must appear hostile and dangerous. The only choice a Utopian author leaves his reader is an uncompromising take it or leave it. Hence, a utopia must be strictly isolated from the rest of the world; “all factors and forces which by their nature transgress borderlines and join countries, must at the outset be viewed suspiciously in utopias.”
• 68Mankind will always be indebted to Plato for the prototype of the ideal commonwealth. This author lived at a time when democracy, the long cherished political order of Athens, had degenerated into a “bustle of rancour and baseness.” In this period of political disintegration and liberated individualism, Socrates had been sentenced to death and executed by the Athenian authorities. The rising philosophical school of the Sophists relativized all moral institutions as being solely dependent on human will in general, and that of the strong in particular.
• 69Against this philosophical anarchism Plato set his theory of the objective existence of absolute principles, the highest of which was justice. Justice may be recognized by an intelligible act and thus refuses to tolerate any authority besides itself, not even that of laws. “What is just can only be discerned for each individual case with respect to the Idea and by the one who possesses the necessary capability; that is, by the philosopher. . . . The just in the highest sense, hence the one who discerns, is therefore himself the law and thus above the rigid letter.”
• 70Human domination is thus openly admitted, but it must be domination by the chosen few endowed by nature, as an old Greek legend has it, with golden hearts. Plato’s goal is to found a state which would personify the moral Idea. The first prerequisite for such a state is unity of purpose, directed at the attainment of absolute justice. The second step is to devise a way of life for the “lovers of wisdom” which would bring them into closest communication with the Idea and its dictates. To achieve this end, Plato established severe rules for the philosophers, forbidding them to have families and private possessions and forcing them into a life of military discipline. Here, for the first time, the ideal of asceticism was linked with the denunciation of gold and silver which was identified with wealth and was regarded as the last cause of human greed and egoism.
• 71Plato, well aware that his Politeia was not realizable on this earth, designed, in his “Nomoi,” a second-best State in which the rulers were less enlightened and therefore, as the title indicates, in need of a coherent framework of guiding laws. Plato retains the military structure in the interior, he even defines “the well-constituted State” as one which “ought to be organized in such a way as to be victorious in war over all other States.” Elsewhere he writes:
• 72The main principle is this: that nobody, male or female, should ever be left without control, nor should anyone, whether at work or in play, grow habituated in mind to acting alone and on his own initiative, but he should live always, both in war and peace, with his eyes fixed constantly on his commander and following his lead.
• 73For this purpose, it is necessary to liberate the citizens from their “lust for wealth which allows a man no leisure time for attention to anything else save his own private property.” And the author continues: “That the laws previously ordained serve to repress the majority of desires, is not surprising.” This is so because “all our laws must always aim at one single object which, as we agreed, is quite rightly named ‘Virtue.’” The State and its citizens are identical in that they both require “the salvation of laws;” therefore, “everyone shall regard the friend or enemy of the State as his own personal friend or enemy.”
• 74For this purpose, it is necessary to liberate the citizens from their “lust for wealth which allows a man no leisure time for attention to anything else save his own private property.” And the author continues: “That the laws previously ordained serve to repress the majority of desires, is not surprising.” This is so because “all our laws must always aim at one single object which, as we agreed, is quite rightly named ‘Virtue.’” The State and its citizens are identical in that they both require “the salvation of laws;” therefore, “everyone shall regard the friend or enemy of the State as his own personal friend or enemy.”
• 75For this purpose, it is necessary to liberate the citizens from their “lust for wealth which allows a man no leisure time for attention to anything else save his own private property.” And the author continues: “That the laws previously ordained serve to repress the majority of desires, is not surprising.” This is so because “all our laws must always aim at one single object which, as we agreed, is quite rightly named ‘Virtue.’” The State and its citizens are identical in that they both require “the salvation of laws;” therefore, “everyone shall regard the friend or enemy of the State as his own personal friend or enemy.”
• 76For this purpose, it is necessary to liberate the citizens from their “lust for wealth which allows a man no leisure time for attention to anything else save his own private property.” And the author continues: “That the laws previously ordained serve to repress the majority of desires, is not surprising.” This is so because “all our laws must always aim at one single object which, as we agreed, is quite rightly named ‘Virtue.’” The State and its citizens are identical in that they both require “the salvation of laws;” therefore, “everyone shall regard the friend or enemy of the State as his own personal friend or enemy.”
• 77For this purpose, it is necessary to liberate the citizens from their “lust for wealth which allows a man no leisure time for attention to anything else save his own private property.” And the author continues: “That the laws previously ordained serve to repress the majority of desires, is not surprising.” This is so because “all our laws must always aim at one single object which, as we agreed, is quite rightly named ‘Virtue.’” The State and its citizens are identical in that they both require “the salvation of laws;” therefore, “everyone shall regard the friend or enemy of the State as his own personal friend or enemy.”
• 78Internal economic life is strictly regimented. Thus, “each several craftsman in the State shall have one single craft and gain from it his living.” Or again:
• 79The Law-wardens must meet in consultation with experts in every branch of retail trade, and at their meetings they must consider what standard of profits and expenses produces a moderate gain for the trader, and the standard of profits and expenses thus arrived at they must prescribe in writing; and this they must insist on—the market stewards, the city stewards and the rural stewards, each in their own sphere.
• 80Most of the Greeks arrange for their food to be derived from both land and sea, but our people will derive it only from the land. This makes the lawgiver’s task easier.
• 81For if the State was to be on the sea-coast, and to have fine harbors, and to be deficient in many products, instead of productive of everything—in that case it would need a mighty savior and divine lawgivers, if, with such a character, it was to avoid having a variety of luxurious and depraved habits. As things are, however, there is consolation in the fact of that eighty stades. Still, it lies unduly near the sea, and the more so because, as you say, its harbors are good; that, however, we must make the best of. . . . Our State has compensation in the fact that it is all-productive; and since it is hilly, it cannot be highly productive as well as all-productive; if it were, and supplied many exports, it would be flooded in return with gold and silver money—the one condition of all, perhaps, that is most fatal, in a State, to the acquisition of noble and just habits of life.
• 82What remains of foreign trade is severely guarded by the State. It is true that “no toll shall be paid in the State by anyone either on exported goods or on imports,” but this is practically meaningless since
• 83Frankincense and all such foreign spices for use in religious rites, and purple and all dyes not produced in the country, and all pertaining to any other craft requiring foreign imported materials for a use that is not necessary, no one shall import; nor, on the other hand, shall he export any of the stuff which would of necessity remain in the country. . . .
• 84In regard to arms and all instruments of war, if there is need to import any craft or plant or metal or rope or animal for military purposes, the hipparchs and generals shall have control of both imports and exports, when the State both gives and takes, and the Law-wardens shall enact suitable and adequate laws therefor; but no trading for the sake of gain, either in this matter or in any other, shall be carried on anywhere within the boundaries of our State and country.
• 85the intermixture of States with States naturally results in a blending of characters of every kind, as strangers import among strangers novel customs: and this result would cause immense damage to peoples who enjoy a good polity under right laws.
• 86reputation in the eyes of others, whether for goodness or the reverse, is a thing that should never be lightly esteemed.
• 87The State may send out “inspectors,” i.e. men over fifty years of age and of great merit, “who desire to survey the doings of the outside world in a leisurely way.” But they must be “incorruptible, so as to confirm thereby such of his native laws as are rightly enacted, and to amend any that are deficient.” On their return, the inspectors will report to a “mixed body of young men and old” on “anything important they may have learnt elsewhere.”
• 88The State may send out “inspectors,” i.e. men over fifty years of age and of great merit, “who desire to survey the doings of the outside world in a leisurely way.” But they must be “incorruptible, so as to confirm thereby such of his native laws as are rightly enacted, and to amend any that are deficient.” On their return, the inspectors will report to a “mixed body of young men and old” on “anything important they may have learnt elsewhere.”
• 89The State may send out “inspectors,” i.e. men over fifty years of age and of great merit, “who desire to survey the doings of the outside world in a leisurely way.” But they must be “incorruptible, so as to confirm thereby such of his native laws as are rightly enacted, and to amend any that are deficient.” On their return, the inspectors will report to a “mixed body of young men and old” on “anything important they may have learnt elsewhere.”
• 90But if, on the other hand, such an inspector appears to be corrupted on his return, in spite of his pretensions to wisdom, he shall be forbidden to associate with anyone, young or old; wherein if he obeys the magistrates, he shall live as a private person, but if not, he shall be put to death.
• 91All foreigners—whether in a public capacity or on a private visit—are, immediately upon their arrival, taken care of by State officials or by priests. Plato is especially distrustful of that “inevitable emigrant” choosing “summer, as a rule, for his annual visits.”
• 92“Plato was the intellectual father of socialists as well as of philosophers.” But whereas he “had a more general abstract end in view . . . , More was interested in the practical solution of actual and present social problems, and busied himself with plans to alleviate existing unfortunate conditions.” These conditions resulted from the enclosure movement in sixteenth-century England. Therefore, “the appearance of ‘Utopia’ marks the beginning of the modern social problems as they show themselves in the incipient stages of the capitalistic period.”
• 93“Plato was the intellectual father of socialists as well as of philosophers.” But whereas he “had a more general abstract end in view . . . , More was interested in the practical solution of actual and present social problems, and busied himself with plans to alleviate existing unfortunate conditions.” These conditions resulted from the enclosure movement in sixteenth-century England. Therefore, “the appearance of ‘Utopia’ marks the beginning of the modern social problems as they show themselves in the incipient stages of the capitalistic period.”
• 94“Plato was the intellectual father of socialists as well as of philosophers.” But whereas he “had a more general abstract end in view . . . , More was interested in the practical solution of actual and present social problems, and busied himself with plans to alleviate existing unfortunate conditions.” These conditions resulted from the enclosure movement in sixteenth-century England. Therefore, “the appearance of ‘Utopia’ marks the beginning of the modern social problems as they show themselves in the incipient stages of the capitalistic period.”
• 95The Island of which Hythloday enthusiastically reports is in the form of a horseshoe and its shores are washed by a calm and friendly sea. However, when Utopus first conquered “Abraxa,” it was a peninsula. This wise king made it an island by cutting an isthmus of fifteen miles. The entry into Utopia’s inviting bay is, moreover, made treacherous by nature because of dispersed rocks and shallows—the safe passages being known only to the fortunate inhabitants themselves.
• 96that they do not think felicity to rest in all pleasure, but only in that pleasure that is good and honest. . . . They define virtue to be a life ordered according to nature . . . and that he does follow the course of nature who in desiring and refusing things is ruled by reason.
• 97This greatly simplifies the economic process. Both men and women work and, since private property is unknown, there is no distinction between rich and poor. Hence, an idle class which must be supported does not exist. In addition, the demand for goods and services is reduced because homespun garments “are throughout all the Island of one fashion . . . seemly and comely to the eye, fit both for winter and summer.” Simple but abundant meals are taken in common, and whatever else is produced is done so in good and lasting quality. Hence, six hours of daily work are sufficient to provide for the Utopians’ necessities; the rest of the time is devoted to common recreation, games, and studies. But even so, the inhabitants cannot help producing surplus. All commodities are stored in warehouses or markets;
• 98from hence the father of every family or every householder fetches whatsoever he and his have need of, and carries it away with him without money, without exchange, without any gage or pledge. For why should anything be denied to him; seeing there is abundance in all things, and that it is not to be feared lest any man will ask more than he needs.
• 99then of those things whereof they have abundance, they carry forth into other countries great plenty; as grain, honey, wool, flax, madder, purple dye, felles, way, tallow, leather and livestock. And the seventh part of all these things they give frankly and freely to the poor of that country. The residue they sell at a reasonable and mean price. By this trade of traffic or merchandise, they bring into their own country not only great plenty of gold and silver, but also all such things as they lack at home, which is almost nothing but Iron. And by reason they have long used this trade, now they have more abundance of these things than any man will believe.
• 100Now, therefore, they do not care whether they sell for ready money or else upon trust to be paid at a day, and they have the most part in debts. But in so doing they never follow the credence of private men, but the assurance or warrantise of the whole city, by instruments and writings made in that behalf accordingly. . . . The most part of it they never ask. For that thing which is to them of no profit, to take it from others to whom it is profitable, they think it no right nor conscience. But if the case so stand that they must lend part of that money to another people, then they require their debt; or when they have war.
• 101Of course, the Utopians will never go to battle because of unsettled trade matters. But they will do so
• 102in defence of their own country or to drive out of their friends’ land the enemies that had come in or . . . to deliver from the yoke and bondage of tyranny some people that be oppressed with tyranny. Which things they do by mere pity and compassion.
• 103There may be still another occasion for war. It may happen that the Utopian population (despite institutional attempts at regulation) so increases that it “exceeds the due number throughout the whole island.” In such a case,
• 104they build up a town under their own laws on the nearest part of the mainland where the inhabitants have much waste and unoccupied ground, receiving also the inhabitants to them, if they will join and dwell with them. . . . But if the inhabitants of that land will not dwell with them, to be ordered by their laws, then they drive them out of those boundaries which they now mark out for themselves. . . . For they account this the most just cause of war when any people holds a piece of ground void and vacant to no good nor profitable use, keeping others from the use and possession of it which notwithstanding by the law of nature ought thereof to be nourished and relieved.
• 105The Utopians readily observe this law by returning the colonizers to their native cities as soon as the Island’s number of inhabitants has become deficient. Beyond that, only “very few” go to foreign countries and this only “for some reasonable cause” such as trading.
• 106Utopia’s chief instruments of war are gold and silver. These precious metals are used to hire mercenaries and to lavishly reward foreign agents charged with the outright murder of a hostile prince or to “procure occasions of debate and dissention to be spread among their enemies.” The Utopians themselves, though well trained and prepared for war, fight only if they must to defend their country.
• 107“The first socialistic theorist, Sir Thomas More,” wrote his Utopia as a reaction against the social evils of his time. General humanitarian feelings and a strong empathy with the miserable lot of the poor classes merged, in the eighteenth century, into the powerful current of thought which was set free by the Enlightenment. History and politics were now subjected to the analysis of reason. A natural and reasonable social, political, and economic order was supposed to exist, derivable from the knowledge of human character. The “social contract” offered a normative formula which indicated how society should be built if its construction were influenced only by reason and not also by error, lust for power, and custom.
• 108Johann Gottlieb Fichte, at the turn of the century, combined French rationalism and radicalism with German nationalism. Unlimited freedom, he wrote, means no freedom at all since “no one may appropriately put something into effect and rely for one moment on its duration. This antagonism of the free forces can only be counteracted by the individuals making a mutual agreement.” This agreement restricts the liberty of its participants equally and contains the assignment of an exclusive right to a determined “free” activity to each participant. The agreement thereby constitutes property.
• 109Johann Gottlieb Fichte, at the turn of the century, combined French rationalism and radicalism with German nationalism. Unlimited freedom, he wrote, means no freedom at all since “no one may appropriately put something into effect and rely for one moment on its duration. This antagonism of the free forces can only be counteracted by the individuals making a mutual agreement.” This agreement restricts the liberty of its participants equally and contains the assignment of an exclusive right to a determined “free” activity to each participant. The agreement thereby constitutes property.
• 110it is the State’s function to assign property to each and then only to protect his corresponding rights.
• 111unless it fixes the exact number of those who are permitted to work in a given branch and provides for production of the necessary means of subsistence for all. It is only through this closure that a branch of activity becomes the property of the class which works in it.
• 112the superfluous is always to be set behind the things which are indispensable or hard to dispense with. . . . All should first have enough to eat and be permanently accommodated before anyone decorates his dwelling; all should have warm and comfortable clothes before anyone puts on a sumptuous gown. . . . It is inadmissible to say ‘I can pay for it.’ It is very unjust that one person is able to afford the unnecessary whereas his fellow citizens lack the essentials.
• 113The government guarantees not only work, but also a ready market to its citizens. This is possible on the basis of the general plan. Prices are fixed by the State, and have a legal character.
• 114The State is obligated to guarantee to all citizens, by law and coercion, the conditions resulting from this equilibrium of mutual intercourse. Yet it is unable to do so if any person outside its laws and dominion has any influence on this equilibrium. It is therefore imperative to cut off the possibility of such an influence. All intercourse with foreigners must be forbidden and made impossible to its subjects.
• 115the government, in order to continuously guarantee its subjects the fulfillment of their customary needs, must be able to rely on the fact that a certain quantity of goods is being traded. How can it count on the foreigner’s contribution to this quantity since he is outside the government’s dominion? It is to fix and warrant the price of a commodity. How can it succeed with respect to the foreigner if it is unable to determine those prices which prevail in his country and at which he buys the raw materials? If the government sets him a price which he cannot afford, he will henceforth avoid its market and deficiency in the satisfaction of customary needs will result. It is to guarantee to each subject the sale of his products at the due price. How can it do so if the subject sells on foreign markets where different commodity relations prevail which it can neither survey nor influence?
• 116a closed commercial state just as it is a closed imperium of laws and individuals.
• 117Each man as well as each commodity belongs either to its jurisdiction or it does not: “there is no third choice.” It follows that any foreign trade that may be judged necessary falls to the exclusive competence of the government “just as it alone is to decide on war, peace, and alliances.”
• 118Each man as well as each commodity belongs either to its jurisdiction or it does not: “there is no third choice.” It follows that any foreign trade that may be judged necessary falls to the exclusive competence of the government “just as it alone is to decide on war, peace, and alliances.”
• 119A closed commercial state . . . can turn into money whatever it desires, provided only that it declares to accept this and no other money. . . . It would thus create a national currency without even raising the question as to whether this money would or would not be accepted abroad, since for a closed commercial state foreign countries are as good as nonexistent.
• 120A closed commercial state is utterly indifferent to whether there is, to speak in customary language, a large or a small circulation of money. The total sum of circulating money simply represents the total quantity of publicly traded goods.
• 121In the first place private foreign trade is to be made impossible by depriving citizens of all international means of payment. This deprivation must be preceded by the following measure:
• 122Immediately before the promulgation of the new national currency, the government buys all foreign goods existing in the country. . . . This purchase takes place partly in order to assess the available stock and the present needs for these commodities, and partly in order to centralize their price fixing.
• 123By the same stroke with which it introduces the new national currency, it is to take over all assets and liabilities resulting from foreign trade.
• 124Henceforth, the government will decide which commodities will continue to be exported and imported.
• 125The government pays to or claims world currency from the foreigner and then pays to or claims national currency from the citizen.
• 126The same method of control will be applied to all foreign trade transactions and their corresponding payments. The separation of currencies will be paralleled by a separation of the internal price level from that prevailing on the world market. Therefore,
• 127the citizen does not buy at the price the government pays to the foreigner for a commodity, but at the one prescribed by internal law with due consideration for the citizen’s fair subsistence during the time he resells it.
• 128Exports are to be similarly regimented. The prices of foreign goods are gradually raised so as to break the citizens of their habit of desiring them, the final aim being “that the State completely isolates itself from any foreign trade.”
• 129Fifthly, “simultaneously with the execution of these measures the State is to move into its natural frontiers.” This leads us to an interesting point of Fichte’s political theory. He writes:
• 130Certain areas of the earth’s surface, including their inhabitants, are clearly destined by nature to form political units. They are separated from the rest of the earth by large rivers, seas, inaccessible mountains. . . . It is these indications of nature as to what is to remain united and what is to be separated that one has in mind when speaking, in modern politics, of the natural frontiers of empires; a consideration which should be taken far more seriously than is commonly done. Nor is sole emphasis to be placed on strong and militarily well protected frontiers, but much rather on productive independence and self-sufficiency.