Chapter VII. Planned Foreign Trade and Its Consequences for International Economic Relations

CHAPTER VII PLANNED FOREIGN TRADE AND ITS CONSEQUENCES FOR INTERNATIONAL ECONOMIC RELATIONS

The foreign trade monopoly of a collectivist state must make decisions of the following nature: what kinds and quantities of goods and services are to be imported and exported? What are the prices at which these goods are to be bought and sold? What criterion is to be used to measure the profitability of these transactions? Evidently, if there exists no reliable method of ascertaining scarcity, these questions cannot be answered satisfactorily.

We shall start this chapter by going back once again to the socialists treated in Part I. We shall now examine the place foreign trade holds in their doctrines and the international economic consequences of their ideas in more detail than could be done in Part I. The ground will thereby be prepared for the consideration of our problem from a general point of view.

THE PLACE OF FOREIGN TRADE IN IDEAL COMMONWEALTHS

Plato

Foreign trade is clearly recognized by Plato as an agent working for a general increase in productivity and welfare. Yet, international exchange is to be minimized or even abolished, at least as far as goods for use by individuals are concerned. It is left entirely to the authorities’ discretion to decide which imports are “necessary” and which are not, no consideration being given to the citizens’ wishes or traditional religious customs.1

Quite another matter is the importing of commodities that are required by the State for military purposes: here, the Law-wardens are free to purchase whatever is needed and pay for the acquired goods with exports. Since the State is “all productive,” its authorities will have a sufficient range of commodities at their disposal with which to satisfy the claims of foreign exporters. The question of the real costs involved in such transactions, costs which are ultimately borne by the population, could not concern a man whose major preoccupation was to free human hearts from the lust of wealth. On the contrary, every measure restricting economic welfare was openly welcomed by him as a means of furthering his moral end. One could characterize Plato’s leading maxim with the phrase: to have less of a thing is better than to have more of it. This principle, however, applies only to the individual; the State must retain absolute freedom to abundantly provide for its needs which serve to strengthen its internal and external position.

Thomas More

A seemingly different picture is given by Sir Thomas More in his Utopia which is the socialist prototype of a rationalized and standardized economy producing great surpluses. The problem of scarcity does not arise. Goods are no longer traded, but freely distributed to each according to his needs. International trade assumes the form of gifts offered by a happy community to the less fortunate peoples of the world. More leaves no doubt that this really Utopian result is due not to a prodigious productivity of the island, nor to some other supranatural factor, but exclusively to “a life ordered according to nature.”

What kind of order is this? One in which the demand side of the economic problem is considerably simplified. The program of production is strictly limited: it covers some basic foodstuffs, standardized clothes and buildings, and a few objects destined for “common recreation, games, and studies.” In the language of modern economic theory, only those goods and services are produced in Utopia for which the elasticity of demand is very low. This is a common characteristic of all “essentials.” In other words, the demand for these commodities reaches the saturation point relatively rapidly, beyond which the possession of them would be accompanied by disutility. And since in a statical economic system these goods are constantly reproduced in the same quantities and qualities, there is no impetus to accumulate hoards: everyone will indeed only take what he effectively needs.

What happens, however, if the Utopians begin to desire articles which have not hitherto been produced? Or where will they be led by a sudden change in their frame of mind which will cause them to prefer more leisure time to the overabundance of not very useful products? Or, finally, what course will events take when Utopian traders discover that, in exchange for their surpluses, valuable goods can be obtained abroad which greatly increase their own and their fellow citizens’ comfort of life? Clearly, in all these cases the economic problem would at once make itself felt. The unconsumed surplus of home goods would rapidly disappear and with it the Utopians’ willingness to give it away. Productive resources would become scarce.

But, the economic problem does not arise in Utopia for the simple reason that its inhabitants “do not think felicity to rest in all pleasure, but only in that pleasure that is good and honest.” It is neither good nor honest, nor “according to nature,” to desire more than one can have. And all one can have in Utopia are six hours of work, the abundant or even overabundant provision of one’s basic needs, and standardized entertainment. No other choice has been left to the individual citizen by the wise king Utopus.

Nevertheless, this king had foreseen the eventuality of an emerging scarcity: that of land. And he had also indicated the solution of this problem: war and annexation of “void” territories. Such procedures would be in accordance with the “law of nature” since a “natural” proportion between the size of the population and the territory to be occupied by it was assumed to exist. But what if Utopia itself came to suffer from a deficient population and a corresponding overabundance of land? Would other peoples equally be entitled, by invoking the “law of nature,” to claim part of its territory? Obviously, this turn of events is excluded by the geographical location of Utopia and the impossibility of access to its lands by foreigners, a situation consciously brought about by its founder. The implications of this closedness would also be experienced by those citizens who, on their trips abroad, would seek goals other than those approved by the community.

Thus, we can see that despite apparent dissimilarities, More’s Utopia and Plato’s Just State greatly resemble each other. Both are subjected to the rule of “virtue” and “reason” as embodied by the State. In both, therefore, the citizen must be content with what the State has accorded him. The only difference between the two is that authority in Utopia has already become facile et douce, whereas in Plato’s commonwealth it harshly represses “the majority of desires.” Even in Utopia, however, this authority would soon be felt by all those who, in their personal aspirations, failed to “follow the course of nature.” Its closure against the outside world thus not only protects the ideal State from outward foes, but enables it to deal effectively with possible rebels within its frontiers. It is the indispensable condition in maintaining absolute power.

Johann Gottlieb Fichte

This was most clearly perceived by J. G. Fichte who, in the title of his small book, had already underlined the preeminent importance of this requirement. He described, with rigorous logic, all major aspects of a centrally planned economic order. By so doing, he went into greater detail than any “scientific socialist” was to do for more than a century after him.

Again, the basis of the national plan is formed by a list of essential commodities decided upon by the State. Fichte, like most other socialist authors, presupposes a naturally given order of priority among the various commodities and services; it is also nature which prescribes a fixed relationship between agricultural and industrial production. Hence, for him, the economic problem remains unrevealed and state planning is considered identical with the calculation of merely quantitative relationships. The author realized, however, that the transition from an open to a closed economy would involve economic losses to the country. But, since these losses would affect only the welfare of individuals, whereas the state would emerge with greatly increased powers and strength, they were irrelevant in Fichte’s point of view.

Conversely, Fichte, with unusual perspicacity, is aware of the “perennial conflict between national planning and foreign trade”;2 and he gives a consistent explanation for this fact. The proposed solution consists, as we know, of a “strictly closed commercial state,” the only one, in the author’s view, which is compatible with the Vernunftsstaat. This is so because it safe guards to the fullest degree the liberty exercised by the State in internal economic matters, especially as regards monetary and price policy. With stern consequence, he enumerates the five preliminary steps which make it possible for the government to systematically destroy dominium—the necessary precondition for the hermetic closure of state frontiers.

How does Fichte envisage future international relations? Since foreign trade is to be eliminated as far as possible, the State cannot be indifferent to the size of its territory and the raw materials resources it controls. And indeed, its preoccupation with this problem, more precisely its aspirations to achieve productive independence and self-sufficiency, are regarded by Fichte as the Vernunftsstaat’s legitimate policy: Again, it is nature which predestines certain parts of the globe to form political units. The author clearly recognizes that natural frontiers cannot be achieved without war; he recommends getting it over as quickly as possible or, even better, so strengthening the power of the State intent on closing its frontiers that defense becomes a hopeless affair for its less powerful neighbors. These territories can then be swallowed up “peacefully” and become the natural borderlands of the few remaining Superstates. Once these natural frontiers are achieved, however, it is alleged that all sources of international conflict will be removed and that eternal peace will reign.

Here Fichte, who had up to now been so extraordinarily realistic, clearly becomes Utopian. He fails to see that by postulating a comprehensively planned internal order and a corresponding rupture of all economic links with the outside world, he really converts the economic problem into a political one. Productive resources are no longer freely bought and sold, but are allocated by a political authority; and this authority can count on them only to the extent that they are actually under its jurisdiction. But, however great the territory dominated by it, and however richly endowed with natural resources it might be, there will always be raw materials outside the frontiers of a given state that are desirable, unless it has brought the whole world under is domination. Hence, the practical limits to the claims and aspirations of powerful states are drawn not by “nature,” but by the determined resistance of other, equally powerful, nations. International peace, and a very uneasy one at that, will therefore only be assured if all states acquire approximately the same strength and if the formation of an alliance between some of them will at once be countered by the establishment of an equally powerful counter-alliance. As soon as this balance of power is upset, aggressive wars become inevitable. Under these circumstances we can no longer speak of an international order.

THE PRE-MARXIAN SOCIALISTS’ ATTITUDE TO INTERNATIONAL ECONOMIC RELATIONS

Robert Owen

The combination of ideology and economics is particularly noticeable in Owen’s works. All basic aspects and problems of Utopia discussed in the preceding section are present. Even the question of natural frontiers is hinted at by Owen’s remark that each community will “annex” sufficient land enabling it to live on its produce. Thus, this author, too, aims at closed, self-sufficient associations, notwithstanding the fact that he speaks of a “free” international intercourse. We have just seen the fundamental incompatibility of such an order with centralized planning.

Saint-Simon and His Followers

Saint-Simon and especially his successors were the first socialists who consciously concerned themselves with the problems of optimum resource allocation. At the same time, they recognized the existence of a fundamental difference between the economic and the political sphere. They perceived that, whereas the latter was characterized by the use of force, which, by clashing with rival forces, must eventually lead to armed conflicts and repression, the former required peace and the development of productive resources according to its own, proper laws. They concluded that politics must be prevented from interfering with the peaceful and beneficial economic forces closely allied to the progrès des lumières.

But the great error of the Saint-Simonians is their failure to understand that the essence of the political sphere is power and arbitrariness and that it is from these characteristics that wars and international disorder originate. Instead, they consider politics as only that power which is handled by wrong, inefficient, and reactionary persons and classes. These are identified with those who, at present, are the governors of national states. The solution advocated by this school now becomes very simple: power must be transferred to the true representatives of collectivity, those who are best qualified for the task of organizing and administrating the affairs of society. By this procedure, it is thought, two problems would be solved by one stroke: the problem of efficient resource allocation and that of international peace and order. The removal from their command positions of those, it is argued, who no longer fulfill the requirements of history and “industry,” will result in the disappearance of the national states themselves, products of a past era and the source of incessant conflicts. Conversely, the new elite will possess not only absolute knowledge, but will also be inspired by the highest ethical principles so that the economic affairs of the entire globe could safely be entrusted to them. Politics would be converted into the “science of production.”

Thus, the basic fact that gives rise to the economic problem—scarcity—continues to be ignored. What the Saint-Simonians really recommend is the politicalization of economics, not the opposite, as they thought. Furthermore, we have seen that socialism can only be introduced in each state separately, a process which strengthens, not weakens, the power of national governments. But national collectivism is impossible without the closure of state frontiers, and this in turn enhances the possibility of international conflicts. The Saint-Simonian doctrine therefore contains all the essential characteristics of an ideal commonwealth, but embraces the whole world. It is the misapprehension of the real nature of power and the unawareness of the economic problem that prevented these authors from perceiving the fundamental problem of international economic order under socialism.

Pierre-Joseph Proudhon

It was reserved to Proudhon to elaborate, with admirable clarity and eloquence, the basic qualitative difference that distinguished the economic from the political sphere. The solution to the problem of social organization could not, for him, be found in taking power away from inappropriate persons and conferring it, greatly enlarged, upon men of “perfect” knowledge and wisdom. What was required was the separation of the two domains and both the horizontal and the vertical division of political power. But this could only be achieved by a society built de bas en haut, a state organization based on federalism, that is, on maximum individual and regional freedom.

Proudhon’s uncritical adoption of the labor theory of value obscured to him the basic fact of the scarcity of all productive resources. But he recognized that the forces of dominium (possessoire) and only these could create and maintain a peaceful international order.

We can only conjecture what would have been Proudhon’s choice had he been clearly faced with the alternative: “monopoly” of private property—which, under a regime of free competion is, for all that, less “detestable” and more “justified” than he initially thought—or the unrestricted power monopoly of the state, destroying dominium and bringing all human activities under the control of a single, political will. What is certain is the rigorous logic of this fundamental alternative: one can ignore, but not escape it.

THE GENERAL PROBLEM OF INTERNATIONAL ECONOMIC RELATIONS UNDER SOCIALISM

We can now consider the problem of collectivist economic intercourse in a general way. Our own analyses as well as those of the socialists themselves have shown that the collectivist state represents a watertight economic system” (Mossé). It does not follow, however, that the state must necessarily suspend its economic relations with the outside world. Theoretically, it is quite conceivable that the planning authority not only continues, but even extends, as Cole had envisaged it, its foreign trade relations. We need, therefore, to examine those essential features of a socialist economy that are likely to influence the deciions of the monopoly of foreign trade.

The Permanent Pressure on Internal Resources

The central economic agency has, at the beginning of a planning period, certain amounts of productive resources at its disposal. Obviously, a first requirement of state planning is to fully employ these resources. This requirement is closely tied to a second one: to achieve maximum growth of production.3 But this raises the problem of the proportions that consumption and investment goods are to hold in national production. The planning authority will have a natural inclination—or in fact, an obligation imposed upon it by a radical theory of industrialization—to increase the share of investment goods in total output, since it is on the volume of the productive equipment possessed by the state that its economic growth rate depends. But this tendency clashes with the postulate of raising the population’s standard of living. The actual solution adopted is the outcome of a political decision made by the government.

By inquiring into the causes and motives of entrepreneurial behavior, the classics discovered the price mechanism which enabled economic science to arrive at generally valid conclusions and principles that characterized a free market economy. These principles are no longer allowed to solve the economic problem under collectivism; it therefore becomes even more imperative to search for certain regularities of outlook and behavior of those men who actually exercise the droit à la richesse in the name of national collectivities.

But this way of approaching economic problems under collectivism is contrary to the socialist method. This method consists, as we have seen, of the dogma—it is impossible to call it otherwise—that it is not ordinary men, but l’être collectif itself, represented, for Lenin, by an advanced+ and infallible vanguard party, which is making the vital economic decisions according to the requirements of “science” or history. Consequently, these decisions cannot be anything but right and in the true interest of the community as a whole. “Scientific socialism,” by insisting on the absolute primacy of a coherent body of doctrine over practical problems, thus takes over from the founders of ideal commonwealths the Utopian method of treating economic and social problems. To questions relating to these problems, not the economist, but the ideologist will supply the “correct” answer.

But Engels had already recognized that the existence of classes is due to the fact, characterizing any economy based on division of labor, that a group of persons, liberated from directly productive work, is called upon to attend to the common affairs of society, most particularly to the disposal of the means of production.4 Thus, the only real difference which, in this respect, takes place with the advent of socialism is the replacement of one such group by another. This “new class,” as M. Djilas5 referred to it, has developed, like any other social class, its proper outlook and interests. But it differs from its predecessors by the possession of a hitherto unknown concentration of power. It will certainly be its foremost concern to use this power for the consolidation of its own position.

Since we are concerned, after all, with normal human beings, it cannot be expected that they will, as Saint-Simon had envisaged it, gratuitously direct the administration of public fortune. On the contrary, this class will, just as its predecessors did, secure to its members all those goods and services which add to the comfort of life. It can easily do so because it controls the entire flow of national production and because the distribution of this “cake” takes place on arbitrary lines. The raising of general living standards will be in its interests only insofar as this measure provides an additional incentive for the productive effort of the population, additional, that is, to the socialist law compelling every citizen to work.

Conversely, the decision-makers have a strong and immediate interest in developing those branches of the economy that contribute to the production of capital goods: i.e. heavy industry. They thereby enlarge not only the “public fortune,” but also their exclusive power to dispose of it. Moreover, a collectivist economy will always be in need of a relatively greater proportion of investment goods and raw materials than a free market economy in order to make up for the losses resulting from mistakes of planning and uneconomical use. But in addition, a well developed national heavy industry is a direct source of political power, since it is indispensable for an independent armaments program. The “new class” derives its privileged position from this very power and has every reason to devote as many available resources as possible to the production of primary and intermediary products.

Yet, since for propagandistic as well as for economic and political reasons mass welfare cannot be altogether neglected, there will be, in a collectivist economy, not only full employment, but constant overemployment of productive resources, accompanied by a permanent shortage6 of labor, materials, and capital. But neither can the relative scarcities of the factors of production be measured exactly, nor is there a mechanism which would punish the decision-makers or at least compel them to correct their mistakes within a reasonable period of time.

This overemployment of resources is felt by the individual managers7 as well as the state officials responsible for foreign trade planning. Whether they receive the necessary inputs in the quantity, quality, and at the time required, will depend much more on their skill and personal connections than on the physical allocations of the plan. Unforeseen imports will frequently be required to meet bottlenecks; at the same time, imports will tend to be cut down and brought into line with the limited amount of goods and services available for export.

The Impossibility of Measuring the Profitability of Individual Foreign Trade Transactions

This throws new light on the “primacy of imports over exports” praised as the great advantage of collectivist foreign trade. The excess of demand over supply spills over also into international economic relations, and the foreign trade monopoly is faced with the impossible task of procuring a maximum of imports for a minimum quantity of exports.8

But, the central agencies are unable to ascertain the net gain involved in any particular transaction. Here, as in all other branches of the economy, global estimates relating to the overall profitability of foreign trade must replace marginal calculations. “The question faced by the organs responsible for foreign trade thus reads: ‘How much would it cost our national economy if we ourselves had to produce the commodities which we could purchase abroad by means of the foreign exchange earned by the sale of export goods?’ These costs are to be compared with those incurred by the production of export goods; the result will yield the profit or loss from foreign trade.”9 These calculations, however, cannot be based on an objective exchange rate maintaining a true price link at least for the internationally traded commodities. This fact, together with the arbitrariness of the internal costs themselves, will necessarily distort even these very rudimentary calculations.

Trade Relations between Collectivist and Free Market Economies

In the case of collectivist states trading with free market economies, scarcity prices are involved at least on one side of the arithmetic problem. The various solutions advanced by socialist authors to optimize trade relations10 boil down to an extension of the “trial and error” method also to cover international economic transactions. Whereas Lange had attempted to achieve true scarcity prices within the economy, Mossé hopes, by this method, to find a correct exchange rate. But just as the “Market Solution” and the consumers’ sovereignty presupposed by it collided with the “principle of planning,” there also exists an insurmountable conflict of conscious national economic control and the postulate to direct production according to the interplay of international supply and demand. Thus, Bettelheim, who aimed at arriving at internal prices reflecting international values, was aware of his proposal involving a certain subordination of the national economy to the requirements of world economy.11 This, however, he thought to be harmful only if one single collectivist country was confronted with a world consisting of free market economies. In such a case, plan disturbances caused by the instability of world market prices could only be avoided, he wrote, by resorting to the highest possible degree of autarky, that is, by assigning to the international trade the role of a “security valve.”12

Moreover, as Mossé had rightly seen, to leave international transactions to the free discretion of individual managers is incompatible with the internal structure of a collectivist economy. This does not, however, prevent the collectivist state from taking advantage of its monopolistic position vis-à-vis its partners in a free market economy composed not of states, but of individual entrepreneurs. It is true, as E. Heuss pointed out, that “because of the high urgency of import goods there will be a very rigid import demand.”13 But this disadvantage can often be compensated for by means of price discrimination both in buying and in selling goods. By this procedure, the state can considerably improve its terms of trade.

In addition, it can swiftly take advantage of sudden economic disequilibria and adapt its foreign trade policy to the political requirements of its Ministry of Foreign Affairs with respect to each state. In fact, this versatility is in striking contrast to the internal clumsiness of every planned economic system since, to use J. Jewkes’ phrase, “the plan itself is the enemy of readjustment.”14

Trade Relations between Collectivist States

What can be said about a future international order consisting exclusively of collectivist states—a situation which is obviously the goal of most socialist authors? Can the element of instability originating from world market prices be so reduced that international trade, instead of leading to economic disintegration, achieves an ever greater and more fruitful extension of the international division of labor?

This is possible, socialist assert, because the volume and conditions of mutual exchange are specified prior to the establishment of national plans; these will not finally be drawn up until the different quantities and qualities of exports and imports have been internationally agreed upon so that they can be safely and reliably incorporated into the various national plans.

But again, the emergence of the economic problem must upset these expectations. According to what criteria is the value of deliveries and counter-deliveries to be determined? If we turn to socialist writings, we are only told that brotherly love and solidarity will replace “mercantile” trade. Yet, if we remember the basic feature of a collectivist economy—the constant overemployment of all factors of production—and, furthermore, the aims and goals of the new class in each state, we can see that a collectivist economy, however rich it may be, has no resources to spare. These will only leave the country if an appropriate countervalue is obtained in exchange. This counterpart may be economic as well as political; but the political advantages, e.g. of spectacular gifts to developing countries, will only arise as long as rival (socialist and nonsocialist) states are competing for the sympathies of these countries. They are the outcome of power politics, not of proletarian solidarity. International gifts can therefore by no means be considered a permanent feature of socialist economic relations.

To learn more about the nature of these relations, we shall follow W. Eucken’s method and accompany an agent of a national foreign trade monopoly—assuming for simplicity’s sake that it will always be the same person—through the different stages of his work. The morning he starts it, he will find on his desk numerous documents indicating the country’s planned needs of raw materials, intermediary products, etc. on the one hand, and the kinds and quantities of goods which will probably be available for export on the other. Based on these documents and extensive additional consultations with the central planning agency, he will establish a list of goods and services to be imported ranked according to their priority,15 and an export list headed by those commodities which are least needed with respect to plan fulfillment. Prices will play a role only insofar as they do not conflict with the orders received from the highest planning officials.

Armed with these lists and with instructions to obtain as many high priority goods in exchange for as few exports as possible, our agent will be sent out to meet a delegate from another socialist country who will produce similar lists and will be under the same obligations. Negotiations will begin. If prices once played a minor role in establishing basic lists, they now lose all importance since there is no rational exchange rate which could make national quotations internationally comparable. Conversely, our delegate will discover that his colleague at the green table wishes to purchase from his state very much the same kind of commodities as those contained on his own import lists, namely: vital raw materials and capital goods. On the other hand, he shows little inclination to accept as a payment for these valuable goods commodities which also in his country have lowest priority. After innumerable telephone calls to their respective capitals and tough bargaining over every item and counter-item (without, however, knowing their real values), they will eventually reach a compromise, probably covering only a small part of their original lists. It is obvious that this compromise is only formally called “economic.” It is, in fact, a political agreement concluded between two sovereign states. Each international trade contract now becomes an act of high diplomacy and it ceases to be an intergovernmental issue only when it has been carried out to the satisfaction of both parties. But what if either the received qualities, quantities, or the date of delivery give rise to complaints? No international court exists which could effectively settle such matters of dispute.

Our two foreign trade agents will now negotiate with other socialist countries’ delegates over the commodities left on their lists until the whole world—or that part of it which is occupied by socialist states—will be covered by a network of bilateral trade agreements. These negotiations could not, practically, take place on a multilateral level since it is already difficult enough to determine the kinds and quantities of goods to be exchanged between only two countries. But this inevitability of bilateralism leads to a severe restriction in the volume of foreign trade because “it involves an effort to achieve a predetermined quantitative ratio of exports of country A to country B to the exports of country B to country A.”16 It therefore “consists in the breaking up of a country’s external market into a series of isolated segments.”17 An optimal international division of labor thus becomes impossible.

This system of political negotiations has further grave defects. The subject of these negotiations is formed by most vital economic matters and the degree to which ambitious national plan targets can be achieved depends considerably on their outcome. “Needs” will therefore certainly continue to play a major role in international economic relations—but only one special category of them is sure to find satisfaction. This includes neither the “needs” of the different populations, nor those which can be met by the spending of a given amount of money. It includes solely those needs that are backed by political power.

Graf therefore compared the character of collectivist trade negotiations to the game of “rope pulling”: “Whereas in the game it is either superior muscular strength, swift surprising grasping, or the utilization of small elevations of the ground which may decisively contribute to victory, it is, in ‘rope pulling’ at the table of bilateral economic negotiations between centrally directed economies, the economic and political power position of the participating states, but at times also the dexterity and cunning of their delegates.”18

In the absence of a rational criterion of value, the negotiating delegates, even if they were ordered to do so, could not possibly find that point at which both partners could derive “equal” advantage from the agreement. In reality, interests are diametrically opposed. Every economic advantage secured by one country automatically means a political advantage, and hence a superior initial position in the next round of negotiations. It at the same time represents a loss to its trading partner resulting in a corresponding diminution of its power.

If eventually an “order” is crystallized, this will be due to the emergence of one or more strong states having acquired the power to force whatever “contracts” they wish upon the smaller countries within their sphere of influence. They at the same time assume the role of international arbiter in the case of disputes between these. It is characteristic of collectivist foreign trade that the borderline between international economic cooperation and economic exploitation is thin and not clearly definable. The more powerful one collectivist state becomes with respect to other socialist countries, the more easily foreign trade can be used as an instrument of exploitation and subordination.19 Thus, one must envisage the future international scene as composed of a few, almighty superstates surrounded by their satellites and struggling for world domination. A stable “peace” will only be reached if one big sun succeeds in incorporating all other big and small states of the world into its own planetary system. Then, and only then, will the road become free for a “single world economy, regulated by the proletariat of all nations according to a common plan (Lenin).20 Stalin understood this and did not hesitate to follow the corresponding road with utmost determination.

SUMMARY AND CONCLUSIONS

The authors treated in the first two sections of this chapter were entirely unaware of the real nature of the economic problem. They equally ignored, with the exception of Proudhon, the political consequences resulting from a transformation of a liberal into a collectivist economic order. These consequences, however, decisively affect international economic relations under socialism.

The mere existence of a foreign trade monopoly introduces an important element of power into the field of international economics. This element becomes the predominant characteristic of socialist foreign trade relations since the kind and amount of exports and imports cannot rationally be determined, account being taken of marginal costs involved in each separate transaction. The proposed substitutes to guide efficient foreign trade planning are unable to avoid the use of existing, arbitrarily fixed prices and exchange rates as the basis for comparing home costs with world market prices. Therefore, these methods to assess foreign trade profitability must remain global. Paradoxically, their accuracy is improved by basing these calculations on world market prices formed by the free interplay of supply and demand; but at the same time, a collectivist economy is forced to protect itself against the repercussions of international trade with free market economies even at the heavy price of autarky.

Conversely, in commercial relations between collectivist states, the respective power positions of the different states play a decisive role. Each state aims at securing favorable terms of trade; hence, the interests of the collectivist trading partners, in the great majority of cases, do not complement, but conflict with each other so that the energies of national planning agencies will be much absorbed by strengthening their countries’ power in view of the inevitable “rope pulling” with other socialist states.

All these considerations lead to the following conclusions: “Central direction of the production process of national economies which participate in international trade will . . . always lead to a distortion of international trade which moves no longer in channels prescribed by the comparative advantage of the individual countries so that the total utility which could accrue to the world from an international division of labor is very considerably reduced.”21

Under these circumstances, the problem of international economic order cannot be solved by socialism. The mutual relations between collectivist states are characterized by a high degree of instability which can only be eliminated by the rise of one nation to a hegemonial position and the subordination of all others to its dictates. Nothing general can be said on the actual volume of foreign trade: it can be greater, smaller, or the same as that between free market economies. But since economic dependence means political dependence, national planning boards will attempt to produce basic raw materials and intermediary products as far as possible within their own territory over which alone they have full control. This and the fact that trade relations are conducted on a bilateral basis give reason to expect a considerable reduction in the volume of international exchange under socialism. As against this tendency, however, “trade” can be forced upon small nations by their more powerful socialist brother nations.

The principal characteristic common to all collectivist economies is the general shortage of commodities. As a consequence, a socialist state that is in a position to offer “attractive” goods is also able, providing it has the necessary autonomy, to attach both economic and political strings to the acquisition of these commodities. This politicalization of international economic relations is the logical outcome of socialism which had already led to the politicalization of the internal economies. State frontiers gain utmost economic importance in that they now hermetically separate the autonomously planned national economies from one another. At the same time, the unification of political with economic power and the resulting loss of an objective measure of value make it imperative for each state to rule over a territory as large as possible and to regard the raw materials occurring within its frontiers as belonging to its exclusive possession. The final aim of every collectivist state must be the achievement of economic independence. Fichte’s conclusions, drawn in 1800, have lost nothing of their validity.

NOTES TO CHAPTER VII

22This is quite consistent with the theory of the Just State, which says that the latter is itself the highest moral authority. Hence religion, as far as it is not embodied in the State, becomes indeed “unnecessary.”

23Heilperin, M. A., Studies in Economic Nationalism. Geneva/Paris, Droz/Minard, I960, p. 86.

24The goal of simply maximizing production has of course no meaning without a common and rational unit of value. Conversely, there is no difficulty in stating that the construction of new buildings has increased by x%, the production of steel by y%—as long as these categories do not undergo any qualitative change.

25Engels, F., Antidühring, pp. 303-4.

26Djilas, M., The New Class. An Analysis of the Communist System. New York, Praeger, 1957, 214 p.

27Which become even more acute by the various bottlenecks resulting from deficient planning.

28It is possible today to advance a genuine theory of managerial behavior under socialism. Instead of prices and costs, the parameters are (1) the provisions of the plan and (2) the accompanying system of stimuli and punishments devised by the planning authority. The latter is of decisive importance in this respect, in contradistinction to the former, which will only be respected as long as the personal interest of the manager, as determined by the amount of extra premiums he expects to receive (respectively his fear of losing his job, perhaps even his life), coincides with the requirements of the plan. Cf. Balassa, B., The Hungarian Experience in Economic Planning. New Haven, Yale University Press, 1959, 285 p.

29Impossible because this represents one equation with two unknowns: the solution is therefore indeterminate.

30Graf, W., Der Aussenhandel zwischen marktwirtschaftlichen und zentralgeleiteten Volkswirtschaften. Zürich & St. Gallen, Polygraphischer Verlag, 1951, p. 60.

31Cf. ibid., pp. 65 seq.

32Bettelheim, C., Les problèmes théoriques et pratiques de la planification. 1st ed., Paris, Presses Universitares de France, 1946, pp. 290-91.

33Ibid., 2nd ed., 1951, p. 345.

34Heuss, E., Wirtschaftssyteme und Internationaler Handel. Zürich & St. Gallen, Polygraphischer Verlag, 1955, p. 200.

35Jewkes, J., Ordeal of Planning. London, Macmillan, 1948, p. 175. An excellent illustration of the “efficient” functioning of a collectivist foreign trade system was provided in the early 1930’s when the Soviet Union increased her exports of agricultural raw materials in spite of a sharp depression of world market prices for these products, and a serious shortage of these materials in the country itself. She did so because she urgently needed the planned amount of foreign exchange in order to buy the capital goods indispensable for the success of the first Five-Year-Plan. The prices of these imports, however, had declined much less than those of her exports so that by this deterioration of the terms of trade the real costs of Russian industrialization greatly increased. To Western observers speaking of “dumping” Soviet economists retorted that this was not dumping at all, only the consequences of their foreign trade system. This is, of course, quite true, and one is free to call “dumping” only a trade policy practiced by private monopolies, although this does not change the fact that the behavior of both kinds of monopolists have the same origin, i.e. their ability of determining prices. This policy is indeed the more harmful for the proper functioning of a free international economy if practiced by a state agency able to throw on the international markets any part of the national product without having to fear possible bankruptcy. This example also shows how little those responsible for shaping Soviet economic policy were, and had to be, concerned with internal living standards.

36Highest priority is accorded to those complementary products without which the plan cannot be fulfilled which, however, are unavailable in a given state, be it for technical or for natural reasons. These are followed by goods which can be produced at home, but only at considerably higher costs than in foreign countries. “Next will come a long series of all commodities where there exists a cost disparity in favor of the foreign country, but one which diminishes by extending this list. This last category of goods occupies a particularly large part in the intercourse among market economies.” Conversely, “the central agency will restrict its purchases to the commodities ranked in the first two categories.” Heuss, E., op. cit., p. 190.

37Ellis, H., “Bilateralism and the Future of International Trade.” In: Readings in the Theory of International Trade, etc., p. 416.

38Ibid., p. 419.

39Graf, W., op. cit., p. 90.

40This is best illustrated by the following political joke, circulating in an Eastern European country: “The Soviet Union is delivering us clay. We are making bricks of it. With the bricks we construct factories. In the factories we produce machines. We sell the machines to the West, receiving steel in exchange. We are sending this steel to Russia. In exchange, we again receive clay.”

41See p. 94.

42Lutz, F., “Geldpolitik und Wirtschaftsordnung.” In ORDO, II (1949), p. 222.

1.“Socialism, then, will flourish in proportion as the consciousness grows that there is something vitally wrong in the industrial organization of society.” Guthrie, W. B., Socialism Before the French Revolution. New York, Macmillan, 1907, p. 68. As Robert Owen expresses it: “Until society can be made to understand the impracticability of improving its conditions under the existing circumstances and can be induced to change these circumstances in toto, no real advantages can be obtained for mankind.” Lectures on an Entire New State of Society. London, 1820, p. 138.
2.Cf. Karl Marx’s 11th Thesis on Feuerbach. In Borkenau, F. (ed.), Karl Marx. Frankfurt/M., Fischer, 1956, p. 42.
3.The term “liberal” is used here in its original European sense. “Liberalism is a belief in the value of human personality, and a conviction that the source of all progress lies in free exercise of individual energy; . . . it therefore involves a readiness to use the power of the state for the purposes of creating the conditions within which individual energy can thrive, of preventing all abuses of power, of affording to every citizen the means of acquiring mastery of his own capacities and of estabhshing a real equality of opportunity. . . .” Encyclopaedia Britannica, Vol. XIII, 1959, p. 999d.
4“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.
5Freyer, H., op. cit., p. 26.
6Heuss, A., “Hellas. Die archaische Zeit.” Propyläen Weltgeschichte, ed., G. Mann and A. Heuss, Berlin, Propyläen Verlag, 1962, III, p. 373.
7Ibid.
8“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.
9Plato, Laws. With an English translation by R. G. Bury, London, Heinemann, 1926, Vol. I, Book I, p. 9.
10Ibid., Vol. II, Book XII, p. 477.
11Ibid., Book VII, p. 135.
12Ibid., p. 149.
13Ibid., Book XII, p. 547.
14Ibid., p. 537.
15Ibid., p. 521.
16Ibid., Book VII, p. 185.
17Ibid., Book XI, p. 413.
18Ibid., Book VIII, p. 171.
19Ibid., Vol. I, Book IV, pp. 257-59, italics added.
20Ibid., Vol. II, Book VIII, p. 185.
21Ibid.
22SOCIALISTS HAVE CONCLUDED that something is fundamentally wrong with the “society” in which they live. Consequently, they feel compelled to change it.
23SOCIALISTS HAVE CONCLUDED that something is fundamentally wrong with the “society” in which they live. Consequently, they feel compelled to change it.
24The main target of socialist criticism, therefore, is the liberals’ stress on individual freedom and utility. Such freedom and utility, it is argued, lead to particularism and chaos. Since the profit motive is founded on considerations of individual as distinct from collective welfare, it is, in the opinion of socialists, totally unsuitable as a means of regulating the economy. Unlike the liberals, therefore, the socialists are primarily preoccupied with the exaltation of the community, and the subordination of the individual to it.
25Freyer 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.”
26Freyer 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.”
27Mankind 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.
28Against 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.”
29Human 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.
30Plato, 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:
31The 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.
32For 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.”
33For 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.”
34For 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.”
35For 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.”
36For 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.”
37Internal 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:
38The 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.
39Most 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.
40For 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.
41What 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
42Frankincense 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. . . .

Socialism and International Economic Order