Market Socialism: A
Contradiction in Terms?
When evaluating the outcome of the experiment of Socialism it is necessary to delineate the trial space. Where was theory put into practice and where was there retreat? If we are to judge the practical results of Marxist theory, we must judge each policy as applied, whether applied in the East or the West, and similarly each retreat to the market must be counted as such. We cannot dismiss the results of an attempt at socialism because the outcome did not fit our expectations or intentions, nor can we consider a positive outcome as vindication if the policies implemented do not fit the definition of socialism. They do not prove the socialism is a success, only that the actual policies put in place were successful.
Can we consider market-based socialism in
Marx and Marxists have known that communism could not be forced on the public prematurely or come over night. They expected a process, beginning with some kind of socialism and going through transition periods on the way to full blown socialism. The judgment of the results and the characterization of a country as Marxist must take this into account. However, we must use the definitions and the theory that the policy makers used including how Marx himself defined socialism; and we must judge the outcome of attempts at implementing Marx’s ideas.
Marx envisioned the end of the market, private property and sale of “commodities,” so that production would be for use only and not for trade. The first stage would be socialism, but already the market would be gone, production would be in the hands of the state, which could then begin to render itself unnecessary.
The proletariat seizes political
power and turns the means of production in the first instance into state
property. But, in doing
this, it abolishes itself as proletariat, abolishes all class distinctions and
class antagonisms, abolishes also the state as state. … When at last it becomes the real
representative of the whole of society, it renders itself unnecessary. … The
state is not "abolished". It dies out. … With the seizing of
the means of production by society production of commodities is done away with,
and, simultaneously, the mastery of the product over the producer. Anarchy in
social production is replaced by systematic, definite organisation. The
struggle for individual existence disappears.[1]
In this society, there are no longer commodities according the Marx’s economic definition. There is no trade and there is no exploitation.
Within
the co-operative society based on common ownership of the means of production,
the producers do not exchange their products; just as little does the labor
employed on the products appear here as the value of these products,
as a material quality possessed by them, since now, in contrast to capitalist
society, individual labor no longer exists in an indirect fashion but directly
as a component part of total labor. The phrase "proceeds of labor",
objectionable also today on account of its ambiguity, thus loses all meaning.[2]
What Marx envisions here is the end of profits and “capital”, the end of “unearned labor” and inheritance, but also the end of the market. There is equal pay for equal work and no private business profits, but there is also no stock market, purchase of firms or even purchase of goods from one firm to resell at another. It is the basis for “From each according to his ability, to each according to his work.” As Marx continues
Accordingly,
the individual producer receives back from society -- after the deductions have
been made -- exactly what he gives to it.
Any market economy, by definition to Marx, could at best be a stepping stone on the road to communism. Socialism was also not the end goal, but it was defined as the centralized control and ownership of the means of production which would bring about the workers’ state. The next stage would complete the socialization, allow the state to wither away and free the individual in a kind of spiritual way. At that stage, the worker would not receive according to his work, but only according to his needs.
Why did Marx believe that the market should be abolished? If his goal was abolition of private property, could any market exist? What was, in his mind, the source of wealth?
To Marx, the basic unit of value is labor. When comparing two material items to be exchanged, he finds that work was involved to produce them and hence they are made up of labor. People exchange things of equal value because one is more useful to him than the other, so he exchanges things that are equal value because one has a great use-value to him.
Every
owner of a commodity wishes to part with it in exchange only for those
commodities whose use-value satisfies some want of his. … If then we leave out
of consideration the use-value of commodities, they have only one common
property left, that of being products of labour.[3]
Since commodities are exchanged for one another at their value, Marx asks how it is possible to make a profit. He explains that commerce on its own cannot generate new value, but can only distribute value around; both parties to an exchange gain in the sense that they both get what they want, but neither profits, since each give in exchange a commodity of equal value.
We are,
therefore, forced to the conclusion that the change originates in the
use-value, as such, of the commodity, i.e., in its consumption. In order to be
able to extract value from the consumption of a commodity, our friend,
Moneybags, must be so lucky as to find, within the sphere of circulation, in
the market, a commodity, whose use-value possesses the peculiar property of
being a source of value, whose actual consumption, therefore, is itself an
embodiment of labour, and, consequently, a creation of value. The possessor of
money does find on the market such a special commodity in capacity for labour
or labour-power.
Hence Marx draws the conclusion that profit must be made simply by the purchase of labor – it is a consequence of capitalism. Only the greedy capitalist can create profit by exploitation of labor – by unearned profits at the expense of the worker, by paying the worker less than he deserves and keeping the “surplus-value.”
Yet if this were true, where does economic growth come from? How is it that the amount of goods produced does not remain the same every year as the capitalist simply makes a profit by exploiting the workers – if he does nothing else and there is no value in trade, where do improvements in productivity come from? Inevitably these are excused away as being “technological improvements” devoid of relation to anything else, or on occasion Marx does give credit to capitalism for creating growth, but it does not change the above logic which is still argued by Marxists across the globe – labor is the unit of value, the only way to create profit is to exploit the worker for his “surplus-value.”
Well, apparently Marx never understood his Adam Smith. This zero-sum fallacy that Marx engages in was refuted by Smith in 1776 in his Wealth of Nations, in the story of the pin factory. Let us consider in another example how value can be created through the process of trade in a way that Marx ignores.
Let us imagine two countries, each with five people of equal innate skill. In one country, country A, all five people do what is necessary to survive. They wake in the morning and work in the field, they are blessed with a good harvest; they milk their cows and turn the milk in butter and cheese, then they sew clothing in the evening before bed. Every day is the same for all five people and they are able to survive and eat well. In the second country, country B, the five people are blessed with the same skill and the same harvest. But at some point in this country it occurs to one of them that they like to sew very much and would prefer to spend all day sewing then to have to work in the field and milk the cows as well. So they decide to split up the jobs. Two will sew; two will work in the field and one will spend all day milking the cows and turning the milk into butter and cheese, then they will trade.
After some time like this, the two in the field had grown strong and were bringing in a larger harvest, the one who churned butter had built some tools to improve the job, the two who sewed had built a machine to help the sewing and it was now so fast that one has stopped sewing and had built some more machines, including some to improve the harvest, the other sewer had sewn a cheesecloth to help the cheese-maker make better cheese. Rather than trade directly – two dresses and one jacket for a barrel of milk and three pounds of brie; they create a monetary system whereby the goods can be exchanged for dollars which can be exchanged for other goods.
By this point the total they all produced was much greater than the amount that each had been able to produce – the total output from the economy in country B was over five times what it remained in country A where each citizen produced everything for himself. But was any labor being exploited? Was any labor even hired by another? Who are the capitalists in this country? There are none. In this society each person is his own small business – a sole proprietorship. Yet it is a much richer country than the one where each person is a family farm that does not specialize. It is specialization which has made the richer country so wealthy – not exploitation of some unknown poor or enslaved people. This is what Adam Smith learned, this is where wealth comes from; this is where Marx went so wrong and this was the major downfall of all socialist countries.
And in fact, Marx did believe that in communism specialization could and should be reversed. He truly did not see it as an important part of progress and wanted to return to a time when people would not be engaged in a specialized trade.
In communist society, where
nobody has one exclusive sphere of activity but each can become accomplished in
any branch he wishes, society regulates the general production and thus makes
it possible for me to do one thing today and another tomorrow, to hunt in the
morning, fish in the afternoon, rear cattle in the evening, criticise after
dinner, just as I have a mind, without ever becoming hunter, fisherman,
herdsman or critic. … We have already
shown above that the abolition of a state of affairs in which relations become
independent of individuals, in which individuality is subservient to chance and
the personal relations of individuals are subordinated to general class
relations, etc. — that the abolition of this state of affairs is determined in
the final analysis by the abolition of division of labour.[4]
So, Marx believed that profits were only
created through exploitation of labor and not through specialization or trade,
and he believed that socialization of production and the abolition of commodity
exchange were key to bringing the ideal society – communism. Another component of this was the belief that
private property must be abolished and private markets made illegal. Whether this is done all at once or in steps
will make a difference in the measurement of policy outcomes, but it is clear
that these values must be agreed upon for a state to be considered
Marxist. These were the express goals of
the Communist Party of the
Above all, it will have to take the control
of industry and of all branches of production out of the hands of mutually
competing individuals, and instead institute a system in which all these
branches of production are operated by society as a whole – that is, for the
common account, according to a common plan, and with the participation of all
members of society.
It will, in other words, abolish
competition and replace it with association.
Moreover, since the management of industry
by individuals necessarily implies private property, and since competition is
in reality merely the manner and form in which the control of industry by
private property owners expresses itself, it follows that private property
cannot be separated from competition and the individual management of industry.
Private property must, therefore, be abolished and in its place must come the
common utilization of all instruments of production and the distribution of all
products according to common agreement – in a word, what is called the communal
ownership of goods.
In fact, the abolition of private property is, doubtless, the shortest and most significant way to characterize the revolution in the whole social order which has been made necessary by the development of industry – and for this reason it is rightly advanced by communists as their main demand. [5]
Given that these are the basic principles of Marxist theory, any country that has re-introduced a market or has never considered doing away with the market, cannot be said to be Marxist. As such, they should be considered a welfare state or a “third-way” but should not be described as socialist in a Marxist definition of socialism, or as an example of a country that has followed Marx’s teachings.
Furthermore, any policies that allow firms to retain “surplus-value” should not be treated as Marxist policies; calculations that use a value other than labor value to weigh the worth of a commodity should be suspect in their Marxist interpretation (common use-value is valid, but for example rents have been a contentious subject in the Soviet Union); and any country that uses market relations and profits to guide a worker-managed economic model cannot be called Marxist at all, though perhaps it could be seen as closer to “guild socialism.”