Towards defining the socialist mode of production

Key points

Conceptualisation of mode of production necessary to avoid utopianism

Mode of surplus extraction key to any mode of production

This issue avoided in utopian schemes. Surplus absolutely necessary for defence and economic development in the period of competition of two social systems.

General crisis of socialism was principally a crisis of surplus production.

Touch on the problem of economic computation – this is important in refuting ideologues of the market but not crucial to the actual conjucture of socialisms crisis.

Go into forms of payment and taxation and their effects on surplus production

Go into our conceptualisation of the political level.

This is a first draft at an article for science and society and urpe *

Concept of mode of production and social formation *

Economic Level *

Division of labour *

Social Labour and value *

Money and information *

Economic computation *

Market computation *

Market like allocation under communism *

Plan computation and computerised planning *

Surplus product *

Exploitative and non exploitative surpluses *

Mechanism of surplus production under capitalism *

Mechanism of surplus production under communism *

Turnover taxes *

Income or poll taxes *

Allocation of the surplus *

The political level *

Relationship between levels *

Primacy of the political ideological level *

Failings of the Leninist/Platonist theory of the state *

The lie of liberalism *

Principles of democracy per-se *

Concept of mode of production and social formation

All historical social formations have been characterized by a combination of economic modes of production. We conventionally speak of these modes of production being structured into dominant and subordinate modes, so that we speak of whole periods in which a particular mode of production is dominant. Thus we talk of capitalist societies or slave societies, even though slavery and capitalism may co-exist within a given society.

How does one decide which mode of production dominates a society?

One answer would be to look at the state, which social class dominates. One might on these grounds say that for most of the ante-bellum period the USA was dominated by the slave mode of production, in the sense that the representatives of the slave owners dominated the political system. But behind such political dominance stands wealth. A class can control the state if the economic system they represent provides them with the resources to do so. The shift of political control over the US from slavers to industrialists echoed economic development.

To control the state, a class must control the greater part of a society’s surplus product. Underlying political dominance is control over surplus labour.

What differentiate the contesting forms of economy are two things:

  1. The specific mode in which the social division of labour is organised.
  2. The particular way in which a surplus product is extracted.

For a mode of production to rise to dominance it must be able to reproduce its form of the division of labour and its form of surplus extraction on an expanded scale. This expansion can in the end only be protected by political power. Competing modes of production must, finally, resolve their rivalry by force or the threat of force. The argument over competing expansions by slavery and capitalism onto new lands to the west falls in the end by the ultimo ratio Regis, the voice of the cannon. The competing expansions of the communist and capitalist modes of production on a world scale are resolved in favour of the latter by Star Wars and the threat of nuclear annihilation.

But to win, the victor must have out mobilised and out-produced the vanquished. It must have commanded more labour and more productive labour; it must have had a greater freely disposable surplus to squander on the demands of total war.

We are to talk about possible futures, ones in which the communist system again comprises a part. We can not consider their social structure without talking about the struggle, economic, political and military between the capitalism and communism.

Following the fall of communism, there has been a temptation for western socialists to concentrate on coming up with schemes to address apparent failings of the communist system in the supply of consumer goods. Roemer and others have implied that the adoption of some form of market reforms would have improved consumer goods supply and averted the crisis. This is often associated with the advocacy of political reforms towards free elections. We believe that reforms of this sort could only have accelerated the triumph of capital.

It is a mistake, to which we ourselves have fallen prey, to concentrate too much attention on issues like shortages of consumer goods under socialism, or lower living standards relative to the US. These were not decisive issues. Were living standards the key, it would have been the USA and not the USSR that would have fallen. In 1989, real wages in the US were lower than they had been in 1973, whilst those in the USSR had risen even during what was called the ‘period of stagnation’ under Breshnev. It was stagnation only in comparison to the much more rapid growth of the Stalin and Kruschev years. If a failure to deliver rising living standards explained the fall of the Soviet system, the survival of the subsequent Yeltsin regime during which real wages have fallen by an extent unprecedented in peacetime history can only be miraculous.

We see other causes of crisis arising from:

  1. the form of appropriation of the surplus product,
  2. the scale and disposition of this product,
  3. the specific forms of class antagonism engendered by the communist mode of production
  4. the constitutional forms of the socialist states

Note that follow Marx in talking only of the capitalist and communist modes of production, eschewing the Soviet orthodoxy which, basing itself on the language of German social democracy, introduced a third mode of production: socialism. We follow Mao i We see the self-described socialist countries as having been social formations defined by an articulated combination of capitalist and communist modes of production. This articulation is both internal, in the relationship between economic forms by which reproduction occurred, externally defined by the politico-military struggle with the capitalist block.

Our purpose in this paper is:

  1. to characterise the fundamental features of the communist mode of production and
  2. Discuss how a future communism could structure its social institutions the better to emerge as victor in the next cold war.

We shall talk about both economic and political levels. In discussing the economic level we examine communism’s characteristic form of the division of labour and surplus extraction and how these can be improved by information technology. In discussing the political level we look at the weaknesses of hitherto existing socialist state constitutions and propose forms, based on historical precedent, that we hope would be more robust.

Economic Level

Division of labour

Social Labour and value

All societies must divide their labour between different concrete activities. Labour time is the fundamental productive resource that they have at their disposition. It is, in Smith’s words, the original currency by which we purchase our wants from nature. Smith’s analogy with money is apt, just as money is abstract purchasing power, able to buy any commodity; labour is abstract productive power. Labour turns its hand to any trade. By altering how it spends its labour, society alters what it consumes.

If we want to know what it cost a society to produce something, expressing this in terms of a long dead currency, be it thaler or solidus, tells us little. Translate cost into a percentage of social labour time and we get a handle on it.

In market economies, this social labour cost is represented, more or less precisely, in an object’s price. By an inversion of signs engendered by the possibility of sale, the cost of producing something comes to be seen as something positive, its value.


Money and information

The adaptability of labour means that, considered in the abstract, it can be measured in hours: a scalar. We can then associate with each product a scalar quantity, its value, being the labour required making it. This list of pairs {(product1, value1), (product 2 value2),} is homeomorphic to a price list. Money prices or labour values can equally well serve as units of account. They both act as operators mapping elements of heterogeneous types onto a single measuring scale. They formally identical when it comes to comparing the costs of alternative economic options.

But the existence of money involves more than just a price list for all commodities. It also implies, and this is not adequately emphasized in the Marxian analysis of money, existence of a credit account list. This is of the form {(subject1 credit1), (subject2 credit2)….} associating with each juridical subject a monetary credit or debit. The list may exist in the form of ledger entries in the banks, database entries in Visa’s computers, or more primitively, coins in purposes. All of these are just different historically evolved technologies for recording the same sort of information.

Whilst price lists and value lists may at first sight seem equally useful in cost accounting, credit account lists imply something quite different. Here money appears not as a neutral metric, but as, what Smith called, the power to command the labour of others. Credit accounts encode social hierarchy. Throughout history the index of membership of the upper classes was the ability to command others to do things. Thus the persistence of such accounts in socialist societies is an index of the survival of capitalist forms of domination, of lordship.

Economic computation

Any economy must have some cybernetic mechanism by which the allocation of labour between different branches of production is regulated. Another mechanism must exist by which the proportionate division between surplus and necessary labour time is controlled.

This control process involves three movements:

  1. A movement of people.
  2. A movement of products.
  3. A movement of symbols.

A movement of symbols is what we associate with computation or calculation. Such symbolic calculation takes place in ledgers, but also through the movement of physical symbols – coin or notes, between agents. But considered as a whole, the economic algorithm can include steps that move people and products. It is characteristic of market economies that their economic algorithm relies on the movement of people where communism could move symbols.

Market computation

In a market economy the public symbolic moment of the economic algorithm is concerned solely with lordship, the abstract power of command: money. Public symbolic calculation is concerned with the manipulation of credit accounts. It ensures that for every routine movement of products from the ownership of subject X to that of Y there is a balancing adjustment of their powers of domination.

Hidden behind this there is a private symbolic manipulation carried out in the production planning divisions of corporations. Here the symbols, the numbers stand not for social power but for things, turbine blades, impeller blades, fan ducting. Here the characteristic operation is not the account transaction but the parts explosion. This form of symbolic computation is the germ of communist planning.

The other moment of the economic algorithm involves the movement of things and people. Products are assigned to uses, people to jobs. In a market economy these two movements, the symbolic and physical form an interlinked cycle. The rate at which ownership of products changes, their rate of sale, and thus the rate of credits to the accounts of the producing firms, influences the price of the product. This is a purely symbolic change. It also influences the production plans of the firms, another symbolic change but now a private one. Finally it influences their employment levels, actually altering the division of labour in society. We are all familiar with this feedback loop.

The computational capacity of a system is determined by its degree of parallelism and its cycle time. The advocates of market cybernetics eulogise its parallelism. They are silent about its cycles. The breathless euphoria of NASDAQ may cycle in seconds, but such symbolic markets are pure computations of domination and lordship. Markets for products are different. Their cycle times are of the order of 18 months for stock building cycles, of the order of 7 years for fixed investment. The goals of the agents are purely symbolic, profit, the growth of domination. The actual process of economic adjustment involves slower physical changes. From the dislocation of cycle times stem the instabilities, recessions and booms to which market economies are subject. Equilibration, to the extent that it is possible, occurs ex post, but given the long cycle time of the algorithm, it effectively never occurs. Chaos reigns, the infamous anarchy of capitalist production.

Market like allocation under communism

Marx famously envisaged communism as having two phases. The first of these retained the principle of bourgeois right: what people got back from society in the form of goods would be proportional to the labour that they performed. It would be modified form of bourgeois right in that there would be no property income. But the reciprocity that underlies commodity exchange would persist. Workers would be paid in labour tokens and would be allocated products containing an equivalent amount of labour. The number of labour tokens that they were paid would be somewhat less than the hours because of deductions for social security and the like.

Although this scheme does not involve a market proper, and he was at pains to point out that labour tokens were not money ( they were to be cancelled on use like a theatre ticket), it is market like. Whilst a gross balance between issue of labour tokens and production of consumer goods can be achieved relatively simply, there remains the problem of adjusting the composition of the consumer goods bundle.

A communist economy can use market like mechanisms here.

We will put forward a lemma, which we can prove elsewhere, that there will always exist a composition of the consumer goods bundle such that the ‘sale’ of all products at their labour values will exactly balance supply and demand. Assume, unrealistically, that changes in consumer taste were the driving force for changes in demand. The planning authorities would have two types of indicator that they could use to steer the composition of the consumer goods bundle towards this mix.

  1. They could use the rate of change of buffer stocks as an indicator of demand and adjust output accordingly.
  2. They could, as specified in elementary economics textbooks, adjust the selling price in labour tokens so that goods in short supply rose above their values. They could then increase the production of all goods whose prices were above their values and reduce output for those below their values.

In the latter case the deviation of price from value acts in the way a higher rate of profit would in a capitalist economy. Which of these mechanisms was used is essentially a pragmatic question.

Plan computation and computerised planning

The key difference between communist economies and market economies is that the former adjust the division of labour by means of calculations in kind, the latter do it by means of calculations in money. Market calculation is the calculus of domination. Planning is the unmediated calculation of products and labour: the famous system of material balances.

The implementation of material balances has, in the past, been partial. The information processing techniques needed to fully implement material balances did not exist. They do now.

Where the market is an ex-post system, the plan is ex-ante. The plan is a symbolic representation of future production. In a planned economy, the moment of economic computation is purely symbolic, a manipulation of figures that precedes the issue of directives. Since at no moment in the computation do people and products have to move, the computation precedes the physical allocation of resources. This algorithmic structure frees communism from the cyclical crises of market economies.

However the general laws of computability and complexity theory can not be evaded. The preparation of a complete, balanced and disaggregated plan is Turing computable; algorithms exist for it. But not every thing that is computable in principle is computable in practice. A five year plan that takes 50 years to prepare is no good to anyone. Opponents of socialism have made much of the impossible complexity of the millions of equations that would have to be solved.

It sounded formidable but we now solve millions of equations on a routine basis. Weather forecasts involve evaluating the temperature pressure and wind velocities for millions of discrete space time positions. Weather forecasts share with plans the criterion of promptness. It is no good having an algorithm that will forecast tomorrow’s weather if it takes two days to do the calculations. The key issues here are the complexity of the algorithms and the speed of the computers used. By complexity of an algorithm is meant the rate at which the running time grows with the size of the problem. For an algorithm to be tractable, the running time must grow relatively slowly with the problem size. The reason why the millions of equations needed for short range weather forecasts are tractable lies in the fact that they involve local interactions. Each cubic kilometer of air interacts only with its nearest neighbours. This bounds the complexity involved in solving the equations.

We have outlined elsewhere, plan balancing algorithms of low complexity. Plans, like weather simulations, are characterised by local interactions. Modern supercomputers could, were they suitably programmed, derive a balanced plan for a major industrial economy as expeditiously as they, today, predict tomorrows weather. This removes what has long been a major practical objection to planning.

With the ability to plan in detail, the problems that arose with aggregative planning, like perverse incentives to produce a few heavy items when directives were in terms of weight of product delivered, do not arise.

It is difficult to gauge the economic impact of a more efficient planning system. What would have been the percentage increase in output?

What would be the percentage increase in annual growth?

It is impossible to say.

The most that you can say is that an increase in efficiency boosts the potential surplus product. If this were reinvested in new plant and equipment it could bring a long term increase in growth rates. But it is hard to judge just how decisive this might have been had it been available to the Soviets. It is not as if their system of central planning was actually unviable. It may have been bureaucratic and behind the times in terms of information technology, but it did work. It maintained and regulated a complex division of labour supporting a quarter of a billion people and provided them with forty years of continuous economic growth post 1945. Perhaps the decisive issue is not the efficiency or otherwise of the plan, but other factors; the existence of money, the production and allocation of the surplus, the class structure of socialism.


Surplus product

We define as surplus any output over and above that necessary to reproduce the current productive apparattus and current productive population. Modes of production are distinguished by their specific form of surlus extraction.

Exploitative and non exploitative surpluses

The production of a surplus product has typically been tied up with exploitation, whereby the surplus is appropriated by a class of non-producers and used for their benefit rather than that of the direct producers. But surplus production need not necessarily be exploitative. Where the class of non-producers are those past working age, their consumption of part of the surplus is hardly exploitative. More generally, if the direct producers or their children benefit from the use of the surplus product, its is not exploitation.

Unproductive uses of the surplus, like defence, are more problematic. The citizens of a socialist state may have little option but to devote time and children to their defence against external threat, but such expenditures cut into their living standards, and, in the event of conflict, bring loss and heartbreak. Such expenditure can approach the condition of exploitation.

Judgement has, in the end, to rest upon whether the use of the surplus is agreed by the producers to be in their benefit. This entails some form of collective voluntary decision about how much surplus to produce – for this impinges on working hours, and about how the surplus is to be used. The decision need only be voluntary at the collective level, it may appear coercive to the individual. I may have voted against an increase in pensions, but if the majority approve the impost I am forced to go along with it.

How then is a surplus to be produced and appropriated in a communist economy.

Mechanism of surplus production under capitalism

In the capitalist case it is apparently clear, to socialists at least, how the surplus is produced and appropriated. Firms hire workers, employ them to produce goods and services, these selll for more than the wages paid, the surplus is profit. Out of the profits, the firms pay dividends to shareholders, who thereby receive an income without doing any work, and any profits left over are reinvested by the firms in equipment to make them even more profitable.

But all of this is symbolic, a movement of monetary signs. Behind it there is a real material process. The actual production of a surplus implies that employees have to work harder and longer than they would if the firm was just to break even. Since they gain nothing from the profits, there must be some form of coercive work discipline to make them work long and hard. There must be managers and overseers with the power to hire and fire. There must be monitoring of work.. There may be a mechanical discipline imposed by the production line. Such discipline avails little unless wages are held down. Typically this is effected by an over-supply of labour, competition from the unemployed keeping wages below the full value that workers produce.

Behind these proximate causes lie deeper ones. A surplus implies something about productivity. If workers can produce the value of their wages in 4 hours, leaving them 4 hours to work to produce profits, then if productivity doubled, they could produce their wage in 2 hours, leaving them 6 hours to produce profits. The combination of profit with long term rises in real wages is only possible through constant improvements in the productivity of labour. A capitalist economy builds in incentives to firms to employ labour saving machinery and thus improve both their individual profits, and indirectly, the scale of the social surplus.

Alongside the appropriation of the surplus as profit, there exists in every capitalist country another channel for the surplus, one both older and newer – the state and its taxes. Before capitalism and after it, the public power endures, with the primordial right to surplus labour. Originally this takes the form of a personal obligation to labour or serve as a soldier. The latter can persist to this day, but generally these duties were, by all states with an effective bureaucracy, commuted. Instead of performing the labour myself I can get somebody else to do it, provided that I can surrender to the state a certificate showing that they have performed it for me. These certificates can take various forms, tally sticks, paper vouchers or the metal disks stamped with royal insignia that we call coin. With the formation of a standing army, the personal military service is performed by a minority whose service is certified by the queen’s shilling. The obligation, however, remains general and those who do not serve must render coin in lieu: tax. The coin then circulate, as the only way others can obtain coin is by selling goods and services. The coin are tokens of labour performed for the state, and the payment of tax a performance of these services by proxy. Money’s lordship is the delegation of sovereign power.

Under the twin pressures of social democracy and inter-state competition the share of the social working day claimed by the state grows. It expands to cover not just part of the surplus, but part of the labour necessary for social reproduction – education, the provision of transport infrastructure etc.

The state has to maintain a balance between the rate at which it issues exemption certificates – it money purchases and disbursements of benefits, and the rate at which it collects the certificates back in the form of tax revenues. A shortfall in the rate of tax collection devalues the certificates leading to inflation, a shortfall in expenditure leads to recession.

Mechanism of surplus production under communism

The specifically communist way of producing a surplus is to plan for it. The plan specifies the physical composition of the whole product. When it specifies that this will involve the production of a 10,000 tanks, 2000 warplanes, 15 new power stations etc, it is defining the surplus product. These products by their nature form no part of current consumption.

This mode of surplus production is quite distinct from what happens in capitalist countries: either the appropriation of profit by private firms or the collection of taxes by the state.

The decisive difference arises from the fact that the means of production are in unitary public ownership. The proprietors appropriate capitalist surplus, but they are many, and profit appears as the accidental outcome of market turbulence. The capitalist state is unitary but does not own the means of production so its appropriation of the surplus has to be indirect, by means of money taxes.

Turnover taxes

The magnitude and composition of the social surplus under communism is determined, targets being met, by the structure of the plan. However some money-like form of allocation can persist for the distribution of part of the necessary product, workers are paid some form of tokens for their work. They individually ‘buy’ back from the state some of the goods that they consume. Marx pointed out in The Critique of the Gotha Program, that the production of a surplus precluded workers individually receiving the full productof their labour, instead there must be some sort of deduction to support those unable to work, net investment etc. Failing this more labour tokens will be handed out than are cancelled in exchange for consumer goods. In a capitalist economy this would result in inflation, or a devaluation of the labour token. Depending on pricing policy in a socialist economy, the result is either inflation or the development of chronic shortages, as worker’s purchasing power exceeds the planned allocation of consumer goods.

In the USSR the deductions to cover the social surplus were hidden. Only a minor part of the state’s revenue was met by income taxes. Instead the major source of state revenue was the profits of publicly owned enterprises.

It should be noted that although it appeared that the state financed its surplus production through turnover taxes, this is an arse foremost way of thinking about it. In reality, as the owner of the means of production the state had no need to finance its expenditure. The products that it used for investment or the armed forces belonged to it to start out with, and did not have to be purchased. The only reason that the turnover taxes were required was to ensure that the issue of roubles balances the issue of goods through state shops in return for these roubles. In practice, because of the inflexibility of prices upwards, and the tendancy to raise wages faster than the growth of the planned consumer goods bundle, there was a persistent buildup of rouble balances in workers accounts. The excess purchasing power in conjunction with fixed prices was the precondition for visible shortages.

The invisiblity of the state revenues, the fact that they did not appear as an explicit deduction from wages, or as an explicit markup in the fashion of western Value Added Taxes may, in the short run, have been politically advantageous. It meant that the government would not face unpopularity from explicit tax rises. On the other hand, this did not remove the temptation to court popularity by holding prices down. The fall of the Gierek and Gomulka governments in Poland followed attempts to raise food prices. The long term political consequences of this form of hidden taxation were generalised shortages and a distrust in the currency. These, in the Polish case certainly, contributed to the general crisis of socialism in the 1980s.

In the USSR a similar effect was produced in the Gorbachov period by the twin ‘reforms’ of banning alcohol thus forfeiting the Vodka tax, and, following the advice of market socialist reformers, allowing enterprises to retain the greater part of their profits. The deficit in state finances led to the drastic overvaluation of the rouble, shortages and suppressed inflation. These, both in the Polish and Russian cases strengthened the hands of those economists and politicians who advocated shock treatment- the general freeing of prices and abandonment of planning controls: effectively the full reintroduction of capitalism.

A complicating factor in this was the fact that a considerable portion of the necessary product in the socialist economies was distributed on the basis of need rather than being paid for. Education, housing and medical care were provided either free or well below value. This followed on from the conception in the Critique of the Gotha Program, that such distribution on the basis of need would be characteristic of the higher phase of communism. The result was that the wage paid to workers in state enterprises was below the value of labour power, the remaining costs of labour reproduction being met by the social wage. In conjunction with the form of taxation this had two invidious consequences.

  1. By raising the total share of the product that was not marketed, it made the system even more prone to suppressed inflation in the event of tax shortfalls.
  2. It led to the systematic undervaluation of labour inputs at the enterprise level. This encouraged deliberate overmanning and the use of labour intesive rather than machine intensive production techniques. This undermined what Marx called, in the context of capitalist economy, the production of relative surplus value; i.e., the reduction of the necessary labour time through productivity enhancements. We would hypothesise that over several plan periods this reduced the level of the potential surplus product.

The long term compression of the surplus product meant that the needs of defence and of investment came more and more into conflict – hence the falling share of net investment in the plans of the 70s and 80s. From being a deficiency in the financing of the surplus, the turnover tax system became a deficiency in the actual production of a surplus.


Income or poll taxes

The deficiencies of the soviet tax system could have been remedied by the introduction of a proportional income tax accompanied by a break even pricing policy. This would, given the political will to raise taxes, have had two effects:

  1. Suppressed demand for consumer goods could have been contained, eliminating generalised visible shortages.
  2. The cost of employing labour at the enterprise level would no longer have been systematically underestimated. This would have discouraged labour hoarding and encouraged the use of labour saving techniques.

For ideological reasons we have advocated fixed poll taxes rather than proportional income taxes. This advocacy is a relatively secondary issue but we see it as having 3 advantages:

  1. In the absence of significant income differentials, the redistributionist argument for income taxes in a capitalist economy is lacking.
  2. Poll taxes maintain an high incentive to work, by paying workers the full value of their product at the margin.
  3. Poll taxes emphasise the general duty to perform work for the community before work for oneself.

Uniform poll taxes

Whatever tax regime is used by a socialist economy, it is essential that persistent shortfalls in tax collection do not occur. This involves some political mechanism to bring tax collection and government expenditure into balance.

One approach might be to have an institutional separtion of powers

Allocation of the surplus

The political level

Relationship between levels

Primacy of the political ideological level

Failings of the Leninist/Platonist theory of the state

The lie of liberalism

Principles of democracy per-se