review of alan woods

8/2/2019 Review of Alan Woods

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A critical review of Woodss book

Paul Cockshott

09/03/2012

Reformism or Revolution is a big book and many of the points that Woods makesare uncontroversial by themselves. It is a critique of the ideas of the Heinz Dieterichand in it there is a general tendancy to accuse Dieterich of things based onsupposition rather than explicit statement. This comes up repeatedly and Woods thengoes off at a great tangent to deal with it.

For instance he accuses Dieterich of saying that all Latin American though ismediocre. I think this is a forced interpretation, the more plausible interpretation isthat Dieterich was saying that current Latin American intellectual life is mediocre. I

dont know if that is true but it is a much less sweeping statement than Woodsattributes to him: that all historical intellectuals in Latin America have been mediocre- which I am sure Heinz did not intend.

Woods on the other hand is quite willing to make very sweeping claims aboutmediocrity:

In its youth, as we have seen, the bourgeoisie had a revolutionaryideology. In England and France it stood for materialism (in Englandthis took the form of empiricism) and subjected the reactionarymedieval-feudal ideology to a merciless criticism. But now, in the epochof its senile decay, the bourgeoisie is incapable of producing great ideas. It is only capable of producing mediocre thinkers producing mediocreideas.1

This damns not only the bourgeois thinkers on one continent, but accross the whole

world for the last century or so, since as an orthodox Leninist he presumably acceptsthat bourgeois society had entered into senile decay by the time of the First WorldWar. Perhaps Freud, Einstein and Bohr escape being mediocre thinkers because

they started their work a bit over a century ago, but what of mide 20th centurythinkers like Turing, Shannon, or von Neumann were they all mediocre?

But even if we take the weaker version of Woods mediocrity thesis restricted to

our century:

The fact that the bourgeoisie in the first decade of the 21st century hasexhausted its progressive role and has become a brake on thedevelopment of civilization is precisely expressed in the poverty ofbourgeois culture. This, in turn, expresses itself in the complete absenceof any school of bourgeois philosophy worthy of the name. Incapable ofany great thoughts, the bourgeois comes to the conclusion (perfectly

logical from a bourgeois point of view) that no great thoughts arepossible.2

it is a ridiculous overstatement. What about the school of militant atheists exemplified by the 3 Ds, Dawkins, Dennet and Deutsch? What about realist philosophers likeSmart and Price or Julian Barbour. These people are not mediocre thinkers by any

1 Woods, REFORMISM or REVOLUTION, p 45.2 Woods, op. cit. p45.


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standard yet they are perfectly respectable members of bourgeois society. Woods, afollower of Trotsky, writes sweeping denunciations of bourgeois thought as a whole

that have an eirily familiar ring. Remember this?The present state of bourgeois literature is such that it is no longer ableto create great works of art. The decadence and disintegration ofbourgeois literature, resulting from the collapse and decay of thecapitalist system, represent a characteristic trait, a characteristicpeculiarity of the state of bourgeois culture and bourgeois literature atthe present time. Gone never to return are the times when bourgeoisliterature, reflecting the victory of the bourgeois system over feudalism,was able to create great works of the period when capitalism wasflourishing. 3

There are parts of the book which deal with the particular political situation inVenzuela, something I am no expert on. There are however a number of significant points of political divergence between Woods and Dieterich that I have someknowledge of, and which I think it is worth my while addressing. I will concentrateon these in this critical review. The key accusations that Woods directs againstDieterich are that the latter is reviving the tradition of utopian socialism, that he isfundamentally hostile to Marxism and that what Dieterich advocates is not socialismbut a capitalist mixed economy.

I think that these accusations are wrong. In what follows I will argue that whatWoods takes to be Dieterichs utopian proposals are actually pretty close to whatMarx proposed back in the 19th century, whereas Woods ideas about socialismderive more from the later German and Russian social democracy. I will argue inparticular that Dieterichs ideas about establish an economy based on labour accounts

are actually an elaboration of proposals that Marx himself made when he wascriticising the programme the German Social Democratic Party had just adopted.

Bureaucracy versus cyberneticsThere are many points where Woods criticises the imprecise use of language byDieterich. There may be some merit in this, because Heinz is very free withmetaphors and allusions which by their very nature lay themselves open to multipleinterpretations. But even allowing for this I think Wood is deliberately stretchingthings with many of the meanings he imputes to Dieterich.

Wood goes to town on the following passage from Dieterich

The mediocrity of the social sciences and of philosophy in the countriesof historical socialism is intimately linked to the present problem ofCuban transition. In fact it constitutes, together with the cyberneticproblem of Party-state, one of their two deeper roots. The reason for thismediocrity it shares with Latin American philosophy: Both are born ofthe mystification of the historical truth. They are, in Marxs sense,

ideology, that is, objectively false consciousness.4

He objects both to the idea of false consciousness and to Dieterichs claim that thepoor state of the social sciences in the countries of historical socialism is a factor in

3Zhdanov, Speech to the 1934 Soviet Writers Congress.4 Dieterich, The Alternative of Cuba: Capitalism or New Socialism


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problems of the transition in Cuba. But Alan does this by first re writing what Heinzsaid :

So here we have it. The fall of the Soviet Union was due to themediocrity of its social sciences and philosophy. Here the idealistmethod of Heinz Dieterich stands out in all its crudity. Let us gentlycorrect him on this question by administering a slight dose ofmaterialism: It was not the mediocrity of the social sciences and ofphilosophy that caused the bureaucratic degeneration of the USSR butthe bureaucratic degeneration that caused the mediocrity of the socialsciences and of philosophy in the USSR and the other so-called countriesof historical socialism.5

Look back at the passage from Dieterich quoted above ( and quoted by Woods ). Itsays nothing at all about the fall of the USSR, it is talking about the problem ofCuban transition : whether the transition is to be one to capitalism or to a newsocialism. So you cant say So here we have it. The fall of the Soviet Union was due

to the mediocrity of its social sciences.Woods goes on to say that the poor state of social science in the USSR was a

result of the dominance of the Stalinist bureaucracy. Well, that is the Trotskyisthypothesis, and you would expect Woods to say that. But if you read further intoHeinz article you find him saying much the same thing: Stalinist repression preventedthe development of soviet social science.

The ideological necessity to identify falsely (mystify) that which wasState, as the social, was the original sin of the scientific social theoryand philosophy of the socialist countries. It converted itself into a sterilizing founding myth of the nascent soviet civilization, whichimpeded the later evolution of revolutionary theory, especially, whenunder the power of the Stalinist Party-State those whom Stalinconsidered the "enemies of the people" were sanctioned even with death."Enemies of the people" was a reformulation of the Jacobin formula ofthe "enemies of the revolution", which not only applied to the Trotskyistsand the opposition of "right" and "left", but also served as a powerfulpreventive against any attempt to discover the historic truth of the newcivilization.....Tragically, some of the greatest economists of all times, such as NikolaiKondratiev and Wassily Leontief, who had the capacity to develop thenew economic theory so necessary to decode the bolshevik mode of production, fell victims to the post Leninist State terror. In 1938,Kondratiev was shot on direct orders of Stalin, because he favored the New Economic Policy (NEP), of Lenin and a different policy ofaccumulation than Stalins, and Leontief emigrated to at the end of the

20s.6If Heinz and Alan are in agreement that Stalinist repression held back thedevolopment of social science in the USSR why does Alan Woods spend 3 pageslambasting Dieterich for not acknowledging the role of Stalinist repression?

5 Woods, op, cit., p51.6 Dieterich, op. cit.


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Perhaps Woods asumes his readers will not read Dieterichs original article, will

not see that Dieterich makes the same point himself.

Perhaps it is a matter of language, Dieterich makes some similar points to Woodsbut does not express them in the approved sectarian terminology. Where Woods says:

In Stalins Russia, the bureaucracy controlled everything and demandedabsolute obedience to its rule. The Cult of Stalin, the Great Leader andTeacher, was only an expression of this. The bureaucracy prostrateditself before the Leader, and in turn they expected the masses toprostrate themselves before the Statethat is, the Bureaucracy.When comrade Dieterich complains about mediocre thought in theUSSR, he should explain the material basis for this. He does not do so.He cannot do so, because he approaches the whole question not as aMarxist materialist but as an idealist of the most superficial sort.7

We find Dieterich writing on a similar topic:

For the organization of the Soviet economy there were potentially threesubjects the State, the market and society. A particular form of propertycorresponded to each one: the State or public, private one and the socialone. The revolution being of anti-capitalist nature, the market, that is thebusiness class, was excluded as an organizing option. Due to the scarcedevelopment of the productive forces, the destruction of the war and thelow cultural level of the people (illiteracy), it was equally almostimpossible that the population (society) would satisfactorily organize theeconomy in that gigantic country. There remained, then, the State as principal operator of the economy and, in consequence, the state or public property as dominant. That unavoidable practical necessity generated, however, two difficulties. In the first place, an insolubleideological problem. With the heroic phase of the revolution passed, thepeople did not want to work mainly for the glory of a State. Once therevolution becomes mundane, the Stakhanovism, those "Red Saturdays"and the martyrs become a minority, and the majorities expect from the socialist State that it would provide them with certain services, as areexpected from whatever other type of State.They will be willing to work for their mystifications, such as the King,the Fatherland, God, or "society", but not for an apparatus of control anddomination such as is the State. Confronted by this problem, a laic andsocialist revolution like the Soviet one had few options available, in fact,only one: identify the State with Society, in that way the work on theland (kolkhozes or sovkhozes) or in state factories was work for society,that is, for ones self. The volontee generale of Rousseau and the

Jacobins, the general will and the will of the individual could this waybecome identical.8

It is not that Dieterich does not give an explanation for the glorification of the state inthe USSR, or that this explanation is not materialist, the problem is that whilst similarto the Trotskyist explanation favoured by Woods it contains new and unfamiliarelements. The familiar elements are there : the low level of the productive forces, thelow cultural level, the destruction from war and civil war. These are routinely

7 Woods , op. cit., p 52.8 Dieterich, op. cit.


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mentioned by Trotskyist writers when explaining the rise of the bureacracy in SovietRussia. And it is not that Dieterichs explanation is not materialist, since his

explanation for the ideological glorification of the state is based on an economic need.Dieterich says that it was necessary in order to provide an ideological motivation forthose working to build up the economy - private self interest not being available as amotivating factor. The problem for Woods is that this explanation deviates slightlyfrom the one he is comfortable with, contains a new element: an emphasis on thenecessary role of state glorifying ideology in the functioning of the soviet economy.Dieterichs explanation relates to the basic distinguishing feature of different modes

of production : how is surplus labour extracted.

The specific economic form, in which unpaid surplus-labour is pumpedout of direct producers, determines the relationship of rulers and ruled,as it grows directly out of production itself and, in turn, reacts upon it asa determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the

production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of theconditions of production to the direct producers a relation alwaysnaturally corresponding to a definite stage in the development of themethods of labour and thereby its social productivity which reveals theinnermost secret, the hidden basis of the entire social structure and withit the political form of the relation of sovereignty and dependence, inshort, the corresponding specific form of the state9.

The main thrust of Dieterichs article is to point out the need for a theory of howsocialist economies work, both hithertoo existing ones, and other ones which mightbe extablished in the near future. He is arguing that socialism in the 21st century canonly succeed if it has a better theory of what the socialist mode of production is.

Back in the 1880s Engels wrote a pamphlet10 presenting to a German readership a

short history of the socialist movement from the ideas of early 19th century socialistthinkers, particularly Saint Simon, Fourier and Owen down to his and Marxs thenmore recent ideas. Drawing on the title of this pamphlet it became the fashion amonglater Marxist writers to denigrate utopianism as a fanciful spinning of overly

detailed plans for a socialist future. This is the meaning that Woods gives to the termwhen he criticises Dieterichs utopianism. But Engels himself was actually verycomplimentary towards earlier socialist pioneers, particularly towards Owen.

The newly-created gigantic productive forces, hitherto used only toenrich individuals and to enslave the masses, offered to Owen the foundations for a reconstruction of society; they were destined, as thecommon property of all, to be worked for the common good of all.Owens communism was based upon this purely business foundation, the

outcome, so to say, of commercial calculation. Throughout, it maintained

this practical character. Thus, in 1823, Owen proposed the relief of thedistress in Ireland by Communist colonies, and drew up completeestimates of costs of founding them, yearly expenditure, and probable

9 Marx, Capital, Vol.3, Chapter 47http://www.marxists.org/archive/marx/works/1894-c3/ch47.htm (6 of 21)[23/08/2000 16:05:25]

10 Engels Socialism : Utopian and Scientific.


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revenue. And in his definite plan for the future, the technical working outof details is managed with such practical knowledgeground plan, frontand side and birds-eye views all included that the Owen method ofsocial reform once accepted, there is from the practical point of viewlittle to be said against the actual arrangement of details.11

No suggestion here that Owens ideas were impractical.

Woods claims that the utopians including Owen distanced themselves from the

working class movement12 and sought to introduce socialism by appealing to theenlightened middle class, though he grudgingly conceeds that in his later years Owentried to rectify his mistakes. Engels was considerably more complementary about

Owens role in the labour movement.

Every social movement, every real advance in England on behalf of theworkers links itself on to the name of Robert Owen. He forced through in1819, after five years fighting, the first law limiting the hours of labor of

women and children in factories. He was president of the first Congressat which all the Trade Unions of England united in a single great tradeassociation. He introduced as transition measures to the completecommunistic organization of society, on the one hand, cooperativesocieties for retail trade and production. These have since that time, atleast, given practical proof that the merchant and the manufacturer are socially quite unnecessary. On the other hand, he introduced laborbazaars for the exchange of the products of labor through the medium oflabor-notes, whose unit was a single hour of work; institutionsnecessarily doomed to failure, but completely anticipating Proudhons

bank of exchange of a much later period, and differing entirely from thisin that it did not claim to be the panacea for all social ills, but only afirst step towards a much more radical revolution of society.

Do we need a better theory of socialist economy

Woods claims, without supporting quotes, that Dieterich identifies himself as beingPost Marxist and Post Communist, and that he shows excessive egotism andpresumption in calling for a new socialism of the 21st century. Woods position seemsto be that we already have an adequate theory of how a socialist economy shouldoperate: the Soviet form of planned economy would be just fine were it not held backby bureaucracy.

Insofar as art and science made notable advances in the USSR (whichthey did) this was thanks to the colossal stimulus that the OctoberRevolution and the nationalized planned economy gave to education andculture in general. But these achievements were made in spite of thebureaucracy, not thanks to it. The same thing can be said of the planned

economy in general.

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11 Engels, op. cit.12 For the utopian socialists, the way to usher in the new society was education

and propaganda, that is, by the educational work of individuals and institutions.The class struggle did not enter into it. ( Woods, op. cit., p 142).

13 Woods, p51.


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The idea that everything would be fine if it were not for bureaucracy ignores not onlythe 1920s and 30s debates on the economic calculation problem 14, but the entirehistory of related debate in the USSR over economic mechanisms. Dieterichs proposal for 21st century socialism, and our proposal for New Socialism back in1992, both stemmed from the historic impasse that the Soviet Model had gotten into by the end of the 80s. The problem with Trotskyists like Woods arguing that thecause of the decline and collapse of the USSR was the hamstringing of the plannedeconomy by the bureacracy is that this thesis does not match up well with thetimeline. Trotsky was denouncing the bureacracy from the early 1930s and was fromthat early date warning that the soviet economy was in danger of collapse because ofthe bureaucracy. The problem with this is that at the very time that he was warning ofthe bureacratic danger, the soviet economy was growing at an unprecedented rate. Itcontined to grow at a breakneck speed right up until the mid 1960s. It was not untilthe 1970s or80s that it started to stagnate. The soviet economy was not in danger in1934 but by the late 1980s it certainly was. If the economy was being throttled by the

Stalinist Bureaucracy, why did this throttling take 50 years to take effect. Was the1980s state bureacratic repression was much worse than in the 1930s?Clearly not. Mass executions, imprisonment on suspicion, exile etc were rife in

the 30s but absent in the 80s.As a causal explanation it fails. If bureacracy had been constantly strangling from

the 1930s the collapse would have occured far earlier. Something new must havehappened from the 1970s that caused the stagnation.

I have already hinted at the similarity between Woods outlook and that ofZhadanov. Woods shares the notion of a basically sound soviet economy strangled by bureaucracy with modern Stalinists like Furr and Ball15. The difference is that theStalinists say the bureaucratic degeneration did not occur until the 1950s underKhruschev. Whilst they put the degeneration 20 years closer to when economicstagnation was visible, these arguments too have difficulty accounting for the robust

growth of the USSR in the Khruschev period.

14 This starts with Neurath. Economic plan and calculation in kind. Otto Neurath:Economic Writings 1904-1945, 2004, is replied to by von Mises.Economiccalculation in the socialist commonwealth. In F A Hayek, editor, CollectivistEconomic Planning. Routledge and Kegan Paul, London, 1935. Remak inKanndie Volkswirtschaftslehre eine exakteWissenschaft werden. Jahrbcher frNationalkonomie und Statistik, 131:703735, 1929, introduces for the first timea detailed mathematical procedure to solve the problem and proposes the use ofelectronic calculation. Other significant contributions in the inter-war period arethe state market socialists Dickinson. Price Formation in a Socialist Community.The Economic Journal, 43(170):237250, 1933 and Lange. On the EconomicTheory of Socialism. University of Minnesota Press, 1938, the left communist

Appel.Fundamental Principles of Communist Production and Distribution.Movement for Workers Councils, von der Kollektivarbeit der GruppeInternationaler Kommunisten - GIK [Allgemeine Arbeiter Union Deutschlands -AAUD], 1990 (1930) and the Soviet mathematician Kantorovich.MathematicalMethods of Organizing and Planning Production. ManagementScience, 6(4):366422, 1960 (1937).

15See for example Joseph Ball, The Need for Planning: The Restoration ofCapitalism in the Soviet Union in the 1950s and the Decline of the SovietEconomy, Cultural Logic, 2010.


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I am generally sympathetic to Balls aims: to defend socialist planning. I think

that he makes a very interesting point in focussing attention on innovation and the

comparative role of subsidies versus temporary prices a point that had not been brought up in the left debate on the USSR before. Basically he argues that in the1930s state enterprises were paid subsidies for innovations to cover the extra costthey incurred in introducing new technology.

Ball argues that the key was a shift in the way they dealt with innovation. Up untilsome point in the 50s the policy had been to give state subsidies to factories orprojects that were engaged in innovating and producing new products. Thus the planencouraged innovation. Essentially they were encoraged to introduce new productsand the state would meet any costs they had in doing this.

Later they shifted to a system where enterprises had to recover the cost ofinnovation from what were called temporary prices. The price of a new product was

fixed initially at a premium which was supposed to be reduced to closer to cost priceas time went on. This is analogous to what happens in a capitalist economy with

patents. He claims that there were serious problems with this mechanism. For a start itencouraged gaming in which enterprises pretended that they had new products whenthe products were little different from before, in order to get the higher temporaryprice. Secondly, the planners did not reduce the temporary prices to stable prices fastenough and as a result a large number of old products still sold at the temporary pricelevel.

These points by Ball are actually quite interesting and may well be one factor inthe decline in innovation, but I am not sure that I find it entirely convincing as a longterm explanation of the slowdown in the diffusion of technology. If there was gamingover the temporary prices, would there not have been similar gaming over subsidiesin the long run with enterprises applying for subsidies for products that they claimedwere new, but which were actually just slight mods of old ones.

Similarly if the planners forgot to downgrade the temporary prices in the 60s

might they not have forgotten to remove subsidies in the 60s had these been retained.Note of course, that free market Russia of the last 20 years has hardly been knownas a world leader in technical innovation.

My own feeling is that whilst the difference between subsidies and temporary prices may have had some effect the existence of either of these mechanismsdepended on two key features of the soviet economy from the 30s on:

1. The continued existence of money rather than the use of labour accounts,

2. Associated with this, the existence of enterprise as accounting centres whichwere proto capitals. These factors were both there under the soviet economicsystem of the from the 1930s to the 1980s.

On top of that you had the continued existence of the wage form which meant thatonly part of the labour time that went into making something appeared as the cost =the part that went to replace the consumer goods bought on the market. This meansthat the cutof point in investment decsions replacing living with dead labour wasskewed towards the living labour end, hampering the use of labour saving machinery.This mattered little during a period of extensive growth, but once internal labourreserves had been largely absorbed by industry, the effect of this on the introductionof new technology would be more critical.

Beyond this, there is the general point that the rate of growth of any industrialeconomy that is relying initially on technology transfer from more advanced countrieswill be more rapid than the rate of growth of that economy when it is fully


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industrialised. From that point on, improvement in productivity depends onincremental improvements in industrial technology rather than the step change in

productivity associated with moving people from agriculture to industry.I think Ball overplays the difference between Stalin and his successors. The real

break did not come in 1953 but with Gorbachov. Both Khrushchev and Zhou Enlaifor their different reasons wanted to make a big thing of Khrushchev being a bigbreak with the past, but I think looking back from more than half century later it ishard to give as much significance to it as they did.

One of the points that Dieterich is making, and which Woods contests, is that the20th century did not develop an adequate historical materialist theorisation of howsocialist economies work. Writing of the Soviet economy he says:

It was a reality sui generis, a hybrid, whose description and scientificexplanation required its own theoretical paradigm, that is, an evolutionof the paradigm of the classics which would be capable of apprehending scientifically the new economic reality. In a discussion with Soviet

economists, in 1952, Stalin illustrated the problem in the following form:"The concepts of work necessary work and surplus work and necessaryproduct and surplus product are not useful for our economy. Is not allthat enters into social security and defense part of necessary work? Isnot the worker interested in this? In a socialist economy we must makethe following distinction work for ones own necessities and work for

society.In the discussion of mercantile relations in the , he took the followingposition. He observed that capital goods (means of production) were notfreely sold, but were produced and assigned through the plan to theirdestinations, a fact for which they could not be considered merchandise.On the other hand, the means of consumption could be acquired freely, afact, for which their mercantile character was undeniable.

It is evident that Stalin was right so far as the mechanical application ofcapitalist terminology, and even classical political economics, to theSoviet economy was not justifiable, either politically or scientifically. 16

Stalin opposed the extension of market relations, but he gave no evidence of a deepunderstanding of the labour theory of value or how Marx envisaged using it in asocialist economy, thus his Economic Problems, whilst defensive against proposedchanges towards the market economy, did not offer a way forward. But this was better than the position put forward by Trotsky in his Soviet Economy in Dangerwhich prefigured the Dengist or Gorbachovite policies of China in the 80s or theUSSR in the late 80s.

What are the organs of constructing and applying the plan like? Whatare the methods of checking and regulating it? What are the conditionsfor its success?

In this connection three systems must be subjected to a brief analysis: (1)special state departments, that is, the hierarchical system of plancommissions, in the centre and locally; (2) trade, as a system of marketregulation; (3) Soviet democracy, as a system for the living regulation bythe masses of the structure of the economy.

16 Dieterich, op. cit.


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If a universal mind existed, of the kind that projected itself into thescientific fancy of Laplace a mind that could register simultaneously

all the processes of nature and society, that could measure the dynamicsof their motion, that could forecast the results of their inter-reactions such a mind, of course, could a priori draw up a faultless and exhaustiveeconomic plan, beginning with the number of acres of wheat down to thelast button for a vest. The bureaucracy often imagines that just such amind is at its disposal; that is why it so easily frees itself from the controlof the market and of Soviet democracy. But, in reality, the bureaucracyerrs frightfully in its estimate of its spiritual resources. In its projectionsit is necessarily obliged, in actual performance, to depend upon the proportions (and with equal justice one may say the disproportions) ithas inherited from capitalist Russia, upon the data of the economicstructure of contemporary capitalist nations, and finally upon theexperience of successes and mistakes of the Soviet economy itself. But

even the most correct combination of all these elements will allow only amost imperfect framework of a plan, not more.The innumerable living participants in the economy, state and private,collective and individual, must serve notice of their needs and of theirrelative strength not only through the statistical determinations of plancommissions but by the direct pressure of supply and demand. The planis checked and, to a considerable degree, realized through the market.The regulation of the market itself must depend upon the tendencies thatare brought out through its mechanism. The blueprints produced by thedepartments must demonstrate their economic efficacy throughcommercial calculation. The system of the transitional economy isunthinkable without the control of the ruble. This presupposes, in itsturn, that the ruble is at par. Without a firm monetary unit, commercial

accounting can only increase the chaos.

17

My feeling is that although Stalins position was preferable to that ofGrobachov, Titoand the other market socialists, it still did not get to the heart of the matter because ofhis failure to differentiate between a system of money and a system of labouraccounts as advocated by Marx. The only people writing in the 30s who came close tounderstanding this were the Dutch left Communists18. In any case the policies andarguments he uses seem pretty standard as those put forward by east block reformerslike Dubcek in the 60s - increasing role for market mechanisms. Some of Trotskysarguments prefigure those of Hayek and may have been derived from von Mises -impossibility of calculation and accounting without money, the impossibility of asynoptic plan thougth of according to the same problematic as von Mises - the singlemind that would draw up the coherent plan would have to have god like powers to do

it19. The theoretical closeness of Trotsky to Hayek in economics extended to

advocacy of the gold standard:

17 Trotsky, The Soviet Economy in Danger, 1934.

18 See the english translation: J. Appel, Fundamental principles of communistproduction and distribution, 1990 , Movement for Workers Councils.

19 For a criticism of the Mises/Hayek perspective see : Cockshott and Cottrell,Information and economics: a critique of Hayek [PDF] - Research in Political


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There the lack of a stable gold ruble is one of the main causes of ourmany economic troubles and catastrophes. It is impossible to regulate

wages, prices and quality of goods without a firm monetary system. Anunstable ruble in a Soviet system is like having variable molds in aconveyor-belt factory. It wont work.Only when socialism succeeds in substituting administrative control formoney will it be possible to abandon a stable gold currency. Then moneywill become ordinary paper slips, like trolley or theater tickets. Associalism advances, these slips will also disappear, and control overindividual consumptionwhether by money or administrationwill nolonger be necessary when there is more than enough of everything foreverybody!Such a time has not yet come, though America will certainly reach itbefore any other country. Until then, the only way to reach such a stateof development is to retain an effective regulator and measure for the

working of your system. As a matter of fact, during the first few years aplanned economy needs sound money even more than did old-fashionedcapitalism. The professor who regulates the monetary unit with the aimof regulating the whole business system is like the man who tried to liftboth his feet off the ground at the same time.Soviet America will possess supplies of gold big enough to stabilize thedollar a priceless asset. In Russia we have been expanding ourindustrial plant by 20 and 30 percent a year; butowing to a weak ruble we have not been able to distribute this increase effectively. This ispartly because we have allowed our bureaucracy to subject our monetarysystem to administrative one-sidedness. You will be spared this evil. Asa result you will greatly surpass us in both increased production anddistribution, leading to a rapid advance in the comfort and welfare of

your population.

20

This had some halting grasp of what was needed but mixed up with a lot of nonsense.He seemed to think that non convertible paper currency is only possible withcomplete administrative control - the history of modern capitalism shows what anerror that is. He misunderstands a remark by Marx that Owens labour tokens were nomore money than a theatre ticket. This is was not because they were printed on paper,but because a labour account system involves credits which could only be gained bydirect labour, and which did not circulate. Paper money does circulate and can perfectly substitute for gold currency. By saying that you can only abolish moneywhen you can afford to distribute everything ad libitum is to make the same error asKhrushchev who also thought that the key was to have massive levels of production.This puts the abolition of money and commodity production into some indeterminatefar distant future since human wants and desires grow with the possibility of meetingthose desires. Before computers were invented, there was no demand for homecomputers, before TV was invented, no demand for flat screen sets etc.

Stalin was at least closer to Marxism when he attributed the continued existenceof money in the USSR to the combination of two forms of property: collective farmpoperty and state property. After all agriculture had been reorganised in state farms,

Economy, 1997 or Cockshott, Von Mises, Kantorovich and in-natura calculation- Intervention. European Journal of Economics, 2010

20 Trotsky, If America Should Go Communist, 1934.


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according to Stalin, then commodity production could be dispensed with. My ownview is that this oversimplifies the question since it leaves aside a number of

important functions of money in the soviet planning system:1. The divergence in pay rates between different trades and proffessions and the

extent to which this was gender based,

2. The use of monetary aggregates as plan targets,

3. The problem of deciding what mix of consumer goods to produce

To get rid of money it would not be enough just to bring the agricultural sector intofull socialisation. It would be necessary to develop detailed planning in kindtechniques, something that was probably impossible for a complex economy prior tothe development of computers21. Even to attempt it with computers in the 1960swould have been enormously costly in the short run before its full benefits wouldhave been achieved. The Soviet computing pioneer Glushkov realised in the early 60s

that in order to achieve an effectively planned communist economy something akin towhat we have later come to know as the internet would be needed.

Glushkov proposed to the Soviet government the first step inimplementing this complex large scale project: to create aComprehensive Computer-Aided Economy Management System (in Russian: Obschya-Gosudarstvennaya Avtomatizirovanaya Sistema, orOGAS). He hoped that the Soviet government would support thisinitiative, because the existing paper means and methods of Sovieteconomic management had been obsolete since the 1940s and could noteffectively support the growth of the national economy, which wasalready complex and top-heavy. Glushkov was aware that developingOGAS would necessitate accelerating broad development of computingtechnology and scientific methods of economic management, and

creating a powerful network of about two hundred regional and tenthousand local computer centers throughout the nation. It would alsorequire complete computerization of the work places for specialists in science, technology, and administration at industrial enterprises,branches of government and other institutions this was Glushkovsultimate goal.Soviet Prime Minister Alexei Nikolaevich Kosygin approved this ideaand Glushkov, with his characteristic enthusiasm, began work on theOGAS project. Today, one may say that his plan was premature becausecomputer technology was not very sophisticated and the society was notready for it back then. According to his calculations, the implementationof OGAS would take fifteen to twenty years and require about 20 billionrubles, which was an enormous sum at the time. He was very upfrontwith Kosygin the implementation of OGAS would be more

complicated and difficult than the space and nuclear weapons programsput together.Undoubtedly, Glushkov was aware that OGAS might not receive activesupport from the Communist Party and the ruling elite, because true

21 On this see, Cockshott and Cottrell, Calculation, complexity and planning: thesocialist calculation debate once again , Review of Political Economy, 1993 orSpufford,Red Plenty, 2010,


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scientific control of the economy would strip away their power andchange the nations destiny. Moreover, OGAS would not receive support

from the Soviet bureaucratic system, which was based on administrativetyranny, especially when it came to making the most important nationaldecisions. It was also a challenge to the West they understood thatOGAS would shield the Soviet Union from economic collapse or worse,the Soviet Union might create a modern and efficient system of plannedeconomic management. This idea caused the Soviet press and Westernmass media to attack Glushkov in the 1970s, attempting to discredit himin the eyes of the Soviet government and block the realization of hisplan, which aimed to radically transform our society.22

Equivalence economy

A key stumbling block for Woods is Dieterichs idea of an equivalence economy, an

idea which Dieterich takes over from Arno Peters. Woods claims that Peters andDieterich do not understand the Marxian theory of surplus value and are reverting to aProudhonian concept of socialism.

Following in the footsteps of Proudhon, Dieterich imagines that theprofits of the capitalists are some kind of swindle, which he calls unequalexchange. This is merely an extension of the same vulgar idea, that thecapitalists obtain their profits from exchange by buying cheap and selling dear (that is, through swindling the public). The whole idea ofDieterich and his genial mentor Arno Peters is that by establishing thetrue price of a commodity by calculating the amount of labourexpended on its production, we can expose this swindle and thus createthe necessary level of consciousness to introduce 21st CenturySocialism.23

This is certainly a misunderstanding. Woods claims that Dieterich and Peters borrowwithout acknowlegement the ideas of Ricardian socialist Gray24. Peters gives a clearaccount both of the history of the labour theory of value and of the Marxian theory ofsurplus value in his short book Das quivalenz-Prinzip als Grundlager der Global-konmi. He covers the ideas of Smith, Ricardo and Gray before going on to look atMarxs development of the labour theory of value. In particular he points out that for

Marx the exploitation of labour is not based on cheating 25. There is no

22 Malinovsky, Pioneers of Soviet Computing, 2006.23 Woods, op. cit., p167.24 Woods, p 148.25

Marx widersprach. Er ging davon aus, dass die menschliche Arbeit inder kapitalistischen Gesellschaft zur Ware geworden sei (die er imUnterschied zur Arbeit Arbeitskraft nannte), die mit ihrem jeweiligenMarktpreis (= Lohn) voll bezahlt ist. Er sagte: Dass der Wert, den ihrGebrauch whrend eines Tages schafft, doppelt so gro ist als ihreigener Tageswert, ist ein besonderes Glck fr den Kufer, aberdurchaus kein Unrecht gegen den Verkufer. Und er versicherte sogar,es wrden bei diesem Kauf die Gesetze des Warenaustausches in keinerWeise verletzt, quivalent wurde gegen quivalent ausgetauscht. Hier


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unacknowledged borrowing by Peters, he gives a clear account of Grays ideas, anddistinguishes Marxs ideas from these.

Within the confines of bourgeois law, the wage contract is fair and not the resultof cheating, it appears to be a commodity exchange like any other. That is thejuridical appearance of the contract. But as Marx points out law can never rise higherthan the set of economic relations it reproduces. Behind the appearance of freedom,

Bentham and the rights of man, lies the reality of an exploitative social relationship

in which the workers give say 10 hours of labour a day to their employer and getback only 5 in wages. This is exploitative relationship is what Marx exposes as goingon behind the appearance of fair exchange in the labour market.

If labor is taken as the substance of value, then the value of labor itself is alwaysunity. An hour of labor is worth an hour of labor. Since hourly wages vary, and sincethe goods that can be bought with an hours wages invariably cost less than an hour to

make, it is clear that either

1. workers are systematically cheated by being paid less than the value of their

labor. This was the conclusion of Gray and later that of Rodbertus; 26

2. or wages are not actually the price of labor, but the cost of hire of the ability towork. This was the view adopted by Marx.

Marxs view has perhaps more logical elegance. Whichever view one adopts, the

conclusion is much the same: capitalism leads to workers being exploited.

The cause of exploitation lies in the power of a class or an entity tosubjugate others and make them produce a surplus product (objects) ora service (sexual, house slaves etc.), that is then appropriated by thedominant forces; in capitalism, in the form of surplus value. Our ETPdemand that workers must have the right to the full value of their labour,leaves no room for private or state-elite appropiations of that surplus.Thus there can be no dominant class. 27

Exploitation is being forced to do unpaid work for others. In some cases unpaid laborappears as such: the work of the slave for the master or a wife for her husband. It maybe disguised in terms of love or duty, but that it is unpaid is beyond question. In thecase of wage labor, it is only possible to detect exploitation if you know how manyminutes work are required to produce the goods that can be bought with an hours

wages. Since this is difficult to work out, workers are unlikely to realize just howmuch they are exploited. Although the labor contract between employer andemployee is in theory a voluntary one, it is in practice entered into under duress. Theemployer is in a much stronger position and in practice dictates the terms ofemployment. The worker often faces the alternative of unemployment. Someone whohas been unemployed for a while, or who fears unemployment, will be glad of any

verwechselte Marx, wie die klassische konomie, wertgleich(quivalent) mit preisgleich (quipretir).Was Ricardo Profit nannte, bezeichnete Marx als Mehrwert. DieserMehrwert steht fr Marx im Einklang mit dem Wertgesetz, und wenn derArbeiter den von ihm geschaffenen Mehrwert nicht erhlt, wird ihm keinUnrecht zugefgt.

(Peters, op. cit., p18.)26 Rodbertus, Das Kapital , Paris,1904.27 Dieterich, email Saturday, February 18, 2012.


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job and wont be too particular about the conditions. The employer does not face the

same constraints. There are usually many applicants for each job, so that if some

people try to negotiate their rate of wages there will be others ready to undercut them.But there are others reason for Marxs insistence on the idea that the labour

contract was not based on cheating. One of these is ideological and the other ispolitical.

The ideological reason is revealed in the subtitle of Capital - a Critique ofPolitical Economy. The book is an imaenent critique of the ideas of the politicaleconomists which aims to show that even if he makes what Bordiga called thegenerous assumption that the wage contract is fair, he can still demonstrate, using theconcepts of the political economists themselves that exploitation takes place. Capitalstarts with an analysis of the commodity form and the exchange relation which Marxshows to have the logical form of an equivalence relation. It is the nature of asystematic system of exchange that establishes the notion of equivalence and fairexchange: basically the idea that in equivalent exchange a sequence of exchanges is

commutative. If I exchange x of A fory of B and thenyof B forz of C, I can alwaysreverse the process and exchange the z of C back forx of A. And indeed, in a welldeveloped market arbitrage tends to ensure that this is the case.

Having established that you have an equivalence relationship, this implies,according to Marx, that there must be a hidden third element that is present in equalamounts on both sides of the equation. This is a purely logical inference, analogous tothe inference of energy as a conserved quantity between freely exchanged states ofmotion.

Marx then asserts, empircally correctly, that the conserved substance is labourtime. But whatever the conserved substance, even if he said it was oil or energy, therewould arise a paradox in your value system when you attempt to define the value ofthis conserved substance. It helps to understand the paradox if we perform the thoughtexperiment of considering some alternative value basis than labour28.

Apart from the fact that alternative candidates for that which is conserved incommodity exchange show a relatively poor performance empirically, compared tolabour time, there are also some theoretical problems with such alternative valuesystems.

The first problem is definitional. Consider, for example, the system in which thevalue of a commodity is defined as the amount of oil used to produce it, directly orindirectly. What then is the value of oil itself? We must either say it is unity, or it isthe amount of oil required to produce a unit of oil, which must be less than one barrelper barrel for a viable oil industry.

In the latter case, we find that if we use the normal method of computing the

value of an industrys inputsthat is,vj=

iv

ix

ij

, where viis the per unit value of

commodity i and xijthe amount of the ith commodity needed to produce one unit of

commodityjwe get a recursive definition of the value of oil whose fixed point is avalue of 0. It tends to zero as on each iteration of our calculation we find that it takesless than one unit of oil to produce one unit of oil. Were this not the case the economy

28 In science experiment is the best tutor. What follows is a lesson I learned whenactually trying to compare the labour and oil values for sectors in the UKeconomy.


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would collapse. This then means everything else takes on a value of zero. Oil valuewould then be trivially conserved in all exchange transactions.

Allin Cottrel and I have done experimental tests using British input output tablesto compare the predictive power of different value bases, and we find that labour is amuch better predictor of observed prices than anything else.29

When computing the oil values of different commodities we gave an ad hocdefinition of the value of oil as unity. This is arbitrary, since it involves treating oildifferently from other inputs such as electricity or corn; but we do have somethingempirically testable. If oil values are conserved then 1 barrel of oil should purchasecommodities that required 1 barrel of oil for their production. We know this is nottrue in practice, for were it so, the revenue obtained from selling 1 barrel of oilsworth of corn would be entirely consumed in purchasing the oil and other means ofproduction required to grow it. Profits would have to be zero.

How, one may ask, is this problem avoided in the case of labour time? In thehistory of socialist economic thought, two solutions have been proposed. Rodbertus30

in effect argued that labour time has a value of unity, but that labour is sold by theworker to the capitalist at less than its value. Rodbertus subscribed to a basicallyMalthusian iron law of wages, according to which wages could never rise above

subsistence level for any extended period. (Alternatively, one could ground the claimthat labour is sold below its value on the argument that their monopoly of the meansof production enables the capitalist class to enforce unequal exchange on theworkers.) Marx, of course, solved the problem in a different way, by distinguishing between labour, the activity, and labour-power, the capacity to work. According toMarx it is labour-power, not labour, that is sold by the worker to the capitalist; andlabour-power sells at its valuethat is, the total labour time necessary to produce andreproduce the workers capacity to work.

Neither of these strategies makes much sense for a commodity such as oil. Inrelation to Rodbertuss variant, there is no reason to suppose that the oil industry is

forced to sell its product below value, while in relation to Marxs, it is hard to seehow a parallel distinction between oil and oil-power could be motivated. Thefundamental point in the background to these objections is that commodities such asoil, electricity and so on are just ordinary products of capitalist industry. There is nogood reason to single any one of them out for asymmetrical treatment. Labour (orlabour-power), on the other hand, is the only commodity that is (a) essential to theworking of any capitalist economy while (b) not itself produced under capitalistconditions of production. Put differently, the agent selling oil is an ordinary capitalist,facing other capitalists at par; but the agent selling labour is a worker, separated fromthe means of production and hence facing the capitalist at a disadvantagea pointmade by Adam Smith almost as emphatically as by Karl Marx.

As testable scientific hypotheses Marx and Rodbertus theories areindistinguishable. They produce no testably different predictions. The differences between them are essentially ideological and political. If you want to conduct an

imaenent critique of political economy as Marx did, they you stick to the idea thatthere is a distinction between labour and labour power. And politically Marx did notwant to say workers were cheated in the contract because that would lead to anessentially trades unionist response - demanding a fair days pay for a fair days

29 Cockshott and Cottrell, Labour time versus alternative value bases: a researchnote,Camb. J. Econ. (1997) 21 (4): 545-549.

30 Rodbertus, Das Kapital , Paris,1904.


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work, when he believed that the goal of the workers movement should be abolitionof the wages system.

If Woods thinks that there is a scientific as opposed to ideological differencebetween Marx and Rodbertus theories of exploitation here is a challenge to him. Firstlet him identify an experimental statistical procedure that would allow one theory tobe falsified and the other verified. Secondly let him perform the experimental test onsay the UK or the US economic statistics and tell us which theory comes out best.

In general Marxs Capital makes a number of clear and testable predictions, hereare some:

1. That prices will strongly correlate with embodied labour of commodities.

2. That a general rate of profit will form that is independent of organiccomposition of capital.

3. That the average rate of profit will fall if wages rise, other things being equal.

4. That the accumulation of capital depends on the growth of the proletariat.These are proper scientific hypotheses, that is to say they are potentially falsifiable.All of them have at various times been subjected to statistical tests31. If the difference between Marx and Rodbertus theories of exploitation is testable then it isscientifically important. If it is not testable, then it is not a scientific question.

Labour credits

A central argument of Dieterich is that socialism should involve a move from amonetary economy to an economy based on labour credits. Dieterich cites Peters andZuse32 as helping develop this concept. I and Allin Cottrell had independently writtenabout this concept a few years earlier in our book Towards A New Socialism. Thisproposal to move to a labour token token economy is what Peters and Dieterich callequivalence economy and provides a key target of Wood

It was a common assumption of nineteenth-century socialism that people should be paid in labor credits. We encounter the idea in various forms in Owen, Marx,Lassalle, Rodbertus and Proudhon. Debate centred on whether or not this implied afully planned economy. The Critique of the Gotha Programme contains a particularlyclear account of the idea:

[T]he individual producer gets back from society-after the deductions-exactly what he has given to it. What he has given it is his individualquantum of labour. For instance, the social working day consists of thesum of the individual hours of work. The individual labour time of theindividual producer thus constitutes his contribution to the socialworking day, his share of it. Society gives him a certificate stating thathe has done such and such an amount of work (after the labour done forthe comunal fund has been deducted), and with this certificate he can

withdraw from the social supply of means of consumption as much as

31 On my reading of the empirical literature propositions 1,3,4 have been verifiedand 2 falsified.

32 Zuse was the German computer pioneer who arguably built the first storedprogramme computer during the 2nd world war. Dieterich published Gesprachmit Konrad Zuse, an interview with him on the subject taken shortly before Zusedied.


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costs an equivalent amount of labour. The same amount of labour he hasgiven to society in one form, he receives back in another.33

With the enthusiasm of a pioneer, Owen tried to introduce the principle into Englandvia voluntary co-operatives. Later socialists concluded that Owens goal would beattainable only with the complete replacement of the capitalist economy. Whilst Marxwas very complimentary about Owen, he was critical of the schemes of Proudhon andRodbertus. It is worth considering the Marxian critique of labour money schemes;

for there may appear to be a tension between the latter critique and Marxs own proposals. Indeed, the critique of labour money is open to a (mis)reading which

takes it as critical of any attempt to depart from the market system, towards a directcalculus of labour time. This reading has been made by writers as far apart as KarlKautsky and Terence Hutchison.

The basic object of Marx and Engelss critique might be described as a naive

socialist appropriation of the Ricardian theory of value. If only, the reformers argue,

we could impose the condition that all commodities really exchange according to the

labour embodied in them, then surely exploitation would be ruled out. Hence theschemes, from John Gray in England, through a long list of English Ricardiansocialists, to Proudhon in France, to Rodbertus in Germany, for enforcing exchangein accordance with labour values.

Marx criticizes Proudhons scheme in his Poverty of Philosophy, and deals withJohn Gray in his Contribution to the Critique of Political Economy, while Engelstackles Rodbertuss variant in his 1884 Preface to the first German edition ofPovertvof Philosophy. Between Marx in 1847 and Engels in 1884 we find a consistent line ofattack on such proposals.

From the standpoint of Marx and Engels, such schemes, however, honourable theintentions of their propagators, represent a Utopian and indeed reactionary attempt toturn back the clock to a word of, simple commodity production and exchange

between independent producers owning their own means of production. The labour-

money utopians failed to recognize that although labour content governs the long-runequilibrium exchange ratios of commodities under capitalism, the mechanismwhereby production is continually adjusted in line with changing demand, and in thelight of changing technologies, under the market system, relies on the divergence ofmarket prices from their long-run equilibrium values. Such divergences generatedifferential rates of profit, which in turn guide capital into branches of productionwhere supply is inadequate, and push capital out of branches where supply isexcessive, in the classic Smith/Ricardo manner. If such divergence is ruled out byfiat, and the signalling mechanism of market prices is hence disabled, there will bechaos, with shortages and surpluses of specific commodities arising everywhere.

One point which emerges repeatedly in the Marxian critique is this: according tothe labour theory of value, it is socially necessary labour time which governsequilibrium prices, and not just raw labour content. But in commodity -producingsociety, what is socially necessary labour emerges only through market competition.Labour is first of all private (carried out in independent workshops and enterprises),

and it is validated or constituted as social only through commodity exchange. Thesocial necessity of labour has two dimensions. First of all, we are referred to thetechnical conditions of production and the physical productivity of labour. Inefficientor lazy producers, or those using outmoded technology, will fail to realize a market

33 Marx, Critique of the Gotha Programme of German Social Democracy,emphasis added to show that Marx employs the equivalence principle.


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price in line with their actual labour input, but only with the lesser amount which isdefined as necessary. Secondly, there is a sense in which the social necessity of

labour is relative to the prevailing structure of demand. If a certain commodity isoverproduced relative to demand, it will fail to realize a price in line with its labourvalue - even if it is produced with average or better technical efficiency. Theproponents of labour money want to shortcircuit this process, to act as if all labourwere immediately social. The effects within commodity-producing society cannot butbe disastrous.

Now the lesson which Marx and Engels read to the labour-money socialists,concerning the beauties of the supply/demand mechanism under capitalism and thefoolishness of the arbitrary fixing of prices in line with actual labour content, areobviously rather pleasing to the critics of socialism. It appears that Kautsky also readthe critique of labour money as casting doubt on the Marxian objective of directcalculation in terms of labour content, so that by the 1920s the figure widely regardedas the authoritative guardian of the Marxian legacy in the west had effectively

abandoned this central tenet of classical Marxism.From the account of the critique of labour money given above, the limits of thatcritique should be apparent. What Marx and Engels are rejecting is the notion offixing prices according to actual labour content in the context of a commodity-producing economy where production is private. It is my view that Woods critique ofthe labour accounting proposals of Dieterich is a contination in the tradition ofKautsky and classical social democracy whereas Dieterich is attempting to go back to pre-Kautsky Marxism. In an economy where the means of production are undercommunal control, on the other hand, labour does become directly social, in the

sense that it is subordinated to a preestablished central plan. Here the calculation ofthe labour content of goods is an important element in the planning process. And herethe reshuffling of resources in line with changing social needs and priorities does notproceed via the response of profit-seeking firms to divergences between market prices

and long-run equilibrium values, so the critique of labour money is simply irrelevant.This is the context for Marxs suggestion for the distribution of consumer goodsthrough labour credits. Both of Dieterich and the late Arno Peters advocated theabolition of commodity production and its replacement by conscious planning as ismade clear by this dialogue between them.

Question: You write in your book, "Das quivalenzprinzip alsGrundlage der Globalokonomie", that the world-wide investigation ofthe demand, the steering of the production and the distribution of goodswould be managed by computer. How would this planning look inconcrete terms? A world-wide organization of the style of the UN or theFAO?Answer: Investigation of demand is dependent on the development ofcomputer technology and its general availability. It will therefore differ between regions but the goal is the fastest possible recording ofindividual need . Each individual region has its own recording center andfirst tests if it is possibile to the satisfy demand from its own productionfacilities. If this is not possible, national production facilities get used.For demand studies, production facilities and distribution this will givethe smallest regional planning institutions (like communes), above it bigger regions (like districts), even bigger regions (like states) and biggest regions, analogous to federations or continental unions. Above


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this cybernetic network stands the central planning institution, thatcovers the whole world.

Question: With your proposal are commodity relationships eliminated,or would products continue be commodities? -Answer: Commodities are goods dedicated for sale, this means that theyarrived on the world with the emergence of trade, and that they willdisappear with its end (end of the market economy). Then (in theequivalent economy), production of goods will only take place to meetneeds, and they will be consumed by the producer, or will be exchangedat par ( based on the economic distribution of equivalents). 34

The significance of labor credits is that they establish the obligation on all to work byabolishing unearned incomes; they make the economic relations between peopletransparently obvious; and they are egalitarian, ensuring that all labor is counted asequal. It is the last point that ensured that they were never adopted under the bureaucratic state socialisms of the twentieth century. What ruler or manager was

willing to see his work as equal to that of a mere laborer?Labor credits are payment for work done The difference between a labor-token

system and the hire of labor-power can be shown via some contemporaryillustrations. Suppose you engage a self-employed plumber to fix the toilet. Theplumber will judge how long it will take and quote on that basis. On completion ofthe job you pay the plumber for parts and labor.

You do not purchase his ability to work for a day, you pay for the actual workdone. If he does not finish the job he does not get paid-it was up to him to judge howlong it would take. Self-employed, he has an incentive to get his estimates right.

Suppose, on the other hand, you call out a repairman employed by a servicecompany to fix the heating. You are likely to be charged for time actually taken. Theservice company need have no control over how hard or efficiently the repairmanworks, as the system of charging means that it can never lose. The company

purchases his labor-power at 10 per hour and sells it on to you at 40. In this caseyou are being re-sold labor-power, not the labor actually performed.Finally, suppose that you took out a maintainance contract for 80 per annum.

The service company is now selling you the promise of work actually done, labor,and has the responsibility and incentive to ensure that the work is done efficiently andto time.

Payment in labor credits implies payment for work actually done as in the firstand third case. When Owen proposed such payment for artisans, this wasunproblematic. Proof of work done was provided by the product delivered to thelabor exchange. In a modern economy it implies detailed estimates of time requiredunder conditions of average skill to perform a task.

Heinz Dieterich seems to be fascinated by information technology, butthe fact that modern capitalism has developed this technology does not at

all signify a reduction of the working day, although logically, it ought todo so. What is the reason for this contradiction? Long ago Marxexplained that under capitalism the introduction of new technology, farfrom leading to a reduction of the working day and a lessening of the burden of labour, signifies precisely the opposite: the introduction of

34 Dieterich, Der Socialism des 21 Jahrhunderts, 2006, p106.


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new technology under capitalism always leads to an increase in the hoursworked.

...Comrade Dieterich thinks that inventions like the computer, the Internetand cybernetics will solve all our problems and lead straight tosocialism.35

Comrade Heinz of course thinks no such thing, and Alan will be able to find no quotefrom him saying such nonsense. The point is that computer technology is necessary inorder to

1. Compute the labour values of all the goods in an economy. To do this youmust iteratively solve of the order of millions of linear equations. Hard to doby hand, but easy for computers. In Towards a New Socialism and otherpublications Allin and I provide estimates of the algorithmic costs of doingthis.

2. Perform the in kind calculations necessary for an integrated economic planand thus replace monetary calculations in the planning process. This is whatGlushkov was on about in th 1960s, and was what Zuse talked about in hisdiscussions with Dieterich.

Peters says:

The transition toward the equivalent economy is facilitated and activatedby the rapid computerization of economy, administration and private life,since the interconnection of production, distribution, consumption andthe use of services can be guaranteed by means of the computer:estimation of needs world wide(including the relative ordering of theseneeds), steering of production (including the construction of new production facilities), and the distribution of the goods and services,could be managed by computers just as they are now. The inventor of thecomputer, professor Konrad Zuse, called this economic order online -socialism, when it combines the equivalence principle with the labour

theory of value.36

Woods claims that the proposal to pay everyone in full for the labour that they put inruns into insuperable problems:

However, having sternly proclaimed the absolute and unassailablenature of the equivalence principle, Arno Peters immediately begins to backtrack: This simple, easily understood, process (! ), which

transforms the basis of economics, is subject to a number of conditions.One will have to include all human activities that transcend the self-supply of individuals. It is above all a question of activities that are todayincluded under the heading of services: the work that is carried out by

doctors, judges, nurses, typists, postmen, lawyers, teachers, factorymanagers, lorry drivers, directors, road-sweepers, cooks, ministers,hairdressers, journalists and printers; in short, all the activities that do notenter directly into commodities.37 Immediately, what was supposed to

35Woods, op.cit, p161.36 Peters, op. cit, in Dieterich op. cit.37 Dieterich, Hugo Chvez y el socialismo del siglo XXI, p.108 translated by

Woods, Dieterich is quoting Peters here, I believe that there has been some loss


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be an absolute and unassailable principle turns out to be conditional.There are people like teachers, nurses, doctors and lorry drivers who do

not produce commodities and surplus value, but are nevertheless of greatimportance to society. How do we calculate the value of their labourpower?Apart from teachers, nurses, artists and ballet dancers, the equivalenteconomy, it seems, cannot do without the services of judges, lawyers,bureaucrats, policemen and factory managers. How is the value of theirwages to be calculated? However we answer this question, it is evidentthat their wages must come from the wealth produced by the workingclass, and therefore must be deducted from the surplus value......In the case of necessary social services like education and health, as wellas roads, street lighting, street cleaning, sewers and waste disposal, watersupply, etc., these are normally paid for out of taxes. Taxes are taken by

the state either from the wages of the working class and middle class orfrom the profits of the capitalist. In either case, they are ultimately takenfrom the surplus value produced by the working class. Thus, the absolute

of meaning in the original German of Peters being translated to Spanish byDieterich and then into English by Woods. My own translation of the passagefrom Peters on which this is derived is:

Remuneration of services based on working time, this simple, clear

process, is in itself, the foundation of the tranformed economy but hascertain prerequisites: All human activities, that go beyond the individualself-sufficiency , must be included into the labour theory of value. Thisrelates to activities that are today called "services": for example the workof doctors, judges, nurses, typists, mailcarriers, lawyers, teachers,

foremen, drivers, directors, sweepers, cooks, ministers, hairdressers,journalists, printers - in short: all activities, whose results are not directlyintegrated into goods.When we have worked out the embodied labour time and, inconsequence, the value of every good, we will be able to reduce them toa common denominator with services using embodied time. Thisconmensurability of services with productive labour, that one can onlyachieve deriving both from an objective, absolute measure of value(taken from the Labour Theory of Value ), subordinates the wholeeconomy to uniform principle, and their circuits can close on anequivalent basis: a base that always begins with the individual and endswith them; a base that in the era of the global economy - that it resides inthe condition that each human being has the same category, the same

value and the same rights - it includes all individual, independently ofthe activity type that carry out. ( Peters Op. Cit, p 23) As translated by Woods it appears to say that lorry drivers dont producea commodity. Lorry drivers do produce a commodity - transport services- which is sold on the market like any other commodified service, soeven in a mixed economy like the UK lorry drivers are not in the samesituation as public employees like doctors and teachers. The originalmakes it clear that Peters was talking about goods as in the economicopposition goods/services not commodities.


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and unassailable principle of equivalence falls to the ground at the firsthurdle. Under Socialism of the 21st Century the worker will not receive

the complete and undiminished value of the labour he has expended onproduction.38

There is a real and important issue here, the question of taxation which I will get intofurther down, but before I get onto that I will first try to deal with what I think is aconfusion in comrade Alans quote above about what is surplus and necessary labour.

Necessary labour time is that part of the social working day that is necessary toreproduce the working population. It includes all labour whose useful product isconsumed by the working population. Surplus labour is labour whose useful productis not consumed by the working population. If we look at contemporary capitalistsociety it is relatively easy to identify examples of labour whose useful product39 isnot consumed by the working population: the labour that goes into the production ofRolls Royce cars, luxury yachts, fighter jets, and the labour advertising workers,commercial lawyers, and soldiers. These are all what socialists would consider to be

part of the waste of resources brought about by capitalism since they meet only theindividual or collective needs of the propertied classes. But it also includes labour thatmay go into the future enhancement of productive resources including labour thatproduces a net increase in productive capital stocks and labour expended in scientificresearch. These activities are what socialists have traditionally seen as part of theprogressive historical role of capitalist economy.

But that leaves out part of the social labour done : work done to support and carefor those who are too old and sick to work themselves. From the standpoint of theproductive economy, this is unnecessary. If due to some political cataclysm a regimewere to come about that reimposed slavery, then care for the old and the sick might be dispensed with. They, along with the feeble minded might be sent to

extermination camps without loss to the economy. The Hitler government went a longway along this path, but it is a course of action that would be repugnant to any

contemporary society. So that part of the economy that goes to meet the care needs ofthose unable to work for themselves does count as surplus labour. Health care to theelderly and chronic sick is economically surplus but morally necessary, education andhealth care for children by contrast is economically necessary.

These things are relatively easy to understand so long as we look at the socialdivision of labour. When we look at the monetary accounting by which these thingsare represented it becomes more complex. Alan Woods says that: Taxes are taken by

the state either from the wages of the working class and middle class or from theprofits of the capitalist. In either case, they are ultimately taken from the surplus valueproduced by the working class.

I dont think this is strictly true. On the one hand, some activities paid for out oftaxes are necessary to reproduce the working population and thus, as part of the realwage, constitute necessary labour time rather than surplus. But more generally Woodsis attempting to use concepts from one domain in another where they do not preciselymatch. For the sort of pure capitalist economic model described by Marx in the firstvolume of Capital, there is a straightforward identity between surplus value accruingto the employer and surplus labour. All products are assumed to take commodity formso all labour is accounted for in the exchange value of the corresponding product. In areal capitalist country today that simple model no longer applies. Due in no small part

38 Woods op. cit. pp. 173 ,174.39use value in Marxs terminolugy.


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to the political influence of the labour movement, there are significant branches of thedivision of labour whose product does not take commodity form. These vary from

country to country and over time, but for a long time in Britain for example, healthcare, education, roads and broadcasting were not commodities. In these circumstancesthe division between variable capital and surplus value, appropriate for a purecapitalist economy no longer gives an exhaustive account of national income. If onelooks at national accounts, these parts of the division of labour are given an imputedvalue equal to the wage bill and their expenditure on other commodity inputs. In

terms of labour values this means that they are undervalued in the national accounts.If you compare an identical private hospital to a public one, the private hospital willhave its contribution to national income evaluated in terms of the medical services itsells, the public one in terms of its wage bill and the purchases of equipment anddrugs etc it makes. The private hospital, in which the surplus labour worked by themedical staff assumes the form of monetary surplus value, will appear to add morevalue to the economy. Suppose that the average hourly wage in a hospital is 10 per

hour, and that the average exchange value created by an hours labour was 20. Aprivate hospital with an on duty staff of 500 people will be creating a flow of serviceswhose added value could be sold for 10,000 per hour. An NHS hospital employing500 staff at an average wage of 10 per hour will show in the national accounts ascontributing an imputed value of only 5000 an hour.

The existence of a significant public sector delivering non commodity goods andservices means that the identity surplus value = surplus labour no longer holdsaccross the whole economy. This is true quite independently of the mix of direct andindirect taxes that the state uses to fund public services.

Let us now look at the question from the standpoint of a socialist economy usingdirect labour value accounting.

Some goods and services would, according to Marxs formula, be supplied topeople in return for labour credits. Suppose you go to the cooperative store and get a

new holovision set, for which you are debited 11 hours of work. Those 11 hours haveto cover all of the labour that society has had to put in to making the holovision : thework of those who directly constructed it, the work that went into providing thecomponents, part of the work that went into the machinery necessary to make it, ashare of the work that went into designing it etc. The work that goes into it willinvolve a huge number of different trades and skills. So we have to add up anenormously complex set of different types of activities and a huge number ofdifferent skills. At first sight these seem incomparable, all these varied professions :optoelectronic fabricators, laser specialists, fourier technicians, train drivers and trackengineers on the railways used to transport it to your town, work in the wind farmsthat provided power to the holovision factory. What unifies them is that all these arehuman activity and humans are so adaptable that almost any child could have beentrained up to perform any one of these jobs. They are all parts of the labour expendedby the human social organism.

These labours form a network. It was one of the key insights of the Italian marxisteconomist Piero Sraffa that this the network of productive activities in an economycan be divided into two parts which he called the basic and non-basic sectors. Anindustry is part of the basic sector if its output is used directly or indirectly to makeall other products. For example the steel, electricity and plastics industries are all partof the basic sector, whilst theatres, munitions or Rolls Royces are non-basic. Thework done in the basic sector constitutes a circular network of dependence in whicheach branch of the basic division of labour depends on every other branch. The labour


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value of any product depends on the labour performed in every part of the basicsector and in consequence a socialist economy can only work out what the labour

values of individual products are by simultaneously working out the labour values ofall the products in the basic sector. This entails solving large systems of simultaneousequations, something which, when Allin and I wrote our book on socialist economicsin 1990 or so, could only be done on a few super computers. Nowadays it is possibleto solve for labour values in an economy of 1 million distinct basic products using offthe shelf Intel Xeon systems in about 1 minute40.

In Sraffas model of the economy there is only one type of labour, what Marx

called simple labour. In a real economy there are many different trades each withtheir proper skills. Some people have claimed that the existence of heterogeneouslabour makes the application of the Marxian labour theory of value to socialismincoherent:

...every hour of work put in would carry with it the right of taking foroneself such amount of goods as entailed an hours work.

Yet such a manner of regulating distribution would be unworkable, sincelabor is not a uniform and homogeneous quantity. Between various typesof labor there is necessarily a qualitative difference, which leads to adifferent valuation according to the difference in the conditions ofdemand for and supply of their products. For instance, the supply of pictures cannot be increased ceteris paribus, without damage to thequality of the product. Yet one cannot allow the laborer who had put inan hour of the most simple type of labor to be entitled to the product ofan hours higher type of labor. Hence, it becomes utterly impossible in

any socialist community to posit a connection between the significanceto the community of any type of labor and the apportionment of the yieldof the communal process of production.41

Woods has the same concern as Mises when he asks:

There are people like teachers, nurses, doctors and lorry drivers who donot produce commodities and surplus value, but are nevertheless of greatimportance to society. How do we calculate the value of their labourpower?

There are, I think, a number of misconceptions in a question like this.

1. Mises defends a subjectivist value theory in which value arises from thesubjective evaluation of goods by consumers. In his analysis of how a marketeconomy works, higher subjective evaluation of a given type of product worksback via supply and demand to a higher pay rate for the specialised type oflabour that produces it. Hence he is concerned about the difficulty that asocialist economy which dispenses with the market might have both inevaluating products and thus with rewarding the producers in line with thatevaluation.

2. Woods is supposedly working in the context of the labour theory of value.From this standpoint whether a person produces a commodity or not is

40 Cottrell, A., Cockshott, W.P. , and Michaelson, G. (2009) Cantordiagononlalisation and planning. Journal of Unconventional Computing, 5 (3-4). pp. 223-236. ISSN 1548-7199

41 von Mises, Economic Calculation in the Socialist Commonwealth, page 8.


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irrelevant to the question of what the value of their labour power is. Accordingto the Marxian theory, their labour power is a commodity which has a value

independent of the use to which it is put.

3. There is a deeper problem here in that we need to clarify how we calculate thevalue created by different categories of labour. This is the problem ofheterogeous labour in the Marxian theory of value which has engendered agreat deal of controversy 42. I will look at this in more detail.

The classical political economists, including Marx, accepted that different types oflabour added more exchange value per hour to the commodities they made. Simplelabour would add less value than complex labour. Smith, Ricardo and Marx all seemto have accepted that in practice the value creating ability of different labours wouldbe roughly in proportion to the wage rates that the workers earned. When applied toempirical data this appears to be correct43.

Theoretically it left Marxist economics open to the argument of circularity: it was

aiming to give an objective source of price in labour, but to estimate the quantity oflabour used, you have to resort to price data on relative wages. When consideringsocialist economies, and the possibility of using the labour theory of value there,these theoretical objections are certainly significant. If labour values can only bedetermined in the last resort by recourse to the market what is the basis for Marxianeconomists objecting to an ever increasing role for the market in socialisteconomies44.

I believe, however, that Morishima45 did provide a satisfactory solution to thisproblem. What he said is that skilled labour is itself something that is produced. It is produced by the labour of educators, the labour of the person studying, and by theinnanimate goods and educational resources used up during training. In this senseeach type of skilled labour embodies a certain enhanced number of hours of simplelabour. Suppose that a person spends 3 years as a student and that for each student the

education system has to directly and indirectly employ 1/3 of a person

46

. Suppose thattheir working life after qualifying is 40 years, then it implies that for each person

working with a degree, society must have340 ths of a student enrolled at college and

140th of a person employed in the education system. Thus for every 1 person working

with a college degree society has to allocate 1/10 of a person to the higher educationsystem.

This brings out clearly what Marxian value means - it means how much additionaldirect and indirect employment is required to produce a certain output. This was

42 For example: Morishima,Marxs Economics, 1973, in particular pages190..192;Bowles and Gintis,Heterogeneous Labor and the Labor Theory of

Value - Cambridge Journal of Economics, 1977; Steedman, Heterogeneouslabour, money wages, and Marxs theory, History of Political Economy, 1985.43 See Cockshott, Cottrell and Michaelson, Testing Marx: some new results from

UK Data, Capital and Class, 55, 1995, in particular pages 107..109.44 This was essentially the point made by the Austrian school economist Brewster

in his review Towards a New Socialism? Quarterly Journal of AustrianEconomic

review of alan woods

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