Notes Toward an Understanding

...The sole function of the state is the suppression of attempts by individuals to coerce other individuals...

...He refers to the early trade unionists who banded together and succeeded in "elevating their economic position...

...And, it follows that under a system of voluntary exchange, each party must value what he receives more than what he gives up...

...Productivity will suffer, thus bringing about a decline in the standard of living...

...In short, all planning is logically premised upon economic calculation...

...But what of competition" Competition, of course, does exist in a capitalist society...

...The question now must be: does a socialist community have any means for ascertaining profit and loss...

...Under a capitalist system, for example, any group of individuals may divest themselves of their property and ban together to form a socialist community...

...What makes wages rise is the amount of capital invested per worker, for real wages can only rise with an increase in productivity...

...111...

...The difference between the two is that under capitalism all the consumers decide who should make profits, and who should suffer losses, who should expand their production and who should restrict it...

...But since economic calculation is possible only within the price system of the free market and since socialism, by definition, collectivizes the means of production, it thereby destroys the basis upon which all planning must be founded...

...The only truly large-scale attempt at implementing socialist principles occurred during the period commonly known as -War Communism" immediately following the Bolshevik Revolution in Russia...

...The irony of socialist planning is that it cannot plan, for the basis of all rational planning has been eliminated...

...Oil fell to 41 percent, and coal to 27 percent...

...As conditions change, it would likewise have no rational means for deciding how to adjust to these changes or, even if adjustments should be made, it would have no means for determining which among the nearly infinite number of possible methods of production should be adopted...

...One can do away with the market system, but never with profit and loss...

...All else is left entirely to the disposition of each individual...

...Even a writer as sympathetic to the Soviet -experiment" as E. H. Carr is forced to admit in The Bolshevik Revolution that it was a fiasco...

...If a particular group attains a wage increase then the consumer who purchases their goods or services, must either pay more for these and curtail his purchase of other goods, or continue his purchase in other areas by restricting his purchase of this higher- priced commodity...

...Smith, in fact, begins his great work, The Wealth of Nations, with an explanation of the emergence of the division of labor...

...Under a market system the entire apparatus of production is directed by the system of profits and losses, the price system...

...His job, it is true, is to direct the processes of production...

...Does Milstein mean that only socialists desire an end to "human exploitation" and suffering...

...By eliminating that system, a society is unable to determine what is profitable and what is not...

...The former is exploitation...

...The choice between socialism and capitalism, therefore is not, to plan or not to plan, but whether the state should plan for the individual or whether the individual should be free to plan for himself...

...In the free market everyone aims at his own satisfaction...

...Indeed totalitarianism's closest relation seems to be socialism...

...But competition can never be abolished...

...In this case the result must be as follows: If wages are raised above their respective equilibrium levels, the increased wage will reduce the income of the entrepreneurs, thus compelling a curtailment in production and forcing the marginal producers out of business...

...It was Milstein's definition of terms that led to much of the difficulty I had with his article...

...The function of the state under socialism is entirely different...

...But if an attempt is now made to effect a permanent rise in real wages by holding prices below their free market rate, this must result in a reduction in the amount of capital accumulated...

...But it is important to note two consequences of such a rise in wages...

...no amount of sophistry can conjure this away...

...The Determination of Wage Rates...

...That is, they do not lie in objects themselves but in individuals' perceptions of them...

...He blithely assumes that what works for one group will work for the class as a whole...

...It follows from this that there are four conceivable principles for distribution under socialism: equal distribution, "need," services rendered to the society ana "mem...

...1. The distinction between capitalism and socialism...

...The elimination of economic calculation as a result of the socialist takeover, itself, precluded a rational perception of and adjustment to the new conditions...

...They inhere in all actions of all individuals...

...First of all, Milstein looks solely at one side of the process, the supply of labor...

...All are free to cooperate, or not to cooperate, to exchange or not to exchange as they see fit...

...The rock upon which socialism must necessarily flounder is not so much what to produce as how to produce it...

...This is one type of socialism, but it does not define socialism, per se...

...The feudal aristocracy could, as long as it controlled this political power, compel others to obey its orders...

...It is for this reason that comprehensive planning has nearly always been accompanied by comprehensive control of human beings...

...There are six points of issue that I want to comment on...

...Profits result from successfully supplying the consumers with what they most intensely desire at the time of their valuations...

...Thus, a socialist society would have no means for determining costs...

...it is totally voluntary...

...Even disregarding the problem of the disutility of labor - i.e., even granting the highly dubious proposition that under a system where goods are distributed on a basis independent of individual performance men would still continue to work with equal or even greater vigor - there is still one remaining problem that, if it cannot be solved, makes all the talk about the moral imperative of socialism utterly futile...

...This is because such a goal is logically vitiated by socialism's means...

...The Alternative, April, 1972) misconstrues the essential features of both capitalism and socialism...

...There are a number of errors in that sentence...

...those conditions that have plagued mankind forever...

...No general improvement in the position of the workers has occurred...

...Money, it follows, cannot be used as basis for economic calculation within a socialist community for within such a community the utility of money is, ipso jacto, destroyed...

...It does not penetrate to the fundamental difference between the two systems...

...There is indeed some irony in Milstein's "implicit acknowledgment" of a link between capitalism and totalitarianism on the one hand, and his equally erroneous assertion that a capitalist believes that "every social relationship, every association with another individual no matter what type - is an infringement and a restriction upon his inherent freedom...

...Even in a socialist society there will always be positions that men desire more than others...

...We now come to the final issue...

...In the final analysis, both capitalism and socialism can and do have highly similar aims: the abolition of poverty, a higher standard of living, a reduction of the burden of labor and the augmentation of the freedom of the multitude...

...Since the state cannot control what it does not regulate, it is impossible for capitalism to be connected in any way with totalitarianism...

...Regardless of how high money wages are, what is not first produced cannot be consumed...

...Thus, under the capitalist division of labor, everyone serves, but in doing so everyone is served by others...

...Let's examine this assumption...

...To reiterate, socialism is the collective, capitalism the private, ownership of the means of production...

...Milstein says "Socialism...

...A glance at what the average American worker has is enough to explode this assertion...

...The first thing to notice here is Milstein's subtle shift from a discussion of workers, per se, to that of particular groups of workers...

...No such coercive apparatus exists, however, for the entrepreneur...

...While it is true that the members of the group acquiring the increase are better off, this is so only because the position of everyone else is now worse...

...Milstein draws a dichotomy between capitalism and socialism in the area of competition...

...The first question, of course, is precisely what is socialism and how does it differ from capitalism...

...It enables one to employ the best means to attain the desired ends at the least possible sacrifice...

...It follows that he must obey the dictates of the consumers as revealed in their purchasing...

...This applies to workers as well as employers...

...The Use of Political Analogies in Economics...

...To understand this we must first look at the capitalist system...

...Old machines begin to wear out and break down, but since less has now been invested in the production of producers' goods, enough new machines will not be produced to take their places...

...That is, since profit margins have been reduced and more is being spent by workers on commodity goods there is correspondingly less to be saved and invested in the production of producers' goods...

...There is a fundamental difference between economic power and political power...

...We are now in a position to understand the significance of profit and loss...

...The decreased supply of goods will necessitate a rise in prices, thus re-establishing the balance between wage rates and prices...

...To assert that the price system can be discarded betrays a naive understanding of its basic function...

...Cooperation and Competition...

...The function of competition is to see who can best satisfy the desires of the consumers, that is, workers and employers in other roles...

...But he is neither free nor supreme in this, for he cannot compel anyone to buy his product nor anyone to work for him...

...To reiterate, capitalism is that system of social orgainzation based upon the voluntary, and thus peaceful, cooperation of all its members...

...To speak, as does Milstein, of "rational planning" under socialism exhibits an ignorance of the nature of profit and loss...

...This is the problem, ignored by Milstein, of economic calucation...

...Like the situation mentioned above, as long as the wages of those still employed are retained at that new, higher level, those who lose their jobs with the forced curtailment of production will once again cause either a depression of wages in other areas or institutional mass unemployment...

...This attitude is indicative of a common misconception regarding the concepts of cooperation and competition under capitalism...

...As for the other half of the definition, it is improbable that Milstein means that the only socialism that does or can exist is his particular brand of socialism, i.e., a completely equal or classless society...

...Moreover, far from discouraging social cooperation, capitalism, in removing all restrictions on individual action except those imposed by nature provides for the fullest development of social insitutions...

...Under a capitalistic system one can get to the top and stay there as long as he provides the workers with what they desire...

...In the market there is no coercion...

...It is improbable that Milstein could have meant the first, for it is obvious that a wage increase obtained at the expense of other workers cannot benefit the class of workers as a whole...

...Under capitalism, therefore, society emerges and is maintained by the recognition of mutual benefit without the aid of coercion...

...Money under the capitalist system, it is important to note here, reduces everything to a common unit and thus permits exact calculations...

...Secondly, since less will be produced due to the demise of the marginal firms and the restriction of production, the real wage will not be much higher, and may even be lower, than what it was prior to the rise in nominal wages...

...But since both aim at the abolition of human exploitation and suffering, defining socialism in this way gets us nowhere...

...Consequently, the entire apparatus of production and consumption is being brought perpetually toward equilibrium by the appearance of profits and losses...

...The methods adopted for production were, therefore, arbitrary and production declined precipitously until its rescue by the advent of the 'New Economic Policy," a return to a semblance of a market economy...

...the latter is voluntary exchange of services...

...The truth is that from Adam Smith to the present, there has been a steady and consistent line of thought among economists that capitalism is premised upon the harmony of interests of all citizens...

...It is based on the belief that each man can better achieve his own individual aims by freely-working with others, by exchanging services for services, than by either isolating himself or by being compelled to participate...

...If one wishes to draw analogies between political terminology and the process of economics, then it could be said that, in a capitalistic society, the consumers are sovereign...

...The concatenation is precisely the other way around...

...For capitalism, he asserts, such ideas are anathema, for there is no greater heresy against the myths of capitalism than the idea that cooperation rather than competition can result in economic gains...

...This shift in the direction of production to more commodity goods can temporarily bring about a situation where more people are better off...

...aims to abolish human exploitation through the creation of a classless society...

...Those who succeed make profits...

...This means that the jobs in those areas where the restriction has occurred will be eliminated and those now out of work will be either forced to remain unemployed or to seek employment in other areas, thus (assuming that they find employment) depressing wage rates in those areas...

...In fact, because the concomitant distortions and inefficiency resulting from such tampering with wage rates will tend to disrupt the productive effort, the increased nominal wages (what the employee is paid in terms of money) of those favored groups may result in substantially less of an increase in real wages (what money wage can buy) than was originally thought...

...And it is in precisely this area that socialism has, with its collectivization of the means of production, destroyed any possibility for such calculation...

...But can wage rates, as Milstein assumes, be raised above their market level...

...The Problem of Economic Calculation...

...These are products of the capitalist process of production, viz., savings and capital accumulation, a process, it should be noted, in which the worker, although he played a singularly miniscule part, is a great benefactor...

...Such analogies totally misconstrue the true nature of things...

...Surely, he cannot mean that all capitalists favor exploitation, suffering and misery...

...Mil-stein comments that the aristocracy of feudalism possessed political power as its private property.' " He equates this with the alleged commanding economic power" of the capitalist and advocates a so-called social democracy in the economic realm...

...To him, however, the market is not a process but the arbitrary whim of the employer who can "insure that his wage bill sinks to the minimum level supported only by the supply of that particular type of labor he requires and by the elementary survival requirements of his workforce...

...The best wages and prices are neither the highest nor the lowest, but those that best facilitate the full utilization of the available resources, viz., the free market rates...

...The only way this decline can be arrested is through the resuscitation of the process of savings and capital accumulation, thus entailing, initially, an even greater curtailment of current consumption...

...If the world were ever truly and completely socialized, however, these methods would be out of the question, rational planning would be impossible, and the benefits these methods and such planning can offer people would be lost...

...The corresponding economic inefficiencies and distortions must lead to capital decumu-lation, in turn resulting in progressive impoverishment...

...Hence, the price of any object is not determined by adding up the costs" of the materials and labor that went into its production...

...That, obviously, presupposes the existence of private property throughout the society...

...Under the feudal and manorial systems those who were on top got there and stayed there by taking from the serfs...

...The 1920 average productivity was 10 to 20 percent of the 1914 total, and the production of fully manufactured goods was only 12.9 percent of that of 1913...

...But even if money were used in a socialist society it could not have this same function, for the utility of money is derived from the ability of the individual to act upon his valuations...

...People naturally buy only what for them is useful...

...All this would be abolished under socialism...

...The only requirement is that this must be voluntary...

...Socialism, he says, will bring harmony and cooperation...

...And none of the socialist experiments have attained their noble aims...

...Some of this decline was no doubt the result of the Civil War...

...Under socialism, the individual is guaranteed a certain income or portion of the net product...

...It is a well-known fact that since that time socialist governments have learned to direct production (1) through the establishment of restricted markets, and (2) by coopting the methods determined by the markets in the West and then employed in other more or less capitalistic countries...

...For it is in the area of production goods that the existence of private property, money relations, and thus economic calculation becomes utterly imperative...

...V. Capitalism and Totalitarianism...

...There are two possible ways to legislate a rise in wages: (1) at the expense of other workers, and (2) at the expense of the entrepreneurial class...

...This can be best achieved by first satisfying the needs and desires of others...

...Capitalism, it follows, is entirely devoid of force and coercion...

...On the contrary, he must supply the consumers with what they want most intensely...

...He completely overlooks the corresponding demand for it and thus amazingly can resuscitate the Iron Law of Wages, that is, that the wage rate is determined by the "survival requirements" of the work force...

...But soon, economic law intrudes upon this fantasy land...

...But this was, at best, only part of the difficulty, for the Civil War as well as the Bolshevik takeover completely upset the prevailing production relations...

...Political power, as Milstein correctly notes, is a "means of coercion in society...

...It should be obvious that since a decrease in the process of capital accumulation must entail a decline in the productivity of labor, any effort to raise the real wage rates permanently above the rate set by the free market will, in the long run, necessitate a decline in the amount of goods produced...

...The iron ore and cast iron industries fell by 1920, he notes, to only 1.9 percent and 2.4 percent of their 1914 volume of production...

...They determine what is to be produced, how it is to be produced and at what rate those employed are to be paid...

...Now, if the state is to fulfill this function, it follows that it must regulate and apportion the supply of labor...

...I strongly disagree with Milstein's analogy between capitalist economic power and feudal political power...

...Labor and capital constantly flow to areas that show profit and away from areas that exhibit loss...

...losses, correspondingly, result from failing to do so...

...Rather, the essence of capitalism is the private ownership of the means of production...

...Milstein next criticizes the market process of determining wage rates...

...The ultimate question for any discussion of socialism is: what is the nature of planning itself...

...But, some assume, wages don't have to fall for some groups when others get raises since the entrepreneurs are wealthy enough to foot the bill...

...Two-car families are commonplace, as are electric heating and lighting, hot and cold running water, radio, color T.V., electric ovens, refrigerators, etc...

...those who fail suffer losses and eventully are forced to find another position...

...Under socialism, this can be done only by the planning authority...

...Even a cursory reading reveals that Smith believes that this division could have evolved only through the ability of free men to exchange services for services, that is, to cooperate...

...that of socialism, collective ownership of the means of production...

...All societies must take into consideration the fundamental problem of value as manifested by a system of profit and loss...

...It follows from this that value and utility are subjective...

...Surely, Milstein would be compelled to grant that capitalists, like socialists, would be delighted at witnessing the end of...

...In other words would rational planning even be possible under socialism...