Three Economic Models: Capitalism, the Welfare State, and Socialism
Pachter, Henry M.
In the capitalist economy business decisions are made by the owners of resources; the latter may take the form of money, real estate, machinery and equipment, or of claims and rights to use...
...but if a man's need exceeds the standard house in his community, he may have to pay progressively increasing rent per additional square foot, window or door...
...A paper mill may establish a * See C. A. Landauer, European Socialism (Berkeley 1959, Vol...
...Moreover, the Welfare State creates a demand for goods and services which results not from consumer preferences and producer expectations, but from its own political purpose...
...Are those who have no vote incapable of satisfactions...
...in fact it severs the umbilical cord between capital formation and production, or in Marxian language, between past labor and current employment...
...The real issue is not an economic one but one over the nature and function of wage...
...tate, he might be harassed by D.A.s in every borough and hounded by tax inspectors in every district...
...These three improvements are of greatest importance, but they have not yet liberated the economy from the thraldom of value equations...
...strangely enough, such facilities are being paid out of the current municipal, state and federal budgets, but are not carried on the books of these bodies as "assets...
...Capitalist theory claims that all resources find their most useful employment if each owner tries to maximize his profit in a free market, where labor also finds its price.* Fortunately such a pure capitalism has never existed, or else no one would have organized a police, provided courts of justice, built bridges, laid sewers, embellished the public parks, founded hospitals or established universities...
...without suffering the kind of loss that our capitalistic economy finds in its books if that happens...
...their cost must be diverted from the profits by governmental decision...
...V An economy totally controlled by the interests of the ultimate consumers is properly called socialism...
...These purposes are determined politically: i.e., they may range from establishing a strong defense posture to a concern for the well-being of the majority...
...it cannot account for all its transactions in one set of books...
...I can see no reason why a socialist economy should deprive itself of this useful invention—provided the money is not used to form capital and to acquire the control of production facilities...
...Since both, however, are laboring under the regime of scarcity, commodities and services have prices which constitute costs for the producer...
...Indeed, every major economist who has given the matter some thought, has emphasized the need for a socialist economy to heed the equations, to follow the Rule, to amortize capital and, if it wishes to invite expansion, to pay itself interest and even ground rent...
...All I suggest is that a socialist society might use this same divorce of past investment from present enjoyment, but for a better purpose...
...Normally, wherever profit expectations have to be deferred beyond the planners' lifetime, the investment will be undertaken only for a reason of public policy, be it conservation, development, autarchy or strategy...
...Socialism, we just learned, must follow the market equations, i.e., it must invest its surplus in the same development which would look inviting to capitalists under the profit incentive...
...Capital formation may be prevented by a number of devices, such as steep income and inheritance taxes...
...also, whereas under pure capitalism the development of resources is but an accidental by-product of the profit incentive, the welfare state sets itself definite goals of developing public and private facilities, consumer satisfactions, even tastes and standards...
...It is, indeed, a fetishistic way of looking at "value" which makes us demand that capital goods must produce value in all types of economies...
...Moreover, they are ambiguous: the "social gain" which is being substituted for private profit does not become available to the consumers or even to the producers...
...It may seem that some nationalized enterprises do not show a profit because the government is their only customer and it subsidizes them...
...It does not always do so...
...It ought to command a price and attract the venture capital of an enterprising speculator who wishes to make a profit and therefore allocates resources for this purpose...
...those undesirable by-products of capitalistic cost-accounting...
...would not have its marvelous rail network, had not some speculators—miscalculated...
...Even Mises admits that under monopoly rule "private profit and social productivity are at variance," hence "however great an evil socialism might be, it would be less harmful than private monopoly...
...The point is that under state capitalism, which Lange calls socialism, the apportionment of the surplus value among welfare and other national purposes is a matter of arbitrary decision...
...on the other hand, the surplus value also will be enormous, as workers demand parks, playgrounds, nurseries and other special distributions...
...The arbitrariness of statist production goals has inspired violent protests from partisans of a free economy, and not without reason have they denounced state capitalism as "the road to serfdom...
...or, differently expressed: this "democracy" is based on unequal suffrage...
...Capitalism no longer can incorporate pre-capitalistic spaces, and the labor force does not obligingly contract as automation makes it obsolete...
...I therefore confine myself to the penultimate stage, socialism, where distributions may still be proportionate to deserts...
...The history of foreign aid shows that private capital will not take the risk of developing the infra-structure in the time interval which is consistent with the rapid population increase and the rising expectations of the laggard countries...
...According to the strict theory as taught by Mises and Hayek, all resources should be competing in the market place for the highest profit and thereby assure the optimum allotment for the greatest satisfaction of the whole, while assuring each worker only the "marginal" wage which will induce him to serve...
...Wherever it is operating today, it tends to suppress the problem rather than to solve it...
...fect of production and to greater over-all efficiency in the allocation of resources...
...In its decadent phase, bourgeois theory no longer has the ability to distinguish between the conceptions of "state" and of "politics...
...These subsidies, however, must be covered by taxes taken from the prosperous enterprises or from the consumers, and if the budget does not balance, inflation threatens to upset all equations...
...My purpose is to show what other assumptions must be made to realize each of these models as a working economic system...
...But then, having established the new facilities, we forbid ourselves their enjoyment and say, in effect: now we must tighten our belts and pay for these goodies...
...If it ever did, it no longer responds to consumer needs in distributing the resources and does not make the most effective use of all factors at the right time...
...One is the inequality of incomes and the other is the time limit within which a speculator must expect the return of his capital...
...Quite apart from the haphazard method by which the market discovers what is in demand, it does not determine the common good but—at best—the maximum profit for all enterprises...
...It takes guts or the assurance that no competitor has the same plan, to construct a bridge, a railway, a power dam at a time when demand is not yet "urgent" and money might be saved by anticipating it long in advance of urgency...
...One too often forgets that our industrial empire rose over the bodies of expropriated capitalists and failed investors...
...Because of this time factor, classical capitalism does not achieve optimum use of resources...
...It is easy to imagine, e.g., that each citizen is allotted a room of ten by ten feet...
...The equations neither prescribe nor prevent any particular use, and state capitalism therefore is neutral with respect to socialism...
...Schumpeter, however, holds that monopoly is more efficient, op...
...A distributive economy is possible only at a fairly advanced stage of development...
...There is no need to amortize it in any given time or to realize a profit on it...
...IV To explain this distinction, I have to go back to my introductory remarks...
...but its bulk must be invested in improvements of the national resources...
...Apologists of capitalism often say that a free market permits the consumers to "vote" for the goods which they desire, and that the price mechanism tells producers which goods might give greatest satisfaction to the greatest number...
...For all these transactions, money will be used as a means of circulation and for purposes of accounting...
...in a distributive economy, we don't have to wait until we find a buyer to turn the merchandise over...
...The welfare state makes a conscious effort to assume these social costs, or it may even waste more money to fight • The Rule of marginal utility says that output should be carried to the point where the cost of the last unit matches the price it fetches, or where the marginal social benefit matches the marginal social cost...
...In the capitalist economy business decisions are made by the owners of resources...
...Hence, free enterprise equals democracy, Q.E.D...
...In the Welfare State, these powers of free disposal have been curbed...
...Schumpeter said that any other notion is "irrational," Abba Lerner worked out schemata showing how the ultimate costs must equal prices, and Mises thought that he had refuted the viability of socialism by showing that under that system "calculation would be impossible...
...The basic problem is a conflict between the enterpriser's view of wage as cost, and the employee's view of wage as income...
...p. 100...
...the symbolic value of this measure far exceeds its economic significance...
...or State Capitalism, already mentioned, where this feature has been carried to the extreme: all facilities are owned by one big corporation but the production relations are still governed by the market mechanism...
...This may sound utopian, and some readers who so far may have gone along, figuring that the national dividend also is nothing but an extension of welfare state services, may accuse me of economic dilettantism...
...Wage levels may be governed by demand and supply, through collective bargaining, and there will be wage differentials according to skill...
...But Mises correctly states that profit can be obtained only by meeting "a comparatively urgent demand...
...Many people confuse socialism with state capitalism, and nationalization with socialization...
...this I am going to deny...
...But we should not be misled by its efforts to plan, regulate and control production, to redistribute income and to curb the uninhibited use of private property...
...To function properly, it polices itself...
...finally, neither the external nor the internal reserves adjust themselves to the requirements of the equilibrium...
...its measurements of efficiency are uncertain, and a number of indeterminate variables enter into its cost calculations, not to speak of the numerous political factors which determine its prices...
...But we are anticipating: any economic system that wishes to balance cost and revenue must earn its investments before it introduces new inventions, or the new production methods must produce savings in excess of the capital they make obsolete...
...Obviously, I am dealing here with "pure types," disregarding intermediate systems such as monopoly capitalism, syndicalism, corporativism, market socialism, which have in common this basic feature: that the means of production are not owned by individuals but by collective bodies which, however, deal with the property claims as though they were individuals...
...It even may make uneconomic investments which might not save labor and minimize cost, but would spare exertion and misery...
...The basic relationships of buyer and seller, employer and employee, owner and non-owner are no different from those prevailing under pure capitalism, but they are supplemented by state interference in two important areas: where classical capitalism is indifferent to the distribution of income, the welfare state at least tries to make income differentials less steep...
...Imagine a new gimmick which would force all of us to buy a new television set: private industry would ruthlessly force the expense down our throat, while government-operated stations might mercifully continue to use the old system...
...Owners may be parasites, but economically speaking they are mere faux frais, or overhead...
...Each owner is a monopolist who may decide to leave his resources idle, to consume them unproductively, or to use them for gain...
...They have insisted, at all times, that the state apparatus should be an instrument, not a taskmaster...
...On the other hand, even the unemployable now refuse to abandon a standard of living which in the most advanced countries has become synonymous with existence...
...Moreover, the population explosion and government-sponsored research cannot be captured in any system of equilibristic calculations...
...The assumption here is that "social benefit" and real social cost can be so measured...
...VI A socialist economy does not earn "wages of capital...
...The issue is not how much capital should earn to remain fair in a socialist society, but what its function can be in such an economy...
...But in practice this has never been the case...
...In the capitalistic economy, this decision is guided by the profit expectations of investors...
...1I After a glorious career of continued primitive accumulation, during which capitalism did start, spread, and develop modern industrial production all over the world, it now has reached limitations which can be overcome only by more effective methods of organization—the big trust, the monopoly, the government enterprise, state capitalism...
...As owner of real estate I might decide to set some of it aside for hunting...
...Not for long, though: in the end, state capitalism, too, must balance its budget as well as its other accounts...
...Today, Gosplan must keep two different sets of books, one of which shows the real cost of the subsidized articles...
...Oscar Lange is clearly thinking of state capitalism rather than socialism when he writes: "The equations which have to be solved in a socialist economy are exactly the same equations, and they are solved by the same persons, as in a capitalist economy...
...it is not incompatible with a distributive economy, but it also is compatible with systems of remuneration according to deserts or to social rank...
...This analogy limps...
...The point, rather, is that at a certain level of development the equations of exchange become more rigid, the number of independent variables increases, and the number of indeterminate variables decreases...
...t Anton Menger formulated as one of three basic rights "that each member of society may claim that the goods and services necessary to the maintenance of his existence shall be assigned to him, in keeping with the measure of existing means, before the less urgent needs of others are satisfied...
...They say that demand has come to be politicized...
...The Yugoslays who first practiced it, claim for market socialism two virtues: it establishes that "consumer democracy" which capitalism cannot realize, and the producers' associations tend to acquire the power of true soviets, the best form of political democracy...
...but they have decided simultaneously what part of their resources and time they wish to retain for themselves...
...It is rather wasteful...
...withheld from exploitation are far outnumbered by the inventions which originated in a monopolistic enterprise and could be exploited only by monopolistic practices...
...Particularly if the dictator communicates to the nation a "sense of urgency" for rapid development schemes, he may destroy the germs of pressure groups and of pluralistic bargaining...
...We therefore have to say a brief word on the importance of the equations, or what Abba Lerner calls "The Rule...
...The consumers must first buy their "ballots": unless they are equipped with purchasing power, their desires will not become manifest to the producers...
...Since we already have severed income from cost in section V, we now have a similar conflict between the state enterprise's view of capital as cost and the consumers' view of capital as expenditure...
...I shall explain this problem in greater detail because its analysis does not apply to capitalism alone but also to the two other models, the welfare state and socialism...
...Likewise, the business community felt that private coining privileges led to public losses, and it gave central banks the power to regulate the flow of money, the rate of interest, the value of the currency, and thereby also the direction of foreign trade, the income distribu *1 do not wish to enter here into a learned discussion of marginal utility and the subjective theory of value...
...To make my point clear: what has been said so far does not amount to the old socialist charge that monopolies suppress technological progress...
...The fully developed welfare state has at its disposal a wide range of economic instruments, classical as well as Keynesian and statist...
...It avoids the waste of the free market, and it does not permit investments to be misplaced in the stage of development or to become obsolete in the stage of saturation...
...A free market economy does so by trial and error, through wasteful competition, and at the cost of misallocated resources...
...The government may allot its profits to industrial development, to the creation of a national image, to military power, to welfare institutions and consumer satisfactions, or to a trip to the moon...
...Recreation facilities and places of learning, however, do not come out of the equations...
...but it will not effectively force the enterprise to take them into account (it cannot even control smoke and water pollution, preserve scenic views and wildlife, etc...
...that way, resources are misappropriated to suit a pressure group...
...but today Tito's works councils are far from being soviets, and the consumers can express their preferences only months or years after the central planning board has expressed its views through investment priorities...
...product of one's labor...
...it may maintain a railway stop which no longer pays, in order to save the gasoline which the commuters might have to use otherwise...
...p. 1606...
...A state capitalistic system has the means to deal with the problem of social cost...
...They seek profit with those means only which previously they have decided to allot to gainful employment...
...but big research and big industry now are in the era of imperfect competition, and the claims which continue to be made on behalf of "pure" capitalism are based on a theory which no longer fits the facts...
...the welfare state, however, supplements the market by other institutions to create or distribute income...
...It is the same fetishistic view, that man creates "values", which makes us demand that all equations must be resolved simultaneously...
...The New Society, New York...
...This presupposes a degree of productivity and wealth which probably is not available in any country now, in addition to a development of public morality that may not be achieved in the near future...
...the latter may take the form of money, real estate, machinery and equipment, or of claims and rights to use these resources or to dispose of them, or of power positions in organizations...
...cit.—Jaur@s was of the same opinion: "collectivism can be regarded as a special case of capitalism" (ibid...
...Even from the angle of the development of resources, therefore, pure capitalism does not produce the best distribution of efforts...
...State capitalism and monopoly capitalism are derivative forms...
...Their unearned income is not a personal tithe which they exact from the community but a payment for the use of capital...
...The enterprise has become too big, the time span for the return of profits too long and, on the other hand, the need for political investments too pressing for the free market to remain competitive...
...Foremost among these goals are economic security, the raising of living standards for the poor, conservation and development of resources...
...We said that technological progress now is speeding ahead much faster than old equipment can be written off, while production units are increasing in size and, in the more developed countries, demand is becoming inelastic...
...The socialists were actually the first to dissociate themselves from all theories of bureaucratic rule...
...but under conditions of abundance it may develop features of the welfare state or even of socialism...
...In both systems, income is related to the use an owner makes of his property...
...For theoretical background, I have drawn heavily on this monumental publication, the most complete and the most modern of its kind I know...
...Public projects still need to be justified in terms of national policy rather than human needs, and expenditure for defense and similar competitive purposes still exceeds the welfare expenditure...
...the regime of property prevails throughout, with the dead weight of past investments burdening the calculation of profit and the decisions on future investments, with at least a theoretical obligation to balance all budgets, and with remuneration still tightly ruled by a man's contribution to the value of the product...
...as owner of money I might decide to buy jewels or paintings rather than machinery...
...State capitalism provides necessary economic conditions which tempt the policymakers toward national greatness...
...Socialism I shall call an economic system which has divorced income from property, and even from the exertion of labor...
...These are dif ferent kinds of conspiracy, recognized as legal at different stages in the development of modern industrialism...
...indeed, what Mises counts for the refutation of socialism, its indifference to proper cost accounting, I would claim for its virtue...
...The device is not primarily intended to reduce big bank books and it does not even serve that purpose very effectively...
...If all votes were equal, the sum total of satis factions would be substantially greater and the allocation of resources would be much closer to the optimum...
...it may stop at "full employment" which may be brought about through defense expenditures or pyramid-building without any noticeable increase in the general stand and of living and without making more people equal...
...Thus, workers decided that idleness gives greater satisfaction than work, and by withdrawing labor power from the market they raised its price...
...I am also indebted to Abba P. Lerner, The Economics of Control, (New York...
...In short, it simply is not true that the free market all by itself results in the optimum allocation of resources...
...Whatever their system of equations, it must be capable of simultaneous resolution: service must be paid...
...In other words, a socialist economy may keep a second set of books where all transactions are calculated, either in hours of labor or even in prices (provided the price system has not become too much distorted) . But this set of books will have to allow for a kind of wastage unheard of in our present economy: time wasted in experimentation, machines bought not to increase efficiency but to make work easier, committee meetings and grievance procedures, special privileges granted to attract workers...
...Unfortunately, though, they gave it the name "socialism," and this has created theoretical confusion...
...Even at this stage, however, a national dividend may be distributed among all citizens in two forms: increased public services or the conversion of many essential services (such as higher education, health, theatre) from private to public operation;* secondly, the distribution of a minimum allowance sufficient to cover the expense of feeding, housing and clothing a family.t The minimum allowance * In the Soviet Union, these public consumer services now amount to 15% of wage income, and are supposed to rise to 50...
...That, anyway, is the iron Rule for all systems which aim to produce economically, i.e., which fulfill the exchange equations...
...Even at its classical freest capitalism is not an entirely "free" economy...
...Paradoxically, this also is the aim of certain types of socialist economy, i.e., the syndicalism practiced in Yugoslavia and preached by Poland's Oscar Lange and his German disciples.* In the way these systems function, they hardly differ from capitalism, except that the dividend is shared between the workers and the government, instead of being paid out to the shareholders to be taxed later...
...Both are inherent in the model and both have been freely admitted by the better representatives of liberal economics...
...Daniel M. Friedenberg has shown in DISSENT how tax advantages make it profitable for owners to tear down houses which still might be of service for years, while at the same time ratinfested slums are maintained in service because they still yield a profit...
...even though production may be nationalized, property relations still govern all economic calculations...
...These "rights" fall short of abolishing inequality and exploitation, but their realization is a condition for a classless society...
...Other examples of divorce between real capital value and use challenge the sense of outrage...
...In that case, "easier" means fewer hours of labor, less waste of other materials, cheaper transportation etc...
...For state capitalism, like private capitalism, is governed by the Rule, and its current production is weighed down by a heavy burden of past investments, some of which no longer may have physical counterparts...
...It tends to favor bureaucratic dictatorships...
...It still is serviceable on the smaller scale of consumer industries or even pioneering in some areas of invention...
...The welfare state may achieve techniques of industry-wide planning, price-fixing and over-all control of development, but though it will nationalize the coal industry in France and England, erect a TVA in the United States and build a government steel mill for India, it stops short of expropriation...
...It is generally conceded that both are incompatible with the optimum use of resources...
...Business prefers the so-called indirect (orthodox or classical) controls: regulation of the rate of interest, reserve requirements, the marketing of Treasury bills—not because they are indirect or because they are not controls but because the controllers of these controls are businessmen...
...It achieves a dynamic equilibrium at the cost of periodic depressions and, even at its best, through violent fluctuations which can be contained only through monopolistic practices, i.e., by destroying the free market...
...Economic Theory of Socialism (Minneapolis, 1938...
...substitution of social gain for private profit...
...One may also think of Sylvio Gesell money, or a tax on all means of circulation and credit accounts such that money would lose a certain percentage of its value every month...
...They include the government's power to regulate, to control, to intervene, to tax and to redistribute the product, to plan and to use its position as a buyer of 10-20% of the national product...
...but this exception proves the rule, for the mill expects to makes a profit on the real estate in any event...
...Some profit may be used to build public parks and art galleries...
...The other two are Louis Blanc's "right to work" would not be generous enough to cover luxury expenses and hence there remains an incentive to earn additional wages to keep up with the Joneses...
...Lange knows that the workers cannot get "the full proceeds of their labor," as some primitive socialists have demanded...
...The ultimate, communism, permits every citizen to draw on the public resources according to his needs...
...hundred-year cycle of timber exploitation...
...as owner of labor power I might decide to make myself a monk, thus withdrawing it from the market and raising the price of labor...
...As Marx pointed out, the human factor does not fit into the equations...
...In public debate, however, the question of controls usually is confused with the question of who should do the controlling...
...Socialists do not say that the state should organize production and command consumption...
...Even the most ardent theorists of economic liberalism— Professors Mises, Hayek, Roepke—point out that it can function only if a "strong state" enforces the laws of the free market and provides the services which free enterprise does not find profitable...
...Since labor also is a resource and a commodity, the ability to buy and to sell it comes under this definition of property...
...Is greater efficiency the answer...
...A free market will provide goods and services, allowing demand and supply to regulate those prices which are not manipulated for purposes of public policy...
...Here I only wish to insert a remark on private property...
...I shall admit that this kind of economy encounters certain difficulties...
...how each affects the allocation of resources and the general efficiency of production, and above all, the welfare of its citizens...
...Strangely enough, the Polish government has used a large part of the surplus to rebuild destroyed cities in the quaint auld style of yore, instead of improving the standard of living...
...In practice we draw on present resources to unbalance the budget, or else we could have no development...
...Or closer to home: if one has to have a dictator, one might think of better men than Robert Moses...
...Or, certain materials may indeed be scarce, and someone must calculate which of two possible substitutes might be easier to develop...
...Only a socialist system, operating under conditions of abundance, can make its investment decisions in full view of all economic, social, and human factors that might be affected...
...A man like Mattei had a stranglehold not only on the whole Italian economy but on Italian foreign policy, too, though he did not own a single drop of the oil on which he had built his power...
...What more essential service could one imagine...
...tion between various countries and, to some extent at least, the business cycle...
...It is the ideal basis for a military, or defense economy...
...In contrast to State Capitalism, which still recognizes the property of the state as a claim to income, socialism also divorces capital from production decisions...
...at least two theoretical grounds militate against the contention of the market theorists...
...It seems to me that socialists have overestimated the importance of expropriating the expropriators...
...Taxes and subsidies are hidden in the price system, which the government seems to fix arbitrarily for reasons of national policy...
...They are regulated and controlled by political organs, and in large areas of economic activity, government has substituted its purposes for those of independent agents...
...why not the decade...
...On the contrary, its proclaimed aim is to preserve the structure of property and to protect the formation of a free market...
...That makes the budget look smaller, but has resulted in such confusion of bookkeeping that the managers are now pressing for an honest price system...
...This may be important for the period of transition if expropriated owners are to be indemnified...
...If there is no such demand equipped with purchasing power, it may be created artificially, through advertising or by inducing the government to finance it...
...I only assume that humans have a natural aversion to involuntary toil and a natural ambition to excel in self-assigned tasks, but that the degree of their acquisitiveness and co-operativeness is related to the environmental conditions which encourage or stifle their develment...
...Harper, 1942...
...Though we may have created the new investment in order to work less, we now must work more to pay for it...
...There I argued that the aim of socialism is not to make production more efficient but to humanize it, and that the so-called "progress" is not the highest of all values...
...In introducing new production methods, capitalism needs to consider only their cost to the enterprise...
...Some prices may be administered to implement public policy...
...In contrast to pure, classical capitalism, which is totally produceroriented, the welfare state may plan the deliberate increase of consumer satisfactions, be it in the form of a more equal distribution of income or in the form of raised productivity or in the form of enlarged public services...
...On the other hand, a socialist or state capitalist system might find it just as necessary to delay exploitation of a new invention which makes a recent huge investment obsolete...
...In short, the bookkeepers will be aware that capitalistic enterprise could be much more efficient, and that is the reason why socialist economy must not be managed by the bookkeepers...
...Some day both claims might be validated, provided the Communist party dictatorship disappears...
...On the other hand, business expects the state to protect it against foreign competition and, far from leaving the optimum allocation of mineral resources to the competitive spirit of rapacious speculators, it asks the government to enforce conservation practices, to protect patents and finance research...
...Ultimately, the owners of resources do not make one decision but two...
...However, I deliberately refrain from speculating on possible differences of cultural attitudes or changes of human nature in the three systems...
...and B. E. Lippincott, ed...
...In the socialist economy capital goods, once created, enter into the consumption funds of the society, to be drawn upon as the need occurs...
...Though some prices and wages are determined politically, on the whole they are determined by the market, and that is true even of the public enterprises...
...it must instruct its managers to produce a profit and not to forget that they must earn interest and amortization charges on the equipment which has been placed at each one's disposal...
...They don't have to be...
...All that was required to satisfy the Rule was that the profit and loss accounts cancel each other out...
...not quite so indifferent...
...The relations between buyer and seller, employer and employee, debtor and creditor are the same under both systems...
...III State capitalism—which Rudolf Hilferding called the Cartel General— fulfills the equations by systematizing the monopolistic practices...
...Free Press of Glencoe, 1963...
...They have even conspired to do that, just as landowners have conspired to control the use of land and as bankers have conspired to maintain the value of the currency...
...It has always seemed to me that the fire brigade refutes the pure theory of free enterprise...
...It will not consider the social cost of firing people —neither the "disutility" of their enforced leisure, nor the money it costs to maintain them in social insecurity, the social losses in crime, disease and illiteracy, etc...
...together with the first kind of intervention we mentioned—the care of governmental bodies for health, welfare, security and communications—they are "countervailing powers" which mitigate the arbitrariness, brutality, uncertainty and insecurity of the capitalistic market...
...These investments are the "social gain" in Poland today...
...If not government initiative, then at least government guarantee of capital and interest is required to bring forth investments in the infrastructure— roads, canals, draining of marshes, harbors and rivers—which rarely yield profits in the foreseeable future...
...But statism is not socialism...
...In the capitalist lore, it is indeed the tribute to capital, not to its owner...
...State capitalism and socialism provide different answers to the question of how to fit the equations for the human situation...
...The built-in debt charges in most government budgets are constantly increasing, and the French are still paying for conquests which they have since lost...
...For a detailed analysis see Ben B. Seligman's truly encyclopedic and scholarly work, Main Currents in Modern Economics (New York...
...The few instances where a significant invention was temporarily • "Socialism" London 1924, p. 864 ff...
...The difference between a socialist and any other economy is in the divorce of production from capital or property claims...
...However, the welfare state must give its citizens more security than pure capitalism, and its planning usually results in higher wage rates, shorter hours, greater opportunities, or, at the very least, in the maintenance of satisfactions which otherwise might be lost...
...Macmillan, 1944,) and Joseph A. Schumpeter, Capitalism, Socialism and Democracy, (New York...
...What matters is not ownership but control...
...They do not affect the prices of goods unless someone claims that they "belong" to him and he must get his reward for letting us use them...
...one cannot distribute poverty, but only wealth...
...We are using facilities, such as roads, which our fathers built, and we are building facilities, such as airports, which our children may use...
...Das Recht auf den vollen Arbeitsertrag,, Stuttgart, 1910...
...ment of democratic institutions, and in this respect state capitalism is • For this reason I speak of only three basic types of economy...
...for the loss really has occurred when the goods first were erroneously produced...
...Whatever expropriating is to be done must come through the free play of the market, as is being done, e.g., in our farm economy despite price supports...
...instead of waiting for the free play of the market to prove the usefulness and determine the price of a fire brigade, a committee of the ruling classes on the municipal level went ahead and organized one...
...But quite apart from such empirical observations which undercut the ideal model of pure capitalism (and we have not spoken yet of the tendency toward concentration and monopoly, of the creation of artificial markets through advertising, of manipulation through government orders or policy, etc...
...The government also refuses to build all the bomber types the military-industrial complex is trying to sell it...
...An especially interesting case is the Cartel Gen era...
...Both public enterprise and free entrepreneurs or cooperatives may compete for the consumers' favor...
...planning, i.e., foresight of needs, avoidance of waste and setting of public goals...
...If this is not irrational, words have no meaning...
...It can direct investments into ventures which create new demand—Keynes's "pyramids," Tugan-Baranovsky's tower of equipment, a huge defense establishment, or a "new frontier"—and it may even balance inefficient production units against over-productive units...
...Which path it follows, however, will depend upon the develop...
...He does claim three advantages for his system of socialism: —a greater equality of incomes, conducive to a greater welfare ef * Quoted by Landauer, op...
...Under conditions of great scarcity or extreme stress for the sake of rapid development, state capitalism (national socialism) will reproduce the very worst features of early capitalism (or worse, as it did under Stalin...
...Given this condition and given the enormous possibilities of further increasing productivity, I see no reason why such a society should not make ad hoc decisions whether to use or not to use certain facilities without regard to cost, whether to promote or to retard a certain development without fear of meeting the dividends...
...Harper, 1950, p. 48...
...Nevertheless, no society has unlimited funds, and even the most liberal economist must economize somewhere...
...Only Kautsky had an inkling of the importance of "freeing prices from values," but he failed to follow up his idea, and it was an outsider, Peter F. Drucker, who laid his finger on the crucial point: The wage rate is the symbol of conflict rather than the issue itself...
...Under capitalism, the property itself constitutes a claim on income, to be realized in the market...
...but if any man were to claim as much power merely on the ground that he owns a lot of the State's real es and Ferdinand Lassalle's right to a just share of (not the full...
...But we know that in practice the balance is never achieved in any particular year—for indeed: why must the year be the unit...
...The whip of hunger has been replaced by the guillotine of control figures: all accounts must resolve themselves, all equations must be fulfilled...
...State capitalism, therefore, is striving to increase efficiency and to raise the productivity of labor even more than free capitalism...
...On the other hand, such an economy may destroy unserviceable assets or abandon created values—don't we do that to our military hardware anyway...
...All this is small discomfort, however...
...nevertheless, bonds representing the value of these assets are being held and serviced for generations...
...Yet, nothing of the kind has ever happened...
...Since the latter is also measured in prices, the two equations are identical...
...Indeed, it can survive only as long as it is controlled by organs of democracy on all levels, from the planning boards down to the works council.* * I have dealt with the philosophical and ethical aspects of socialism in "The Right to Be Lazy," DISSENT, Winter, 1956...
...Even this kind of incidental profit did not prevent the railroads from going broke, and the U.S...
...Or—a need may exist, but demand may not become effective and supply may not come forth because the projects are too big or too speculative: only big corporations, monopolists or governments have the means or the foresight to allocate resources for long-term research and development on a large scale...
...The welfare state is a capitalistic economy which largely depends on the free market but in which the countervailing powers have been politicized and are consciously employed to balance the economy, to develop the national resources or to pursue fixed goals of social policy...
...At the hub of its mechanics, it is different from socialism...
...The plans must be drawn up with an eye on citizens who might be stingy with their time...
...If rapid development is desired, colonialists, monopolies or state capitalism seem to be the only alternatives...
...its main purpose is to help in divorcing present from past production, a necessity which I shall discuss presently...
...In contrast to private capital, state capitalism must be more prudent in using the resources which already have been developed and can be more daring in developing resources still unexploited...
...That percentage might even be regulated for purposes of public policy in the same way as we now raise and lower reserve requirements or the rate of interest...
...Yet more often, it will leave human beings to fend for themselves...
...In the Soviet Union, e.g., military hardware is "sold" to the defense establishment at prices below cost...
...capital must be amortized and must bear interest...
...or, better perhaps, state capitalism and dictatorship mutually enhance each other...
...By virtue of both its means and its aims, the welfare state therefore is often dubbed "socialism on installments" or "creeping socialism...
...We already have seen that state capitalism is capable of taking losses in one industry while earning profits in another...
...While no shareholders expect a dividend, it is as though the managers were merely executing the abstract striving of capital to become remunerative...
...Hence we must turn the problem around...
...We usually distinguish two stages...
Vol. 11 • April 1964 • No. 2
