Economics of Socialism


Law of Value:

  • Definition: The law of value states that value, understood as the labour time socially necessary to produce a commodity, is conserved in the exchange of commodities.
  • The law of value as put forth by Marx, governs the capitalist mode of production in a scientifically observable manner.

Labor Theory of Value:

  • What it is: The labor theory of value states that all value is derived from social labor, and is measured in socially necessary labor time (SNLT). What this means is that the value of a commodity is not static, rather it changes with the average SNLT.
  • Evidence: There is quite a lot of empirical evidence to suggest that the labor theory of value is accurate. Given in a capitalist economy money is the measure of value, from looking at the cost of commodities, it rarely deviates from its proportional social labor time. Specifically, market prices tend to only deviate an average of 9% from labor values, and labor values only deviate an average of 4.4% from prices of production. What this shows is that not only are Marx’s proposed labor values accurate to predict market prices, but they are also accurate enough to determine the prices of production. [Citation 1] [Citation 2]
  • Even Marx and Ricardo emphasized in their works that market prices and values will not always be the same, given one has to take into account supply and demand, however they almost emphasize this too much given how close a correlation there is between the two, which suggest that Marx’s labor theory of value is what governs the capitalist price system. [Citation 3]

Mises’ Calculation Problem:

  • History: In response to the socialist movement in Russia, Mises proposed his calculation problem of the socialist commonwealth. Socialist economists such as Lange responded to this critique by proving the mathematics of economic calculation were indeed possible, however Hayek, Mises, and later Lavoie all objected to the Lange-Lerner model by suggesting its use of trial-error processes just vindicate Mises’ idea that you need a market to perform calculation by proposing that his system is just a form of capitalism
    • C&C have refuted these claims by showing that Lange did not abandon socialism in his theories, and in fact in his later years, Lange showed that his system could be solved without as much use of a market system given computer technology [Citation 4]
  • Why it’s wrong: The ECP has been attacked by both the Marxian and Post-Keynesian schools for many reasons. Us Marxists tend to show how Mises’ calculation problem is not a problem given his own criteria of how it could be solved, that being with an objective theory of value, for us that would be the Labor Theory of Value. Mises argued that the LTV couldn’t be used because it ignores natural resources and consumer preferences, however as I will explain, these are invalid criticisms.

Socialist Calculation and Planning:

  • Natural resources: The critique of labor time calculation via natural resources implies this problem is solved under capitalism, which it isn’t. In fact, this problem is even more prevalent under capitalism given capitalists are driven by profit rather than societal needs. A socialist planning agency could deal with this problem by ensuring that for all industries that consume natural, non-reproducible goods, they must invest a proportional amount of resources into researching more sustainable methods of industry practice. Not to mention given in a socialist society decisions on economic issues are to be as democratic as possible, having a panel of scientists override industry efficiency standards on the basis of environmental protection is highly plausible and preferable; given in a capitalist economy profits are often put above the environment. [Citation 5]
  • Consumer preferences: The of planners preference is very widely accepted in both the economic and political communities, usually with reference to the USSR. Although I will not go into depth explaining how socialist planning benefited the people of the USSR in this information section, it is worth mentioning that it was indeed planned with much reference to the preferences of the workers. In my proposed economic system, consumer preferences are very much taken into account, building off the Lange-Lerner method of the trial and error process. What I mean by this is that because workers will be paid labor tokens in proportion to the labor they perform, this will act as a medium by which they can purchase consumer good. Given all enterprises will be publically owned, there will be no need for secrecy when said enterprises collect information of their consumers’ preferences. [Citation 6]
  • Calculation: I am not going to go into all of the mathematics behind labor time calculation, account for consumer goods, etc. because it’s probably pointless given how few people would probably understand what I’m saying, however I can explain the main concepts. How it would work, is that computers would calculate the labor value of any given commodity in the economy, and then the labor value would be compared to the market clearing price we can easily calculate with information from enterprises, and then if there is a deviation in the labor value of a commodity and the market clearing price of the same commodity, the planning committee now has an objective way to raise efficiency of production for that commodity given it can use labor time minimization as the standard to try and bring the labor value of a commodity and the market clearing price of the commodity to an equilibrium. This not only accounts for consumer preferences, but also is an excellent way to generalize efficiency across the whole economy, rather than just certain sectors; a problem the USSR had a hard time tackling. [Citation 6]
  • Enterprises: An important part for any socialist economy is ensuring that the state owned enterprises stay efficient. As argued in the previous section, efficiency can be measured objectively given labor time minimization as a standard, and from this it follows that enterprises which have are able to get labor values closest to market clearing prices (consumer demand) are producing the most efficiently. Given this, the enterprises that are more efficient will be able to help those that are less efficient, because there is no need to keep production processes secret as there is under capitalism. If an enterprise is able to maintain a decent value-to-price ratio, then the central planning committee knows the direct more work to that enterprise which increases opportunity for its workers (who control the enterprise) to earn more labor tokens by being more productive.



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