Chapter IV

CHAPTER IV CALCULATION IN SOCIALIST SOCIETIES WITH A NATURAL ECONOMY "The reader may please observe, that in the last Article for the Recovery of my Liberty, the Emperor stipulates to allow me a Quantity of Meat and Drink, sufficientfor the Support of 1728 Lilliputians. Some time after, asking a Friend at Court how they came to fix on that determinate Number, he told me, that his Mqjesty's Mathematicians, having taken the Height of my Body by the help of a Quadrant, and finding it to exceed theirs in the Proportion of Twelve to One, they concludedfrom the Similarity of their Bodies, that mine must contain at least 1728 of theirs and conseqtlent!Jwouldrequire as much Foodas was necessaryto support that Number of Lilliputians. By which, the Reader may conceivean Idea qf the Ingenuityof that People,as well as the prudent and exact Oeconomy of so great a Prince."-A Voyage to Lilliput. IN EXAMINING the need and possibility of economic calculation in the different forms of socialist communities, it is natural to start with a study of a socialist society which uses no money, i.e. one with a natural economy as it is sometimes called. The moneyless society is the great ideal of many socialists, and even as late as in February, 1932, the Finance Commissar of the Soviet Union said that the policy of his Finance Department aimed at preparing the day when money "could be relegated to the museums".l The criterion for a society with a moneyless economy is that its goods are distributed in natura without the use of money or of other means of payment which could serve as units for accounting. It is obvious that there must be certain difficulties in undertaking calcula tion in a society where neither prices nor other forms of common denominators exist. Could it be shown that economic calculation is not possible in a society with a moneyless economy owing to the difficulties it creates for calculation in the purely productive stages, this would be the end of the investigation so far as this form of society was concerned.

Nevertheless, the distribution side of the question has also to be examined, partly because the distribution of goods which have no common denominator will create the need for a different form of lSee Gerhard Dobbert's SovietEconomics,London, 1933, p. 141. 32 CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 33 control,and partly because the distribution of communal goods raises special and interesting problems in a society with a moneyless economy. 1 In this connection it should be remembered that in an economy of private ,enterprise production and distribution take place uno acto, so that distribution automatically results from the individual's contribu tion to the process of production, whether it takes the form of mental or physical labour, of special capability or knowledge, or of putting land or other forms of capital at the disposal of production. In socialist communities production and distribution will be two separate operations, nor will there necessarily be any connection between contribution and remuneration, for the central authority will decide the distribution of income. Many economists maintain that distribution is the chief problem in any socialist society;2 at any rate it is obviously so in one with a moneyless economy.

In discussing distribution we shall for the time being disregard the production side of the question; we shall, in other words, assume that at the moment of computation there already exists a certain quantity of consumer goods for distribution: necessaries and conveniences. By consumer goods is here understood both articles for current consumption which disappear the moment they are consumed, and such permanent and semi-permanent ones as houses, furniture, electrical and other mechanical and technical domestic appliances. "Goods" will be used as a· common denominator for all these categories. For the time being we shall only concern ourselves with those consumer goods which are available for immediate distribution' and not with those which have to be held back as cover for saving, depreciation and insurance quotas. (We shall return to this question in later chapters.) Services cannot be said to exist in advance; they come into being in the moment of production, but this is a phenomenon which will be disregarded here, as it does not give rise to problems of anY'interest to this discussion.

The mere assumption that the goods to be distributed already exist, does away with the aim of maximizing production. As to the lAvery thorough exposition of the relationship between a monetary and a moneyless economy will be found in Max Weber's The Theory of Social and Economic Organisation,London, 1947, p. 186ff. 2Professor Mises in his Socialism writes: "For fundamentally, Socialism is nothing but a theory of 'just' distribution; the socialist movement is nothing but an attempt to achieve this ideal. All socialist schemes start from the problem of distribution apd all come back to it. For Socialism the problem. of distribution is the economic problem" (London, 1936). In his "The Theory of Planned Economy" in the International Labour Review, September, 1937, p. 393, Robert Mosse writes: "In the planned economy It (the distribution of income) becomes an independent and even a preponderant _activity"

34 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY second aim, that of a just distribution of goods, it has already been pointed out that this is a question of ethics and one which we cannot presume to judge; yet we are forced to discuss the different forms of just distribution, not so as to form an opinion as to which is most just, but because the possibility of computation varies with the method of distribution. It may be mentioned here that this question of just distribudon with which we shall not occupy ourselves when discussing the possi bilities .of calculation in socialist communities with a monetary economy-is particularly apropos in connection with the. moneyless economy, since that is supposed to be a prerequisite for just distri bution. One of the most consistent advocates of the moneyless economy, Dr. Otto Neurath, bases his recommendation of it and his criticism of the monetary economy partly on the statement that, while a monetary economy puts the rich with their money in a position to get what they want even in times of war or want, the poor are not even able to maintain the physiological minimum of existence. N. Bucharin also put justice on the side of the moneyless economy when he wrote: "Similarly an exact registration of just distribution of these products (consumer goods) among the population is necessary.

. . . The Central Statistical Department will calculate how many boots, trousers, shirts, etc., shall be produced in the course of a year.... The finished products will be delivered ·to the store houses established fo'r them by the community, whence they will be distributed among the comrades."l The concept "just distribution" is obscure and there are conflicting interpretations of it. Some of the proposed definitions which are given below seem artificial and absurd, but are included because they are met with in the discussion of the socialist economy. The principles of, or rather the proposals for, distribution fall into two main groups: (I) those where distribution is to be made irrespective of the indi vidual's contribution to production, and (2) those where distribution is to be according to contribution. For a community with a moneyless economy there are three sub divisions of the first group: lA.-Equal (per capita) distribution.

lB.-Distribution according to the subjective value the goods apportioned have for each individual. I c.-Distribution according to needs in conformity with a scale of value determined by the State. lKommunisternesProgram,Copenhagen, 1918, p. 6z.

CALCULATION IN SOCIETIES WITH NATURAL ~CONOMY 35 The second group can be subdivided into five: 2A.-Distribution according to contribution, judged by its economic value to the industry. 2B.-Distribution according to contribution, judged by the number of hours worked. 2c.-Distribution according to contribution, judged by the indi vidual's ability and gifts. 2o.-Distribution according to contribution, judged by the individual's subjective valuation of his sacrifice. 2E.-Distribution according to "worth", judged from the point of view of the community:seconomy. lA. Equal (per capita) distribution.-By this is understood a distribu tion which gives each individual the same number (or quantity) of articles and goods of similar quality. A single distribution would present no difficulty in theory or" practice, provided that the number of members in the community was known exactly and that the goods to be distributed could be divided by that number. One can imagine these conditions being fulfilled in a primitive society where there only are the .necessities of life to be distributed, although the type of .dwelling would have to be so standardized, that each received house accommodation just as large and as -good in quality as every body else.

In a moneyless economy which had reached a level where there were also conveniences to be distributed, an "equal per capita dis tribution" would present certain .practical and theoretical difficulties. In a community of the size we have assumed, it would, practically speaking, be impossible to undertake a quantitative and qualitative equal per capita distribution of collective goods such as schools, universities, . operas, theatres, libraries, picture galleries, etc. Such would presuppose that there were· equally large and good educational and art establishments in each and every village, for the fact that admission was .free arid unrestricted would not itself be enough by reason of the geographical dispersion of the population. If one attempts to give those living away from the cultural centres compensation in the shape of other goods, one immediately comes up against the great difficulty, typical for moneyless communities, that from their very constitution there is no common denominator in the form of prices. There will, of course, be quantitative notation in the shape of common measures for number, length, weight and time, but these cannot be added. up and there is no common yardstick to 'determine how much the individual concerned shall have of this or 36 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY that good so as to be compensated. Nor is there any common yardstick for comparing the different conveniences with each other or with other goods.

It is obvious that 50 loaves, 4 pairs of boots and 5 theatre tickets are more than 30 loaves~2 pairs of boots and 3 theatre tickets, but there is no comparative scale for determining whether the former are more or less than, for example, 40 loaves, I suit, I pair of skis and 10 books. (We shall return later to the question of subjective valuation and the possibility of valuing the different goods according to the cost of their production.) For the present it will be enough to say that in societies which have attained a certain cultural level distribution in naturawill not only present difficulties in practice, but also in theory, if it is intended to give .compensation for conveniences with other goods. The assumption, not of a single distribution, but of the distribution of a stream of goods and articles to an ever-changing population, creates fresh practical difficulties, but no new theoretical ones, in so far as it can be regarded as a series of single distributions. (It is assumed here that the relationship between production of consumer goods and means of production is given. The contrary raises im portant and difficult questions, among them that of allowance for the factor of time.) One objection to per capitadistribution is that it is hardly reasonable for a child to receive the same quantity of food, drink, tobacco and conveniences as an adult. We are not concerned here with the question of how the demand for ethical justice is to be met, but the objection is important for our examination, in as far as the different proposals for meeting it alter the need and possibility of survey and computation.

To attempt to meet the objection by taking account of the sex and age of the individual, increases the need for statistical survey. On the whole, the practical difficulties become greater, the more individualistic divergencies the central authority has to consider. Were this body to take the individual's height, weight, and type of work into account for the purposes of its distribution, it would need a very complicated statistical machinery. Considering that physiologists maintain that the individual's requirements of foodstuffs, vitamins and lethicins, vary even among persons of the same sex, age, height, weight and employ ment, there might be reason for going even further. Should the central authority do this and also take into account differences in taste (the teetotaller is not interested in rations of beer or whisky, nor the illiterate in books, nor the unmusical in concert tickets), the task becomes virtually impossible, in that the taste for such goods is continually changing. If these things are to be taken into account, it means that at any rate the first principle for CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 37 distribution (distribution per capita)! has been abandoned and the second adopted.

lB. Distribution according to the subjective value the goods apportioned have for each individual.-Before this method of distribution can be practicable, there must be a quantity of goods sufficient to satisfy each individual's every subjective requirement in every detail at every time. In such a case there would be no theoretical or practical diffi culties, nor would there be any need of survey .or computation. However, this assumption would mean that all the goods were free, and on that basis there is no need whatever of theoretic economic discussion. If, on the other hand, the means of satisfying requirements are scarce--as was assumed-this method of distribution breaks down, because the central authority will have no indication of how to make the distribution (rationing), if only because. it will be impossible to compare the intensity of the different individuals' subjective requirements.

The measurement of requirements and utility is a large and relatively . new field and one for which there is, in fact, no authorized standard like yard or kilowatt. The answer to the question, "How much do you want this?" can only be: "As much as I want it". 2 The individual has the ability-and uses it every momentof valuing different needs. The individual is able to state what increase in his rate of consumption of one commodity will just offset a given decrease in that of another specified commodity. For this reason there is not only a certain possibility of measurement, but also of one individual being able to give other individuals a quantitative unit of measurement fot the relative intensity. of his different needs. Inasmuch as the individual can give a quantitative unit of measurement for the marginal satis faction of his various needs, it is possible to work out a schedule of substitutive functions.

However, the practical use of such a schedule is strictly limited lOne obvious way of solving the difficulties created by·"per capita distribution" is to give each individual coupons made out for amounts, so that each can choose the consumer goods, foodstuffs and conveniences he wishes; yet, if this is done, the assumed distribution in natura is abandoned. Another obvious possibility is to allow individuals to exchange among themselves goods they don't want for those they prefer. This,however, is tantamount to the State allowing private trading. Apart from this .being incompatible with .the hypothesis (centralized direction of trade) it can have many consequences that would be dangerous for a socialist state. Those who put the main emphasis on the justness of distribution will be able to object that those who are cleverest in this exchanging will enjoy special advantages that will prevent the distribution conforming with the ideal of justness. Finally a general process of barter will soon produce a generally accepted means of exchange, which again conflicts with the assumption of there being a moneyless economy.

2See H. Phelps-Brown's The Framework..of the PricingSystem, London, 1936.

38 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY owing to a number of special conditions which have to be taken into consideration. Whether one good is to be used as a substitute for another will in the first place depend on how large a quantity of the goods the individual concerned already possesses (he will be willing to do without more oranges in exchange for butter, if he already has many oranges and no butter, than if he has a large stock of butter). It will also depend on the extent to which the need in question has just been satisfied, on how large is the quantity of goods concerned he can expect to receive (measured in units of time), and, finally, on whether he will get them in the near or distant future. It is a question not only of substitute goods, but of complementary goods. While some goods can replace each other, others-within a community with a given set of social conventions and a certain standard of living-will create the need for new goods. Thus the function of substitution will not only depend on the marginal rate of substitution between two articles, but on their relation to other articles, since alterations in the consumption of each can affect the consumers' value-judgment of the article, if marginal satisfaction is to be considered.

Again, the substitutive function applies to commodities which are divisible into homogeneous· units and which are consumed with fair regularity. Goods which can only be used once and indivisibles like houses or pianos (and into this class come many luxury articles) are not consumed at any certain rate per unit of time· which is variable by small increments. We must also note that if one· marginal rate of substitution is, for example, .twice that of another, this does not mean that the consumer wishes the first increment to be "twice" that of the. second. To quote Phelps-Brown again: "We are concerned with the oranges not as physical units but as they are valued by the consumer, and we must beware of carrying into the realm of valuation the arithmetic which applies to objects physically considered". For example, one person may say that as far as he is concerned 5 bottles of beer a week correspond to I lb. of tobacco a week, while for someone else it may be 10 bottles.

This does not mean that beer has a greater value for the one than for the other unless one knows the value they attach to the article of comparison, in this case tobacco. One may be fond of both beer and tobacco, while the other may be a teetotaller and smoke but little. Again it must be remembered that such a schedule only gives expression to the individual's need as experienced at a given moment, and that in all probability. this will be different a few moments later, even if the relative quantities of the means of satisfying these require ments within a certain period of time· remains the same, since physical CAL'CULATION IN SOCIETIES WITH NATURAL ECONOMY 39 and psychological factors may have affected the individual's need, the intensity of his reaction to it and so his sensation of need. Finally it is important to realise that such a schedule does no more than give a picture. of the relative relationship between the needs (at a given moment) of one definite individual, and is useless for com paring the needs (and the relationship between them) of other indi viduals. Even if we feel, and almost regard it as axiomatic, that two shillings give more satisfaction to a beggar than to a millionaire, yet we do not know-and have no means of judging-whether the beggar gets more enjoyment and a greater need satisfied with a two-shilling meal, than a millionaire with a two-shilling cigar or caviar sandwich.

Professor Ragnar Frisch has probably done most work, at any rate has got further than anybody else, in measuring the marginal utility of goods and money.! His investigations are particularly interesting and break fresh ground in this sphere. What is of interest for our investigation is the question of whether these methods of measurement have any practical use as a statistical and economic foundation for the policy of distribution of the central authority in a socialist society. In an article in the Review of Economic Studies Abraham Burk 2 has questioned the practicability of Professor Frisch's method. Yet even if Burk's objection were untenable and it were possible by this or some other method to find a quantitative measure not only for the value-judgments of the individual, but a common denominator for the subjective value-judgments of all individuals, the central authority would still be unable to use this common yardstick as a guide, since it cannot be denied that, in the world of reality and in the dynamic society we have assumed, the individual's valuations are subject to constant variation. 3 I c. Distribution according to needs in conformity with a scale of value determinedby the State.-The difficulties in the way of effecting a just distribution along the lines of the first two principles, together with lSee, inter alia, New Methods of Measuring Marginal Utzlity, Tuebingen, 1932, dedicated to Irving Fischer, whom Frisch calls: "the pioneer of utility measure ments".

2"Real Income, Expenditure Proportionality and Frisch's New Methods of Measuring Marginal Utility", in the Review of EconomicStudies, October, 1936.3Joan Robinson has well expressed some of the difficulties met with in investi gating utility measurements: "A technique of GedankenExperimente may be used to eke out the meagre equipment of behaviourist psychology. A series of questions may be put by the analytical economist to himself: How many bananas would I buy in a week if the price were a halfpenny? How many would I buy if my income were £500 a year? How many would I buy, if oranges were seven for sixpence? How many would I buy, if I saw a poster saying 'Eat More Fruit' as I went to my office by tube? How. many would I buy, if it were a hot summer? How many would I buy, if my next-door neighbour owned a Persian cat? These questions enable the economist to give a rough, imperfect, and admittedly treacherous account of his marginal utility curve for bananas."-Economics of Imperfect Competition, London, 1933, p. 21 3.

40 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY the necessity of rationing, naturally raise the question of whether distribution can be made in accordance with a scale of needs laid down by the State. It may be said that such a scale of needs cannot, strictly speaking, be employed in the present case where there is a given quantity of goods to be distributed. The existing goods have to be distributed, irrespective of whether or not their composition and relative quantities correspond with the scale. The importance of such a scale is in determining production and so, future distribution. (We shall come back to this question 6f production in the moneyless economy.) A scale of needs will, of course, not be fixed arbitrarily, but be constructed under reference to the supposed needs of the members of the society. It would presumably be worked out by experts on nutritive physiology as far as the first items were concerned; yet a number of goods, chiefly conveniences, will have to be scaled by the central authority according to value-judgments or on the basis of investigations and consumers' ballots. This brings us back to the same problems as were discussed in lB. (It may be noted that it will be difficult to get just distribution even if the most exact measurements are made, if only because there will always be individuals whose taste and needs differ from the average. It is even conceivable that the official scale will not correspond with that of a single individual.) It will be the task of the central authority not only to grade require ments, but, what is even more difficult, to determine the relative intensity of the different needs, so as to enable it to decide what proportion of the united means of production shall be used to satisfy each individual requirement. That, however, is not the whole of its task. Even if production is made (or there already has been produced a quantity sufficient to conform with the scale of requirements) there still remains the question of how much of each good each individual is to receive. The following might conceivably be a solution of this question: Production is solely adjusted with the purpose of completely satisfying the needs of all the members of the community for those goods, which are placed at the top of the scale of the community's needs, while production is discontinued of those goods, where there is no certainty of satisfying requirements fully. In this event, the distribution of the goods at the top of the scale will afford no theoretical difficulties (though practical ones). If, however, the scale includes requirements which cannot be completely satisfied, we are faced with the same problems and 0 bjections as were outlined in I A.

The solution indicated implies a way of satisfying requirements, which is in sharp contrast to that normally employed. Generally man does not completely satisfy one need, before attempting to satisfy another. As a general rule when the greatest need is so far satisfied as CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 41 to be felt less than those which come next, the individual starts satisfy ing these. That the relative intensity of needs is taken into account, is such common experience that it has even been made a ""law" (Gossen's law). Actually H. H. Gossen formulated three laws, of which the following is the most importa.nt and the one which interests us: "'A person who has a free choice between several pleasures, but not sufficient time to ;enjoy them completely, must, however different the absolute magnitude of the individual pleasures, in order to. attain the maximum pleasure, enjoy them all in part before he even completely enjoys the greatest, and in such a way that the magnitudeof each pleasureat the momentin which its enjoyment is broken off, is the same."l A more modern exposition of this law is tha.t the individual procures sufficient of two goods "'to make the marginal utility equal". Professor Ragnar Frisch has pointed out that the law can hardly be accepted in that form as the concept of marginal utility is not so defined as to be comparable for different goods. It is defined as the increase in the total utility in respect of a certain special good; that is to say, an increase of total utility obtained by a slight increase in quantity of the good concerned, measured in units of that good. Thus the degree of increase depends on the arbitrary choice of the unit of measurement.

(The marginal utility of sugar is naturallyrneasured in pounds and that of a visit to the cinema in the number of visits paid, etc.) So, in order to make Gossen's law precise, Professor Frisch brings in prices for the two goods and then measures the marginal utility of a good, not per technical unit per good, but in units of the quantity of the good concerned which can be bought for a certain monetary unit. Thus Professor Frisch's formulation of the law is that "marginal utility shall be proportional with the prices", but this formulation will be inapplicable in the society which we are discussing, as there will be neither prices nor money. Distribution according·to contribution.-There are several reasons for the prominence given to this solution, one being the difficulties created by distribution without reference. to contribution and the widespread opinion (even among socialists) that such distribution does not conform with the stipulation that the distribution should be just.

Many are also inclined to fear that the members of the community would not do their best, were they all to receive the sante quantity lOp. cit., p. 12 (italics in text). D 42 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY of goods irrespective of how much or how little they worked. This possibility we shall not take into account, as, for the time being, we are assuming that the egoistic-individualistic character does not exist in the socialist society. 2A. Distributionaccordingto contributionjudgedby its economicvalue to the industry.- The moment we touch on the production side of the problem we come up against a question which has so far not been discussed, that of what proportion of the result is to be ascribed to man's work and what to other factors of production. Even if all the means of production are State-owned, such an allocation will-as will be shown later-be necessary if the economic principle is to be followed.

Then there is the further question of whether in calculating this, account shall be taken of the fact that work varies in quality. For the time being, however, let us disregard everything which has to do with the production side of the question and concentrate on the special problems raised by distribution in a moneyless economy. Therefore, we still assume (a) that there exists a given quantity of goods to be distributed, (b) that the individual's contribution to the result can be and has been calculated (whether or not this is possible will be discussed together with the question of production), and (c) that the individual's share is given in the form of a fraction of the accumulated quantity of goods produced during a certain period. Even accepting these assumptions, it appears that this method of distribution will put difficulties in the way of computation in a society with a moneyless economy. Let us suppose that the individual's share is one millionth. It is obvious that each individual cannot demand in natura a millionth part of everything produced, as this will include means of production such as factories, machinery, means of transport, administrative buildings, health and cultural institutions, of which the individual cannot be given any fraction whatever. Against claiming a share of the means of production it may, however, be maintained that the individual cannot reasonably make such a claim as the means of production will later benefit him or his descendants in the shape of a larger quantity of consumer goods. There are several objections to such a point of view. In the first place, not everybody has descendants and many will be more interested in the necessaries in their own hand, than in those in the bush of the future, which they do not know that they will ever live to see. In the second place, opinions may differ as to what proportion of the production shall be reserved for producing capital goods. This depends on the size of the community's saving-, depreciation-and insurance-quotas, which also raises the question of whether the amount of the community's savings is to be fixed arbitrarily by the central authority or whether it shall be determined by the individuals' subjective willingness to CALCULATION IN SOCIETIES· WITH NATURAL ECONOMY 43 forgo current consumption for the benefit of the future, and whether, in such an event, this willingness (or unwillingness) can be measured.

(See Chapter VII.) In the third place, these. quotas can be covered not only by developing the machinery of production, but also by accumulating stocks of consumer goods. If not all the goods produced in the period in question were distributed among the members of the community, some would certainly object that the principle of dis tribution according to performance had been broken. Disregarding objections of this kind and still assuming that the distribution will be made from the necessaries and conveniences remaining after the necessary deductions have been made, we meet the same difficulties as with the method of distribution IA: If the goods exist in such a number or form as to be divisible by what is calculated to be the individual's share in production (in this case one millionth), then distribution will create no difficulties in theory. The difficulties will occur in the distribution of the conveniences, and this will break down over the fact that in a society with a moneylesseconomy there is no common unit for computation. This is a decisive argument against a moneyless economy in a society, wHich has reached' a certain cultural level. The argument applies to all methods in this second group.

2B. Distribution according to contributionjudged by the number of hours worked.- This method will make it easier to compute each individual's share and will present no difficulties in theory, provided that the number of hours each individual works is known exactly. Yet, once the share is fixed, there will be just the same difficulties and possibilities, as for the method 2A. (The. possibility that distribution based ex clusively on the number of hours worked, without taking into account the amount of work done, may result in a less intensive performance, is here disregarded, as we have assumed the absence of egoism.) 2C. Distributionaccordingto contributionjudgedby the individual'sability andgifts.-In this rather artificial form of distribution computation of the individual's share will involve certain difficulties. If the share is not to be determined quite arbitrarily, exact measurements of in-: telligence will have to be made, as well as physical and psycho-technical tests. If it is held that man's abilities are not entirely hereditary, but can be developed or impaired, then these tests will have to be repeated at short intervals, which. will create practical difficulties. There is the additional difficulty that no apparatus exists for exactly measuring certain valuable qualities such as character, charm and leadership (which includes the ability to assume responsibility and to take decisions). Finally, there is the further obstacle that both abilities which can be measured, and those which cannot, are difficult, if not impossible, to reduce to a common denominator on which the distribution can be based.

44 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY Assuming that one has found the sum of the abilities of each person engaged in production and had decided on a common denominator so that they could be proportioned to the total ability-sum of all those engaged in production during the period in question, it will be easy to work out the individual's share. Then will come the same possi bilities and· difficulties for distribution as those mentioned in 2A. (Whether the central authority should reward according to ability, irrespective of whether the abilities in question are utilized or not, is a problem to which we shall do no more than draw attention.) 2D. Distribution according to contribution judged by the individtJal's suijective interpretation of his sacrijice.-This form of distribution must also be called artificial. It gives rise to difficulties both in theory and in practice. Even assuming that it does not imply certain temptations for the lazy, it will at any rate bring many requests for increased wages and-according to our assumption-for cuts, too, as each individual's subjective interpretation of his labour sacrifice varies with his psychic and physical condition, which, with most people and presumably with everybody, is continually changing. 1 The chief difficulty in computing the individual's share will be that there is no common gauge for measuring the different individuals' subjective sense of sacrifice, and even if their share in the total sacrifice of all those engaged in production could be measured, there would still be the same difficulties in the way of distribution as in 2A.

2E. Distribution accordingto "worth".-Practically the only difference between this form of distribution and that according to "contribution" . is that here the performance is not measured by its utility to an individual undertaking, but to the economy of the community as a whole. Whether the worth of the various individuals and sodal or professional groups is to be determined by periodical plebiscites (in which case popular sportsmen and film stars would presumably be voted "the most valuable") or by the central authority, there is a great danger of arbitrariness. The decisions will in any case vary from period to period according to the ideas prevailing at the time. Once the "worth" of the various individuals and social groups has been fixed, there will be the same possibilities and difficulties for distribution as in 2A. Before discussing the question of production it may be pertinent lAdam Smith has a different opinion of the question: "Equal quantities of labour and at all times and places may be said to be of equal value to the labourer. In his ordinary st~te of health, strength and spirit; in the ordinary degree of his skill and dexterity he must always lay down the same portion of his ease, his liberty and his happiness. The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it".-Wealth of Nations, 4th Edn., P·4 8.

CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 45 to mention that it is the difficulties which arise in connection with calculationfor production which have occasioned the discussion of the possibility of economic calculation in the socialist community. The same difficulties apply for the society with a moneyless economy as for the other forms of society, so there is nothing to prevent their being discussed here. There is, however, one difficulty peculiar to the society with a natural economy, which ought to be discussed here. This is the same as that occurring in certain methods of distribution, namely, that in a society with a moneyless economy there is no common denominator for the 'various wares, goods and services. It is assumed that prices do not exist. There is no common standard by which to weigh the aggregate sacrifi'ceagainst the aggregate output, which has been established as necessary. From this can be concluded that economiccalculationcannotbe undertakenin a socialistsocietywith a moneyless economy. Any further investigation of the problem raised by calculation for production in moneyless economies is, therefore, unnecessary.

The point of view that economic calculation is impossible in the socialist society with a moneyless economy is not shared by everyone. Bucharin's idea (see p. 34) was taken up by A. D. Tschayanoff 1 among others. Tschayanoff realizes that even in a society with a moneyless economy one must be able to make an economic comparison of the various means of production used." Tschayanoff is an agri culturalist and points out that it is possible. to measure the variations in a cow's milk-yield by variations in its fodder. Yet even in this particular case the task is not so easy, for the quantity of milk yielded is not merely a question of fodder, and once you accept the existence of other factors, you are immediately faced with the problem of how to know whether to increase the one or the other, and what to use as a means of comparison. In Tschayanoff's opinion his system is not only practicable,. but can also be used for more complicated comparisons. He takes as an example an investigation of the economic importance of growing corn, fodder, vegetables, and pasture. The only way of doing this, says Tschayanoff, is to compare the results obtained with the "socially necessary marginal norms of productivity", •and this he proposes to do in the same way as with "extremity computations in agriculture".

In this a theoretical ideal beast is given certain points for each part of its body, the sum of which serves as a standard by which real animals are compared .. Tschayanoff proposes to give the various bran~hes of industry "socially useful marginal norms of productivity" which the IByttemark,eds og Valghandlingsteori, a resume of Professor Frisch's lectures, Part II, 2nd Edn., Oslo, 1935.

Cultivation of meadow land 1'24 X 4 " fodder 1"02 X " vegetables 0°90 X Cattle breeding 1 °48 X 2 46 ECONOMIC CALCULATION IN 'THE SOCIALIST SOCIETY central management will determine ° The following example is for computing meadow-culture: To obtain 1,000 units ofgrain Marginal Norm of Actually Proportion what can be used used Labour 45 °o 3°°o 1 °5 Stock 120°0 9°°O 1°3 Land II °o 8 °5 1°3 Freight and transport" 0°6 0°6 1°O Buildings ° 15°O 25 °O 006} 303 Stores 0°5 0°4 1°2 Materials" 1°5 1°O 1'5 3 Fuel 0°°3 0°°3 1°O Thus the general communal coefficient of effectivity for the cultiva tion of corn is: 1"5 +I . 3+I . 3+I °O +I °1 5 If, in the same way, one computes the economic importance of cultivating fodder and vegetables, which the central management in its plan of organization considers one quarter as important as the cultivation of corn, and of cattle-breeding, which it considers half as important, one arrives-according to Tschayanoff-at the following computation for agriculture as a whole: Coefficient of Coefficient of effectivity importance in its branch Total 4°9 6 1°02 0°9° 2 °96 9°84: 8 = 1°23 Thus, if the marginal norm for every branch of industry is I, the coefficient of effectivity for agriculture is I' 2 3° "This system", writes Tschayanoff, "solves the same problems as the old method of calcula tion did in the capitalist society""

It has been objected that this system can, at best, only be used for calculation within a single branch of industryo Thus different electricity plants, for instance, can compare their production of energy in calories, but not that of different kinds of energy. Dr. Clare Tisch objects that CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 47 this is conceding too much. She points to Tschayanoff's own com putation according to which the marginal norm for labour is 45 while only 30 is used, and that for land is I I, of which only 8·5 is used. From this one might well suppose that there was in the community concerned a relative lack of fertile land, while labour was in com parison a relatively worthless factor. If such is the case, it is, in the opinion of Dr. Tisch, completely inadmissible to compare the two proportionals, and with this contention it is difficult to disagree. Mere determination of the marginal norm for the individual factors of production does not solve the question of which of them shall be used and whether, for example, intensive or extensive cultivation is to be preferred. It is obvious that a system which cannot solve this problem can still less serve as a guide for the utilization of means of production in different branches of industry. Tschayanoff is, however, fully aware of this and considers that the question of comparing the profitability of the different ways of employing means of production does not arise in a society with a moneylesseconomy, "for the products of these different branches are here not inter changeable, nor can they take each other's place, and can thus have no common standard for comparison". 1 Tschayanoff cannot be criticized for not finding a common de nominator when he does not consider one necessary, but it can be objected that his system neither does what. he promises for it, nor takes the plaGe of economic calculation in the capitalist society. The way in which the marginal norms and coeffici~nts of efficiency are determined is also open to criticism, for it must from the start to a certain extent be arbitrary and will become more and more indefinite with the continual alterations in the size and tastes of the population and in the methods of production, and with the discovery of more efficient means of production, such as new fertilizers (to keep to agriculture). Tschayanoff's proposal that the central authority should determine the marginal norms and coefficients of importance also raises the question of to what extent technical considerations shall be taken into account in production and how far the worth of the finished products.' And in the latter case are the valuations to be based on the choice of the consumers or on official.scales of requirements? (This is a problem which has already· been referred to and which will be discussed later.) Professor· Boris Brutzkus summarily dismisses Tschayanoff's proposal for moneyless calculation and thinks that marginal norms have no real value unless they are worked out "on the basis of a lSee his article in Arcbiv fur Sozialwissenscbaftund Sozialpolitik" Vol. 51, 19231 P·5 81 48 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY common principle of value. . . . the author, however, did not succeed in doing this". 1 In his opinion the director of agriculture will not be able to do anything with schemes for computation like Tschayanoff's.

Tschayanoff's plan has even been attacked by Marxist theorists. In EkonomitscheskajaShishni,2 S. Strumilin 3 and E. Varga 4 repudiated Tschayanoff's methods and came to the conclusion that the socialist society must have a yardstick for value, in the same way as the capitalist society has one in money. True to their Marxist principles, Varga and Strumilin proposed that this should be labour, a solution which will be discussed in the next chapter. One of the most persistent champions of the moneyless economy is Dr. O. Neurath. 5 As has been mentioned, his· attitude is largely actuated by the desire for just distribution. Originally he was chiefly interested in distribution in time of war and his books are stamped by the World War and the period of inflation in Germany. It was originally war-economy which interested Neurath most, but he also maintains that even in peace with the help of money the rich can satisfy all his requirements, while the poor man lives in need. He further objects to the monetary system on the grounds that there is no certainty as to what quantity of goods a certain sum of money will correspond. A sum of money is a figure without any real meaning and thus, in his opinion, one ought to have a moneyless economy with "maximum satisfaction of requirements".

All the same, Dr. Neurath realizes that a society with a moneyless economy. precludes the possibility of calculation and computation, and to this extent there is, strictly speaking, no necessity to occupy ourselves with his proposal here; however, his reasons for renouncing a monetary economy are of interest, if only because one often comes up against them. Dr. Neurath maintains that accurate calculation is not possible in the capitalist society either, and cites as examples the building of schools and hospitals and the maintenance of justice. It is true enough that in the case of such communal goods it is difficult or impossible to weigh the satisfaction against the input, yet the capitalist society has at least one of the links for comparison, namely, the costs. lEconomic Planning in Soviet Russia, p. 14. 2See Brutzkus, op. cit., p. 15. 3See Strumilin in Ek,onomitschesk,ajaShishni, Nrs. 237, 284 and 290 of 23.10.192°, 17.12.1920 and 24.12.1920 respectively. (Also Dr. O. Leichter, op. cit., p. 91.) 4Translated in the German Kommunismus, Year II, Nr. 9-10, 192.I.

5See Durch die Kriegswirtschaft zur Naturalwirtschaft, Munich, 1919. Voll sozialisierung, Part 15 of the series Deutsche Gemeinwirtschaft, lena, 192.0; Gilden sozialismus, Klassenk,ampf, Vollsozialisierung, Dresden, 192.2.; Wirtschaftsplan und Naturalrechnung, Berlin, 1925, and in particular, "Geld und Sozialismus" in Kampf, XVI, Nt. 4-5.

CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 49 As Dr. Clare Tisch points out, the fact that in the capitalist society there are sectors which suffer from the drawback that ideal economic balances cannot be found, is no reason to increase their number. As far as Dr. Neurath's other contentions are concerned, it must be admitted that he is right in saying that a sum of money does not represent any definite quantity of goods, if comparison is made at two different points of time. Yet in the capitalist. society a sum of money does at one given moment represent an important unit of measurement, and as will be seen later this is not always the case in the socialist community. To determine Neurath's "maximum satisfaction of requirements" will also create difficulties, for one person attaches most importance to clothes, another to food and drink, a third to cultural goods, and a fourth to utilities which the central authority - cannot provide at all, with the result that it is impossible to calculate the sum of the various individuals' requirements which have to be satisfied. (The sum of the means for satisfying the requirements can be calculated; but only provided that there is a common unit for calculation, which is not the case in. a society with a moneyless economy.) Even if a schedule has been accepted and it has been decided that, for instance, 500 Htres of wine are preferable to 1,000 Hues of beer (Mises' example), without the possibility of calculation there is nothing to guide one in determining how these goods are to be produced with the least possible expenditure. With reference to Dr. Neurath's contention that a monetary economy creates an unjust distribution, Dr. Clare Tisch retorts that this is not due to· the monetary economy as such, but that it is the unequal distribution of income which occasions the injustice which Dr. Neurath wishes to eliminate-and such an inequality can occur even in a society that does not have a monetary economy. On the other hand, it can be said in support of Dr. Neurath's point of view that money may serve as a store oEvalue, which means that it is easier to amass a fortune in a society with a monetary, than in one with a moneyless economy.

Dr. Eduard Heimann is of the opinion that Dr. Neurath's arguments in favour of a moneyless economy are false and, further, that: 1 "A moneyless distribution directed by a central .authority can, even in the case where it succeeded in getting perfect statistics of requirements, only take into consideration alterations in taste in the subsequent construction of statistics, while the price system records every slightest alteration in valuation with the accuracy of a seismograph and thus directly causes the processes of pro duction to adapt themselves to the new situation." IMebrwertund Gemeinwirtscbaft,p. 169.

50 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY Max Weber has also sharply criticized Neurath's ideas.! Weber has many objections to moneyless computation and much to say in favour of a monetary economy. Amongst other things he writes that: "From the purely technical point of view, money is the most 'efficient' means of economic accounting. That is, it is formally the most rational means of orienting economic activity."2 Karl Kautsky also realizes the necessity for a monetary economy, and he, too, attacks Neurath's ideas:3 "Without money only two kinds of economy are possible. First, the primitive one already mentioned, and, translated into terms of modern conditions, this would mean that the whole of productive activity in the state was turned into a single factory under a central management, which would allot to each individual concern what it had to produce, receive all the products of the entire population and assign in natura to each business means of production and to each individual consumer his means of con.sumption." 4 "The ideal of such a state of affairs is the convict prison or the barracks, the inmates of which have, to all intents and purposes everything they need assigned to them ·in natura."

He further says: "It took thousands of years to create the capitalist method of production. As a standard of value and means of circulation for what is produced, it will have to persist even in a socialist society, at any rate until it enters the happy second phase of communism, and of this to-day we do not know whether it will ever be more than a pious wish, like the millennium. . . . "Whatever the organization of the socialist society, it will have to keep careful accounts, as will each of its undertakings, so that one can at any time see how much has been received and how much expended, what profit has been made or how much lost. This, however, it is quite impossible to do, if receipts and expenditure are only entered in natura.5 "If a manufacturer of machinery delivers a thrashing machine and for it is allotted, let us say, 40 pigs, 5 tons of flour, I ton of butter and 2,000 eggs, how can he know whether he has gained or lost on the transaction, whether he has delivered more work ITheory of SocialandEconomicOrganisation.

20p. cit., p. 171. 3Die proletarischeRevolutionund ihr Programm, 2nd Edn., 1922, p. 309. 40p. cit., p. 314. 5Ibid., p. 317.

CALCULATION IN SOCIETIES WITH NATURAL ECONOMY 5I to the farmer than he has received, or vice versa? It is obvious that bookkeeping in naturawould soon lead to inextricable chaos." ,The Marxist economist, Dr. Otto Leichter, also disassociates himself from Neurath's solution and reproaches him, amongst other things, for "the absolutely silly idea that moneyless economy is already everywhere dominant in capitalism, where money does not happen to enter into the question."! and he goes on to say: "Does Neurath not know that calculation is really only possible in economic life and that it was there that the concept of rationality first originated? In. music one reckons in units of beat, will Neurath, perhaps, call that natural computation? Thus, from whatever angle we look at Neurath's programme, we· see that the moneyless economy must lead to complete economic chaos and that it makes it impossible to gain a picture of what is going on in the economy where it is used." 2 (Dr. Leichter's own solution will be discussed in the next chapter.) Of the other economists who have defended the possibility of economic calculation in a socialist society with a moneyless economy, one may mention Dr. Carl Landauer. 3 Dr. Landauer's book is an important and restrained attack on the capitalist society, though his positive proposal is not on the same level as the rest of his book. He proposes that his society shall keep a check by means of· accounts in natura.

Professor Mises gives short shrift to this proposal and to the idea of accounting in natura: "Landauer cannot understand that-and why-one is not permitted to add and subtract figures of different denominations. Such a case is, of course, beyond help."4 lOp. cit., p. 95. 2Ibid·,p·9 6. 3Planwirtschaftund Verkehrwirtschaft,Munich and Leipzig, 1931. 4Socialism,footnote on p. 137.