Economic Calculation in the Socialist Commonwealth

Many socialists have never concerned themselves with questions of economics and have never made any attempt to gain a clear understanding of the conditions under which men carry on economic activity. Others, again, have studied the economic life of the past and the present very thoroughly and have endeavoured to construct a system of the economics of 'bourgeois' society. They revelled in criticism of the economic conditions of the 'free' economy, but have regularly failed to apply the caustic sharpness they displayed there – not always with success – to the economics of the socialist society they aspired to. In the colourful portrayals of the utopians the properly economic element always gets short shrift. They proclaim that in their land of Cockaigne roast pigeons will fly into the mouths of the comrades, but unfortunately they omit to show how this miracle is to be brought about. Where they begin to be more explicit on economic matters they quickly suffer shipwreck – one may recall, for instance, Proudhon's exchange-bank fantasies – so that it is not difficult to expose their logical blunders. When Marxism solemnly forbade its faithful to occupy themselves with the problems of the economy that lies beyond the expropriation of the expropriators, it was in fact doing nothing out of the ordinary, for the 'utopians' too neglected the economic element in their portrayals and devoted their attention solely to picturing the outward circumstances and the – self-evidently most favourable – consequences of the new order of things.

No matter whether one recognizes the coming of socialism as an inescapable necessity of human development or not, and whether one expects from the socialization of the means of production the highest happiness or the deepest misery for mankind, one will nevertheless have to admit that investigations into the conditions of an economy conducted on a socialist basis are not to be regarded merely as 'a good exercise in thinking and a means of promoting political clarity and steadfastness'. At a time when we are drawing ever closer to socialism, indeed in a certain sense already stand in the very midst of it, the study of the problems of the socialist economy also gains significance for the explanation of what is going on around us. For an understanding of the economic phenomena of present-day Germany and its eastern neighbours, what the analysis of the exchange economy places in our hands no longer suffices by a long way. Here we must already draw to a quite considerable extent on elements of the socialist commonwealth. Under such circumstances, attempts to gain a clear understanding of the nature of the socialist economy require no special justification.

In the socialist community all means of production are the property of the commonwealth. The commonwealth alone can dispose of them and determine their employment in production. It goes without saying that the commonwealth will be able to exercise its powers only through a special organ, since it cannot otherwise come forward as an acting body. How this organ is formed, and how the collective will finds expression in it and through it, is of subordinate importance for us. One may think, say, of the election of the organ and, should it consist of more than a single person, of majority resolutions of the members of that body.

The owner of production goods who has produced, and has thereby become the owner of consumption goods, now has the choice of either consuming them himself or letting others consume them. No such choice is open to the commonwealth as owner of the consumption goods it has gained through production. It cannot itself enjoy; it must let human beings enjoy. Who is to enjoy, and what each is to enjoy – that is the socialist problem of distribution.

It is characteristic of socialism that the distribution of consumption goods must be independent of production and of its economic conditions. It is irreconcilable with the nature of common ownership of production goods to base even a part of distribution on the economic imputation of the yield to the individual factors of production. It would be unthinkable, say, first to let the worker receive in advance the full yield of his labour and then to 'subject' the shares of the material factors of production to a separate distribution. For it lies in the nature of the socialist mode of production, as will be shown in what follows, that in it the shares of the individual factors of production in the yield of production cannot be ascertained at all, and that it remains inaccessible to any computational check of the relation between production expenditure and production yield.

Which principle is chosen for the allocation of consumption goods to the individual comrades is fairly immaterial for the consideration of the problems that occupy us. Whether one wishes to apportion to the individual according to his needs, so that he who has greater needs receives more than he who has lesser ones; or whether one takes the worthiness of the individual into account, so that the better man receives more than the worse; or whether one sees the ideal in a distribution as equal as practicable, so that each receives as nearly as possible the same quantity; or whether one wishes to take the services rendered to the commonwealth as the measure of distribution, so that the more industrious receives more than the more indolent – in every case the position will be that each receives an allocation from the commonwealth.

Let us assume for simplicity's sake that allocation takes place according to the principle of equal treatment of all members of society; it is not difficult then to think of particular corrections in addition, grading what each receives according to age, sex, state of health, special occupational requirements and the like. The comrade receives, say, a bundle of vouchers which within a certain time are redeemed against a certain quantity of various specified goods. Thus he can then dine several times daily, find lodging at all times, pursue amusements now and then, and from time to time receive a new article of clothing. Whether the satisfaction of needs procured in this way turns out to be more or less abundant will depend on the productivity of social labour.

It is not necessary for everyone to consume the whole of his share himself. He can let some of it spoil unconsumed, give it away or, in so far as the nature of the good permits, put it aside for later need. But he can also exchange some of it. The beer drinker will gladly forgo the non-alcoholic beverages due to him if he can obtain more beer in return; the abstainer will be prepared to give up his portion of spirituous drinks if he can acquire other enjoyments in exchange. The lover of the arts will wish to forgo visits to the cinema in order to be able to hear good music more often; the philistine will want to give away the tickets entitling him to admission to the homes of good art in exchange for enjoyments for which he has more appreciation. They will all be ready to exchange. But the object of such exchange can only ever be consumption goods. The production goods in socialist society are owned exclusively by the community as a whole; they are inalienable common property and therefore res extra commercium.

Exchange can also take place in mediated form within the narrow bounds that the socialist order of society assigns to it. It is not necessary that it should always be carried on in the forms of direct exchange. The same reasons that have led elsewhere to the development of indirect exchange will make it appear advantageous, in the interest of those exchanging, in socialist society as well. It follows that socialist society too offers room for the use of a universally employed medium of exchange, money. Its role will in principle be the same in the socialist economy as in the free economy; in both it is the universally employed intermediary of exchange. Yet the significance of this role is different in the social order resting on common ownership of the means of production from what it is in the one resting on private ownership of the means of production. It is here incomparably smaller, because exchange in this society has far smaller significance, because here it embraces consumption goods alone. Since no production good is turned over in exchange, it becomes impossible to ascertain money prices of production goods. The role that money plays in the free economy in the sphere of the calculation of production it cannot retain in the socialist community. Calculation of value in terms of money here becomes impossible.

The exchange ratios that develop in the trade between the comrades cannot be left out of account by the administration of production and distribution. It must take these exchange ratios as its basis if, in allocating the per-capita shares, it wishes to make different goods mutually substitutable. If in exchange the ratio 1 cigar equals 5 cigarettes has established itself, the administration could not simply declare 1 cigar to be equal to 3 cigarettes in order to allocate, according to this ratio, only cigars to some and only cigarettes to others. If the tobacco voucher is not to be redeemed uniformly for everyone partly in cigars and partly in cigarettes; if, either because they so wish or because the redemption office cannot at the moment do otherwise, some are to receive only cigars and others only cigarettes, then the exchange ratios of the market would have to be taken into account in doing so. Otherwise all those who have received cigarettes would be placed at a disadvantage as against those who have received cigars. For he who has received a cigar can exchange it for five cigarettes, while the cigar is reckoned to him at only three cigarettes.

Changes in the exchange ratios in the trade between the comrades will accordingly have to prompt the economic administration to make corresponding changes in the rates set for the mutual substitutability of the various consumption goods.

Every such change indicates that the relation between the particular needs of the comrades and their satisfaction has shifted, that some goods are now more strongly desired than others. The economic administration will presumably endeavour to take account of this in production as well. It will strive to expand the production of the more strongly desired articles and to restrict that of the less strongly desired. But one thing it will not be able to do: it will not be allowed to leave it to the individual comrade to redeem his tobacco card as he pleases either in cigars or in cigarettes. Were it to give the comrade the right to choose whether he wishes to obtain cigars or cigarettes, it could happen that more cigars or more cigarettes are demanded than were produced, and that, on the other hand, cigarettes or cigars are left lying in the distribution centres because no one has asked for them.

If one takes the standpoint of the labour theory of value, there is indeed a simple solution to this problem. For each hour of labour performed the comrade receives a token which entitles him to receive the product of one hour of labour, less the deduction for meeting the burdens incumbent upon society as a whole, such as the maintenance of those incapable of work, expenditure on cultural purposes and the like. If the deduction for covering the expenditure to be borne by the community is put at one half of the product of labour, then every worker who has worked one hour would have the right to receive products on whose production half an hour of labour was expended. The goods and useful services that are ready for use or consumption can be taken from the market, and applied to his own consumption or use, by anyone who is in a position to pay for them twice the labour-time expended on their production. For the clarification of our problems it will be better if we assume that the community makes no deduction in advance from the worker for meeting the expenditure incumbent upon it, but instead procures the means it requires by taxing the incomes of its working members. Every hour of labour performed would thus be given the right to draw to itself goods on whose production one hour of labour had to be expended. Such an arrangement of distribution would, however, be impracticable, since labour is not a uniform and homogeneous magnitude. Between the various performances of labour there is a qualitative difference which, in view of the differences in the configuration of demand for and supply of their products, leads to different valuations. The supply of paintings cannot, caeteris paribus, be increased without the quality of the product suffering. The worker who has performed one hour of the simplest labour cannot be given the right to consume the product of one hour of more highly qualified labour. In the socialist commonwealth it is altogether impossible to establish a connection between the significance which a performance of labour has for society and its share in the yield of the social process of production. The remuneration of labour can here only be arbitrary; it cannot be built upon the economic imputation of the yield, as in the free exchange economy resting upon private ownership of the means of production, since, as we shall see, imputation is not possible in the socialist commonwealth. The economic facts set a firm limit to the power of society to fix the remuneration of the worker at its pleasure: in no case can the sum of wages in the long run exceed the income of society. Within this limit, however, society can do as it pleases. It can without more ado decree that all kinds of work are to be regarded as equal in value, so that the same remuneration is paid for every hour of labour without distinction of quality; it can just as well draw a distinction between the individual hours of labour according to the quality of the work performed. Yet in both cases it would have to reserve to itself the power to make special dispositions concerning the distribution of the products of labour. It could never decree that whoever has performed one hour of labour should also be entitled to consume the product of one hour of labour – even if one were willing to disregard the differences in the quality of labour and of its products, and moreover to assume that it were possible to ascertain how much labour is contained in each product of labour. For the individual economic goods contain, besides labour, material costs as well. A product on which more raw material was used cannot be set equal to another on which less raw material was needed.

Everyone who, acting in economic life, chooses between the satisfaction of two wants of which only one can be satisfied, makes judgements of value. The judgements of value grasp, first and immediately, only the satisfaction of the want itself; from there they go back to the goods of the first order, and then further to the goods of the higher orders. As a rule, anyone in command of his senses is readily able to value the goods of the first order. Under simple conditions he also succeeds without difficulty in forming a judgement of the significance which the goods of higher order have for him. Where, however, the situation becomes somewhat more involved and the connections are harder to see through, finer deliberations are required in order to carry out the valuation of the means of production correctly – correctly, of course, only in the sense of the valuing subject, and not in an objective, somehow universally valid sense. It may not be hard for the farmer managing his affairs in isolation to reach a decision between enlarging his cattle-keeping and extending his hunting. The paths of production to be entered upon are here still comparatively short, and the expenditure they demand and the yield they promise can easily be surveyed. But it is quite otherwise when the choice is to be made, say, between harnessing a watercourse for the generation of electric power and extending coal-mining together with the creation of installations for the better utilization of the energy contained in coal. Here the ways of roundabout production are very many, and each single one of them is so long, here the conditions for the success of the undertakings to be set in motion are so manifold, that one can on no account let the matter rest with merely vague estimates, and exact calculations are required in order to form a judgement of the economic soundness of the procedure.

One can calculate only with units. There can, however, be no unit of the subjective use-value of goods. Marginal utility does not represent a unit of value, since, as is well known, the value of two units of a given stock is not twice as great as that of one unit, but must of necessity be greater. The judgement of value does not measure: it grades, it scales². Hence even the isolated economic agent of an economy without exchange, when he has to make a decision in cases where the judgement of value does not appear immediately evident, and has to build his judgement upon a more or less exact calculation, cannot operate with subjective use-value alone; he must construct relations of substitution between the goods, by means of which he can then calculate. As a rule he will not succeed in reducing everything to one unit. Yet as soon as he succeeds at all in reducing all the elements that have to enter into the calculation to such economic goods as can be grasped by an immediately evident judgement of value, that is, to goods of the first order and to the disutility of labour, he will be able to make do with this for his calculation. That this is possible only under quite simple conditions is evident enough. For more involved and longer processes of production it would by no means suffice.

In the exchange economy the objective exchange value of goods appears as the unit of economic calculation. This brings a threefold advantage. First, it makes it possible to build the calculation upon the valuation of all the economic agents taking part in exchange. The subjective use-value of the individual, as a purely individual phenomenon, is not directly comparable with the subjective use-value of other men. It becomes so only in exchange value, which arises from the interplay of the subjective valuations of all the economic agents taking part in exchange. Secondly, calculation in terms of exchange value provides a check upon the appropriate employment of goods. Whoever wishes to calculate a complicated process of production notices at once whether he is working more economically than others or not; if, having regard to the exchange relations prevailing on the market, he cannot carry the production through profitably, this is an indication that others understand better how to turn the goods of higher order in question to account. Finally, calculation in terms of exchange value makes it possible to reduce the values to one unit. For this purpose, since the goods can be substituted for one another according to the exchange relations of the market, any good whatever may be chosen. In the money economy it is money that is chosen.

Monetary calculation has its limits. Money is not a measure of value, nor a measure of price. Value, after all, is not measured in money. Nor are prices measured in money: they consist in money. Money, as an economic good, is not 'stable in value', as people naively tend to assume when employing it as standard of deferred payments. The exchange relation subsisting between goods and money is subject to constant, though as a rule not over-violent, fluctuations, which originate not only on the side of the other economic goods but also on the side of money. This, to be sure, disturbs the calculation of value least of all, since such calculation, in view of the never-resting changes in the other economic conditions, customarily takes only short periods into view – periods in which 'good' money, at least, is as a rule subject only to minor fluctuations of the exchange relations originating on its side. The inadequacy of the monetary calculation of value stems in the main not from the fact that the calculation is conducted in a generally used medium of exchange, in money, but from the fact that it is exchange value at all that is taken as the basis of the calculation, and not subjective use-value. All those value-determining factors that stand outside exchange can therefore not enter into the calculation. Whoever calculates the profitability of developing a water power cannot enter into this calculation the beauty of the waterfall, which would have to suffer from the installation, unless he takes into account, say, the decline in tourist traffic and the like, which does have its exchange value in trade. And yet here is a circumstance which is also taken into consideration in the question whether or not the construction should be carried out. These factors are customarily described as 'extra-economic'. That may be so. There is no need to quarrel over terminologies. But the considerations which lead to their being taken into account as well must not be called irrational. The beauty of a region or of a building, the health, happiness and contentment of men, the honour of individuals or of whole peoples are, if men recognize them as significant, just as much motives of rational action as those which are economic in the proper sense of the word, even where they do not appear substitutable in exchange and therefore enter into no exchange relation. That monetary calculation cannot grasp them lies in its very nature; but this cannot diminish the significance of monetary calculation for what we do and leave undone in economic life. For all those ideal goods are goods of the first order; they can be grasped directly by our judgement of value, and it therefore presents no difficulty to take them into account, even though they must remain outside monetary calculation. That monetary calculation does not take account of them does not make it harder to heed them in life; rather, it makes it easier. If we know exactly what beauty, health, honour and pride cost us, nothing can hinder us from giving them due consideration. It may seem painful to a sensitive soul to have to weigh ideal goods against material ones. But that is not the fault of monetary calculation; it lies in the nature of things. Even where judgements of value are made directly, without calculation of value or money, the choice between material and ideal satisfaction cannot be evaded. The isolated economic agent, too, and the socialist society as well, must choose between 'ideal' and 'material' goods. Noble natures will never find it painful when they have to choose between honour and, say, food. They will know how they have to act in such cases. Even though honour cannot be eaten, one can nevertheless forgo eating for the sake of honour. Only those who wish to be spared the torment of such a choice, because they could not bring themselves to renounce material enjoyments for the sake of ideal advantages, see in the choice itself already a profanation of the true values.

Monetary calculation has meaning only in the conduct of economic affairs. Here it is employed to bring the disposal of economic goods into accordance with the rules of economy. Economic goods enter into it only in those quantities which are exchanged against money. Every extension of the field of application of monetary calculation leads to blunders. Monetary calculation fails when one seeks to use it in historical investigations into the development of economic conditions as a measure of the world of goods; it fails when one seeks by its aid to estimate national wealth and national income, when one wishes to calculate with it the value of goods which stand outside exchange transactions, as, for instance, when one strives to reckon in money the losses of human life through emigration or through wars³. These are dilettantish games, though they may at times be pursued by very discerning economists.

Yet within these limits, which it never oversteps in economic life, monetary calculation performs all that we must demand of economic calculation. It gives us a guide through the overwhelming abundance of economic possibilities. It permits us to extend the judgement of value, which attaches with immediate evidence only to goods ready for consumption and, at best, to the productive goods of the lowest orders of goods, to all goods of higher order. It makes value calculable, and thereby first gives us the foundations for all economic dealing with goods of higher order. If we did not have it, then all production by far-reaching processes, then all the longer capitalist processes of roundabout production, would be a groping in the dark.

There are two conditions which make value calculation in money possible. First, not only the goods of the first order but also the goods of higher order, in so far as they are to be embraced by it, must stand in exchange transactions. If they did not stand in exchange, the formation of exchange ratios would not come about. It is true that the considerations which the isolated householder must make when he wishes, within his own house, to exchange labour and flour for bread by way of production are no different from those which he makes when he wishes to exchange bread for clothes on the market, and one is therefore in a certain sense right in describing every economic action, including the production of the isolated householder, as exchange⁴. Yet the mind of one man alone, even were it the most brilliant, is too weak to grasp the importance of each single one of the infinitely many goods of higher order. No individual can master the infinite abundance of different possibilities of production so completely as to be capable of forming immediately evident judgements of value without auxiliary calculation. The distribution among many individuals of the power of disposal over the economic goods of the social economy, which operates with division of labour, effects a kind of intellectual division of labour, without which neither calculation of production nor economy would be possible.

The second condition is that a medium of exchange in general use, a money, is employed, one which plays its mediating role also in the exchange of production goods. Were this not the case, it would not be possible to reduce all exchange ratios to a common denominator.

Only under simple conditions can the economy manage without monetary calculation. In the narrow confines of the closed household economy, where the father of the family is able to survey the whole economic process, the significance of changes in the method of production can be estimated more or less exactly even without the support it affords the mind. The production process here unfolds with comparatively little application of capital. It takes few capitalist paths of roundabout production; what is produced is, as a rule, consumption goods or goods of higher order not too far removed from consumption goods. The division of labour is still in its very first beginnings; one and the same worker performs the work of an entire production process from its beginning to the completion of the good ready for consumption. All this is different in developed social production. It will not do to seek, in the experiences of a long-superseded age of simple production, an argument for the possibility of managing economic activity without monetary calculation.

For in the simple conditions of the closed household economy one can survey the whole path from the beginning of the production process to its completion and can always judge whether one or another procedure yields more goods ready for consumption. This is no longer possible in the incomparably intricate conditions of our economy. It will be clear without further ado, even to the socialist society, that 1000 hl of wine are better than 800 hl, and it can decide without further ado whether it prefers 1000 hl of wine to 500 hl of oil or not. To establish this, no calculation is needed; here the will of the acting economic subjects decides. But once this decision has been taken, the real task of the rational conduct of economic affairs only begins: to place the means economically at the service of the ends. That can be done only with the aid of economic calculation. The human mind cannot find its way in the bewildering abundance of intermediate products and possibilities of production if this support is lacking. It would stand perplexed before all questions of procedure and of location⁵.

It is an illusion to believe that monetary calculation in the socialist economy could be replaced by calculation in kind. Calculation in kind, in an economy without exchange, can never embrace more than the goods ready for consumption; it fails completely with all goods of higher order. As soon as the free formation of money prices for the goods of higher order is given up, rational production has been made altogether impossible. Every step that leads us away from private ownership of the means of production and from the use of money also leads us away from rational economy.

This could be overlooked, because all that we already see realized of socialism around us consists only of socialist oases in an economy with monetary exchange which, to a certain degree, is after all still free. In one sense one may agree with the socialists' claim, otherwise untenable and advanced only for agitational reasons, that the nationalization and municipalization of enterprises does not yet constitute a piece of socialism: namely, in that these enterprises are supported in their management by the surrounding economic organism of free exchange to such an extent that the essential peculiarity of socialist economy could not come to light in them at all. In state and municipal enterprises technical improvements are carried out because their effect can be observed in similar private enterprises at home and abroad, and because the private industry which produces the appliances for these improvements gives the impetus for their introduction. In these enterprises the advantages of reorganizations can be ascertained because they are surrounded on all sides by a society resting on private ownership of the means of production and on monetary exchange, so that they are able to calculate and to keep books, which socialist enterprises in a purely socialist environment could not do.

Without economic calculation, no economy. In the socialist commonwealth, since the carrying out of economic calculation is impossible, there can be no economy at all in our sense. In small matters and in incidental particulars, action may continue to be rational. But in general one could no longer speak of rational production. There would be no means of recognizing what is rational, and so production could not be consciously directed towards economy. What that means, quite apart from the consequences for the provision of men with goods, is clear. The rationality of action is driven from the field in which its proper domain lies. Will there then still be any rationality of action at all, indeed any rationality and logic in thinking at all? Historically, human rationalism has grown out of the economy. Will it be able to maintain itself at all once it has been driven out from there?

For a time, the memory of the experiences gathered in the course of millennia of free economy may indeed be capable of holding up the complete decay of the art of economy. The old kinds of procedure will be retained, not because they are rational, but because they appear hallowed by tradition. They will meanwhile have become irrational, because they no longer correspond to the new conditions. Through the general regression of economic thinking they will undergo changes which will make them uneconomical. Provision will no longer proceed anarchically, it is true. Over all actions serving the satisfaction of needs the command of a supreme authority will preside. Yet in place of the economy of the anarchic mode of production there will have stepped the senseless conduct of an apparatus devoid of reason. The wheels will turn, yet they will run idle.

Let one picture to oneself the situation of the socialist commonwealth. There are hundreds and thousands of workshops in which work is carried on. The fewest of them produce goods ready for use; in the majority, means of production and semi-finished products are made. All these establishments stand in connection with one another. Through them, one after another, every economic good passes until it is ready for consumption. In the restless bustle of this process, however, the economic administration lacks any means of finding its bearings. It cannot establish whether the workpiece is not being needlessly held up on the path it has to traverse, whether labour and material are not being wasted on its completion. What possibility would it have of learning whether this or that method of production is the more advantageous? At best it can compare the quality and quantity of the final result of production that is ready for consumption, but only in the rarest cases will it be in a position to compare the expenditure incurred in production. It knows exactly what ends its conduct of economic affairs should strive for, or believes it knows, and it should act accordingly, that is, it should attain the ends striven for with the least expenditure. To find the cheapest way, it must calculate. This calculation can naturally only be a value calculation; it is immediately clear and needs no further substantiation that it cannot be technical, that it cannot be built upon the objective use-value (utility value) of goods and services.

In the economic order resting on private ownership of the means of production, value calculation is carried out by all the independent members of society. Everyone takes part in its formation in a twofold way, once as consumer, and again as producer. As consumer he establishes the order of rank of the goods ready for use and consumption; as producer he draws the goods of higher order into that employment in which they promise to yield the highest return. In this way all goods of higher order, too, receive the rank that belongs to them according to the momentary state of the social conditions of production and of social needs. Through the interplay of these two processes of valuation, care is taken that the economic principle attains dominance everywhere, in consumption as well as in production. There develops that finely graduated system of prices which permits everyone at any moment to bring his own requirements into accord with the calculus of economy.

All this is necessarily absent in the socialist commonwealth. The economic administration may know exactly which goods it needs most urgently. But with that it has found only the one part of what is required for economic calculation. The other part, the valuation of the means of production, it must do without. The value that belongs to the totality of the means of production it can establish; this is obviously equal to the value that belongs to the totality of the needs satisfied by them. It can also calculate how great the value of a single means of production is, by reckoning the significance of the loss in the satisfaction of needs which would arise through its removal. Yet it cannot reduce this value to a uniform expression in price, as the free economy can, in which all prices can be reduced to a common expression in money.

In the socialist economy, which admittedly need not eliminate money entirely, but which does make it impossible to express the prices of the means of production (including labour) in money, money can play no part in economic calculation⁶.

Consider the construction of a new railway line. Should it be built at all, and if so, which of several conceivable routes should be built? In the free economy of exchange and money the calculation can be drawn up in money. The new line will cheapen the transport of certain consignments of goods, and one can now calculate whether this reduction in cost is great enough to exceed the expenditure which the construction and operation of the new line require. That can be calculated only in money. One cannot reach the goal here by setting the various kinds of expenditure in kind against the savings in kind. If there is no possibility of reducing to a common expression hours of labour of various qualities, iron, coal, building materials of every kind, machines and the other things which the construction and operation of railways require, then the calculation cannot be carried out. The economic selection of the route is possible only if one is able to reduce all the goods that come into consideration to money. Certainly, monetary calculation has its imperfections and its grave defects, but we have nothing better to put in its place; for the practical purposes of life, the monetary calculation of a sound monetary system is, after all, sufficient. If we renounce it, every economic calculation becomes utterly impossible.

The socialist community will, of course, know how to help itself. It will settle the matter by fiat and decide for or against the planned construction. Yet this decision will at best be made on the basis of vague estimates; it will never be built on the foundation of an exact calculation of value.

The static economy can manage without economic calculation. Here, in economic matters, the same thing is for ever repeated, and if we assume that the first establishment of the static socialist economy takes place on the basis of the final results of the free economy, then we could at best conceive of a socialist production directed in an economically rational manner. But that is possible only in thought. Quite apart from the fact that a static economy can never exist in real life, since the data are for ever changing – so that the static condition of economic activity is only a mental assumption, necessary though it is for our thinking and for the development of our knowledge of economic matters, to which no state in life corresponds – we must after all assume that the transition to socialism would, merely in consequence of the equalization of differences in income and of the shifts in consumption, and hence also in production, conditioned by it, alter all the data in such a way that any linking-up with the final state of the free economy is impossible. But then we have before us a socialist economic order which sails about on the ocean of possible and conceivable economic combinations without the compass of economic calculation.

Every economic change thus becomes in the socialist commonwealth an undertaking whose success can neither be appraised in advance nor ascertained later in retrospect. Everything here gropes in the dark. Socialism is the abolition of the rationality of the economy.

In every larger enterprise the individual works or departments are to a certain degree independent in their accounting. They charge one another for materials and labour, and it is possible at any time to draw up a special balance for each individual group and to ascertain by calculation the economic results of its activity. One is thus able to establish with what success each individual department has worked, and accordingly to reach decisions about the reorganization, curtailment, closure or extension of existing groups and the setting-up of new ones. Certain errors are, it is true, unavoidable in such calculations. They stem in part from the difficulties that arise in apportioning overhead costs. Other errors again arise from the necessity of calculating, in some respects, with data that cannot be exactly ascertained, for example when, in determining the profitability of a process, the amortization of the machines employed is calculated on the assumption of a certain duration of their serviceability. Yet all errors of this kind can be kept within certain narrow limits, so that they do not disturb the overall result of the calculation. Whatever uncertainty remains is to be set down to the account of the uncertainty of future conditions, which is necessarily present in the dynamic state of the national economy.

It now seems an obvious step to attempt, in an analogous manner, independent accounting for the individual groups of production in the socialist commonwealth as well. But this is altogether impossible. For that independent accounting of the individual branches of one and the same enterprise rests exclusively on the fact that it is precisely in market dealings that market prices are formed for all kinds of goods and labour employed, prices which can be taken as the basis of calculation. Where free market dealings are absent, there is no formation of prices; without the formation of prices there is no economic calculation.

One might perhaps think of permitting exchange between the individual groups of enterprises, so as to arrive in this way at the formation of exchange ratios (prices) and thus to create a basis for economic calculation in the socialist commonwealth as well. Within the framework of the unitary economy, which knows no private ownership of the means of production, the individual labour groups are constituted as holders of independent powers of disposal which, while they have to conduct themselves according to the instructions of the supreme economic administration, nevertheless transfer material goods and services to one another only against a payment which would have to be made in a general medium of exchange. It is roughly thus that the organization of the socialist conduct of production is probably imagined when people today speak of full socialization and the like. But once again there is no getting around the decisive point. Exchange ratios of production goods can be formed only on the basis of private ownership of the means of production. If the 'Coal Community' delivers coal to the 'Iron Community', no price can be formed unless both communities are owners of the means of production of their works. But that would be not socialization but workers' capitalism and syndicalism.

For the socialist theorist who takes his stand on the labour theory of value, the matter is, of course, quite simple. 'As soon as society takes possession of the means of production and employs them for production in direct socialization, the labour of each individual, however different its specifically useful character may be, becomes from the outset and directly social labour. The quantity of social labour contained in a product then does not first need to be ascertained by a roundabout route; daily experience shows directly how much of it is necessary on average. Society can simply calculate how many hours of labour are contained in a steam engine, in a hectolitre of wheat of the last harvest, in a hundred square metres of cloth of a certain quality. ... It is true that even then society will have to know how much labour each article of use requires for its production. It will have to arrange the plan of production according to the means of production, among which the labour forces in particular are also to be counted. The useful effects of the various articles of use, weighed against one another and against the quantities of labour necessary for their production, will in the end determine the plan. People settle everything very simply without the intervention of the much-famed "value"'⁷.

It is not our task here to bring forward once more the critical objections to the labour theory of value. They can interest us in this connection only in so far as they bear on the assessment of the applicability of labour to the value calculation of a socialist commonwealth.

At first sight labour calculation appears also to take into account the natural conditions of production, those lying outside man. In the concept of socially necessary average labour time the law of diminishing returns is already taken into account in so far as it takes effect owing to the diversity of the natural conditions of production. If the demand for a commodity rises and poorer natural conditions of production must therefore be drawn upon for exploitation, then the social labour time required on average for producing one unit rises as well. If it proves possible to discover more favourable natural conditions of production, the socially required quantity of labour falls⁸. This taking into account of the natural conditions of production, however, extends only precisely as far as it finds expression in changes in the socially necessary quantity of labour. Beyond that, labour calculation breaks down. It leaves the consumption of material factors of production entirely out of account. Let the socially necessary labour time required for producing each of the two commodities P and Q be 10 hours. Suppose that for producing one unit of P as well as one unit of Q, besides labour, the material a is also to be employed, one unit of which is produced by one hour of socially necessary labour; and indeed the production of P requires two units of a and 9 hours of labour besides, the production of Q one unit of a and 9 hours of labour besides. In labour calculation P and Q appear as equivalents; in value calculation P would have to be valued more highly than Q. The former is false; the latter alone corresponds to the essence and purpose of calculation. It is true that this surplus by which value calculation places P above Q, this material substratum, 'is present by nature without the assistance of man'⁹. Yet if it is present only in such quantity that it becomes an object of economizing, it must also enter in some form into the calculation of value.

The second defect of labour calculation is its disregard of the differing quality of labour. For Marx all human labour is economically of the same kind, because it is always 'productive expenditure of human brain, muscle, nerve, hand, etc.'. 'Complicated labour counts only as simple labour raised to a higher power, or rather multiplied, so that a smaller quantity of complicated labour is equal to a larger quantity of simple labour. That this reduction constantly takes place is shown by experience. A commodity may be the product of the most complicated labour; its value equates it to the product of simple labour and therefore itself represents only a definite quantity of simple labour'¹⁰. Böhm-Bawerk is not wrong when he calls this argumentation 'a theoretical conjuring trick of astounding naivety'¹¹. For the purpose of judging Marx's assertion we may properly leave undecided the question whether it is possible to find a uniform physiological measure of all human labour, of the physical as well as of the so-called mental kind. For it is certain that among men themselves there exist differences of abilities and skills which bring it about that the products and performances of labour are of differing quality. What must be decisive for settling the question whether labour calculation is usable as economic calculation is whether it is possible to bring different kinds of labour to a common denominator without the intermediate link of the valuation of their products by the economizing subjects. The proof which Marx seeks to furnish for this has failed. Experience does indeed show that commodities are placed in exchange ratios without regard to whether they are products of simple or of complicated labour. Yet this would be a proof that definite quantities of simple labour are directly equated with definite quantities of complicated labour only if it were settled that labour is the source of exchange value. But this is not only not settled; it is precisely what Marx, with that very argument, first sets out to prove.

That in exchange dealings a substitution ratio between simple and complicated labour has developed in the wage rate – something to which Marx does not allude in that passage – is just as little a proof of this homogeneity. This equating is, after all, a result of market dealings, not their presupposition. Labour calculation would have to fix an arbitrary ratio for the substitution of complicated labour by simple labour, and this rules out its usability for the conduct of economic affairs.

It was long believed that the labour theory of value was necessary to socialism in order to provide an ethical foundation for the demand for the socialization of the means of production. We know today that this is an error. Even though the majority of its socialist adherents have used it in this way, and even though Marx himself, although he took a fundamentally different standpoint, was unable to keep himself entirely free of this blunder, it is nevertheless clear that, on the one hand, the political demand for the introduction of the socialist mode of production neither requires support from the labour theory of value nor can receive any support from this doctrine, and that, on the other hand, those who hold a different view of the nature and origin of economic value can also be socialists in conviction. Yet in another sense than is usually meant, the labour theory of value is an inner necessity for those who advocate the socialist mode of production. Socialist production on a large scale could appear rationally practicable only if there were an objectively recognizable magnitude of value that would make economic calculation possible even in an economy without exchange and without money. As such, however, only labour could conceivably come into consideration.

Closely connected with the problem of economic calculation is that of responsibility and initiative in the communal concern. That 'the elimination of free initiative and of individual readiness to take responsibility, on which the successes of private business management rest' constitutes the worst danger for the communal organizations is now generally admitted¹².

Most socialists pass over this problem in silence. Others again believe they can settle it by pointing to the directors of joint-stock companies. These, they argue, are likewise not owners of the means of production, and yet the enterprises flourish under their direction. If society, in place of the shareholders, were to enter into ownership of the means of production, nothing would change. The directors would work no worse for society than they do for the account of the shareholders.

We must distinguish two groups of joint-stock companies and similar enterprises. In the one group – these are mostly only the smaller companies – a few persons – often the heirs of the founder of the enterprise, often also former competitors who have now joined together – are united for joint entrepreneurial activity in the legal form of the joint-stock company. The actual direction and management of the business here lies in the hands of the shareholders themselves, or at least of a part of the shareholders, who conduct the business in their own interest and in that of shareholders closely related to them – wives, minors, and so forth. As members of the executive board or of the supervisory board, as directors, at times also in a legally modest position, they themselves exercise the decisive influence on the conduct of the business. Nor is this altered by the circumstance that a part of the share capital is at times in the hands of a financial consortium or of a bank. Here the joint-stock company in fact differs from the ordinary partnership only in its legal form.

With the large joint-stock companies the matter stands differently. Here only a part of the shareholders – the large shareholders – take part in the actual direction of the enterprise. As a rule these have the same interest in the prosperity of the enterprise as any owner. Yet it may happen that they have interests other than those of the great mass of small shareholders, who, even when they own the majority of the share capital, are excluded from the direction. Serious collisions may then occur, when, for instance, the business of the enterprise is conducted in the interest of its leaders in a manner that disadvantages the shareholders. But however that may be, it is clear that the real holders of power in the companies conduct the business in their own interest, whether this coincides with that of the shareholders or not. For the solid administrator of a joint-stock company, who does not aim merely at a passing profit, it will in general be advantageous in the long run always to represent only the interest of the shareholders and to refrain from manipulations that might injure them. This holds first and foremost for the banks and financial groups, which do not wish to jeopardize the credit they enjoy with the public as issuers. It is thus not only ethical motives that are decisive when joint-stock companies flourish.

All this changes when an enterprise is nationalized. With the elimination of the material interests of private persons the driving force disappears, and if state and municipal enterprises prosper economically at all, they owe this to the taking over of arrangements from private enterprises, or to the circumstance that they are driven again and again to reforms and innovations by the entrepreneurs from whom they purchase means of production and raw materials.

That no impulse towards reforms and improvements in production proceeds from communal enterprises, that they are unable to adapt themselves to the changing conditions of demand, that they constitute, in a word, a dead limb in the organism of the national economy, is now generally recognized, since we are in a position to look back upon decades of state-socialist and municipal-socialist experiments. All attempts to breathe life into them have so far remained in vain. It was thought that this could be achieved by reforms of remuneration. The managers of these enterprises were to be given an interest in the returns, and it was supposed that they would thus be placed on an equal footing with the managers of large joint-stock companies. That is a great error. The managers of the large joint-stock companies are bound up with the interests of the enterprises they administer in quite a different way than can ever be the case in public concerns. Either they are already owners of a not inconsiderable part of the share capital, or they hope to become so in the course of time. They are further in a position to obtain gains by dealing on the stock exchange in the securities of their enterprise. They have the prospect of bequeathing their position, or at least of securing to their heirs a part of their own influence. It is not the staid general director, who in his manner of thinking and feeling somewhat resembles the public official, who is the type to whom the enterprises conducted in joint-stock form owe their successes, but rather the manager interested through his ownership of shares, and the promoter and faiseur – precisely those, that is, whom it is the aim of all nationalization measures to eliminate.

It is altogether inconsistent thinking, in the socialist sense, to resort to such expedients in order to secure the prosperity of an economic order on a socialist foundation. All socialism – including that of Karl Marx and his orthodox followers – proceeds from the view that in the socialist commonwealth no conflict between the interests of the individuals and those of the community could possibly arise. Everyone, it is held, will in his own interest endeavour to do his best, since he also shares in the returns of the whole of economic activity. The obvious objection that it matters very little to the individual whether he himself is industrious and zealous, and that it is more important for him that all others should be so, is either not taken into account by them at all, or only in an inadequate manner. They believe that the socialist commonwealth can be built upon the categorical imperative alone. How lightly they are accustomed to treat the matter is perhaps best shown by Kautsky, who advances the assertion: 'If socialism is a social necessity, then, were it to come into conflict with human nature, it would be human nature that would come off worse, and not socialism'¹³. That is the purest utopianism.

But even if we suppose that these utopian expectations of the socialists could really be fulfilled, that in the socialist commonwealth every individual will endeavour to be active with no less zeal than he is today, where he stands under the pressure of free competition, the problem still remains to be solved of how, in the socialist commonwealth, which will know no economic calculation, the success of economic activity is to be measured. If one cannot gain clarity about economic efficiency, one cannot act economically.

A popular catchphrase has it that in the communal concerns one ought to think less bureaucratically and more commercially; then they would work just as economically as the private enterprises. The leading positions, it is said, should be filled with businessmen, and the returns would grow at once. Yet the 'commercial' is by no means something external that can be transferred at will. The quality of the businessman is not a property of a person that rests on innate talent or that is acquired by studies at a commercial school, by working in a merchant house, or by having oneself been an entrepreneur for a time. The commercial thinking and working of the entrepreneur springs from his position in the economic process and is lost together with it. If a successful entrepreneur is appointed manager of a communal concern, he may bring with him certain experiences from his former position and be able to apply them in routine fashion for a while longer. Yet with his entry into communal activity he ceases to be a businessman and becomes a bureaucrat like every other employee of the public service. It is not knowledge of bookkeeping, of business organization, or of the style of commercial correspondence, nor graduation from a college of commerce, that makes the businessman, but his characteristic position in the production process, which lets the interest of the enterprise coincide with his own interests. It is therefore no solution of the problem when Otto Bauer, in his recently published work, proposes that the directors of the national central bank, to which the direction of the economic process is to be entrusted, be nominated by a board that would also include representatives of the teaching staff of the colleges of commerce¹⁴. The directors so appointed may be the wisest and best, like the philosophers of Plato; businessmen they can never be in their positions as managers of a socialist commonwealth, even if they should formerly have been businessmen.

The complaint is general that the managements of the communal enterprises lack initiative. It is believed that this could be remedied by changes in organization. This too is a grave error. In a communal concern the direction cannot be placed entirely in the hands of one man, because it must be feared that he will commit errors which will inflict heavy damage on the community. But if the decisive resolutions are made dependent upon votes in boards or upon the approval of superior authorities, then limits are thereby set to the initiative of the individual. Boards are seldom inclined to introduce bold innovations. The lack of free initiative in public concerns does not rest upon defects of organization; it is grounded in the very nature of such concerns. It will not do to entrust an official, however highly placed he may be, with the free disposal of means of production, and the less so the more strongly one interests him materially in the favourable outcome of his activity. For in practice a manager without property of his own can be held to account for losses only in a moral way. The material chance of gain would thus be matched merely by moral chances of loss. The owner, by contrast, himself bears responsibility, because he is the first to feel the damage that arises from unsuccessful ventures. Precisely therein lies the characteristic difference between the liberal and the socialist mode of production.

Since the most recent events in Russia, Hungary, Germany, and Austria have helped socialist parties to power, and have thus brought the carrying out of the socialist programme of socialization into immediate proximity, Marxist writers too have begun to occupy themselves more closely with the problems of organizing the socialist commonwealth. But even now they still cautiously evade the core questions, leaving it to the despised 'utopians' to concern themselves with them. They themselves prefer to confine themselves to what is to be done first; they always offer only programmes for the road to socialism, not for socialism itself. Only one thing can we gather from all these writings: that the great problem of economic calculation in the socialist state has in no way entered their consciousness.

To Otto Bauer the socialization of the banks appears as the final and decisive step in carrying out the socialist programme of socialization. Once all banks are socialized and merged into a single central bank, its board of administration becomes ‘the supreme economic authority, the chief administrative organ of the whole national economy. Only by the socialization of the banks does society gain the power to direct its labour according to plan, to distribute it according to plan among the individual branches of production, and to adapt it according to plan to the needs of the people’¹⁵. Of the monetary order that is to prevail in the socialist commonwealth once the socialization of the banks has been carried through, Bauer says nothing. Like other Marxists he seeks to show how simply and naturally the future socialist order of society unfolds out of the conditions of developed capitalism. ‘It suffices to transfer to the representatives of the whole people the power which today the shareholders of the banks exercise through the boards of administration they elect’¹⁶, in order to socialize the banks and thus to set the keystone in the edifice of socialism. Bauer leaves his readers entirely in the dark about the fact that the nature of the banks is completely changed by their socialization and amalgamation into a single central bank. Once all the banks have been absorbed into a single bank, their nature is wholly transformed; they are then in a position to issue fiduciary media without any restriction. The monetary system as we know it today is thereby abolished of itself¹⁷. But if, beyond this, the single central bank is socialized in a commonwealth which in every other respect is already completely socialist, then market dealings are done away with and all exchange is abolished. Then the bank ceases to be a bank; its specific functions are extinguished, for there is no longer any place for them in such a society. It may be that the name of bank is retained, that the supreme economic administration of the socialist commonwealth is called the bank directorate, and that it takes up its seat in a building formerly occupied by a bank. But it is then no longer a bank; it fulfils none of those functions which the banks fulfil in an economic order resting on private ownership of the means of production and the use of a general medium of exchange, money. It no longer grants credit, for in the socialist commonwealth there can, understandably, be no credit. Bauer himself does not say what a bank is, but he opens the chapter of his tract on the socialization of the banks with the sentences: ‘All available capital ... flows together in the banks’¹⁸. Was he not bound, as a Marxist, to put to himself the question of what the activity of the banks will be after the abolition of the capital relation?

All the other writers who concern themselves with the problems of the organization of the socialist commonwealth are guilty of a similar lack of clarity. They do not see that by the exclusion of exchange and of the formation of prices on the market the foundations of economic calculation are removed, and that something else would have to be put in their place if all economy is not to be abolished and complete chaos to ensue. People believe that the socialist institutions could develop without further ado out of those of the private capitalist economy. That is in no case true. But it becomes positively grotesque when one speaks of banks, a bank administration and the like in the socialist commonwealth.

Reference to the conditions that have developed in Great Russia and Hungary under the rule of the soviets proves nothing at all. What we see there is nothing other than the picture of the destruction of an existing order of social production, whose place is taken by the closed household economy of the peasants. All branches of production resting on the social division of labour are in complete dissolution. What is going on under the rule of Lenin and Trotsky is nothing but destruction and annihilation. Whether socialism must of necessity bring these consequences in its train, as the liberals hold, or whether this is only a consequence of the circumstance that the Soviet Republic is under attack from abroad, as the socialists assert, is a question which does not interest us here. It is only to be noted that the socialist commonwealth of soviet rule has not touched the problem of economic calculation at all, nor had any occasion to touch it. For wherever in Soviet Russia, despite all the prohibitions of the government, production for the market still goes on at all, calculation is also carried out in money, because to that extent private ownership of the means of production still subsists and goods are sold against money. Even the government cannot escape this; indeed, by itself increasing the quantity of money in circulation it confirms the necessity of retaining the monetary order at least for the period of transition.

That the essence of the problem at issue has not yet visibly come to light in the Soviet state is shown best by Lenin's expositions in his tract on ‘The Immediate Tasks of Soviet Power’. In the dictator's remarks the thought recurs again and again that the next and most urgent task of Russian communism is ‘the organization of accounting and control in the enterprises in which the capitalists have already been expropriated, and in all other economic enterprises’³⁹. Yet Lenin is far from recognizing that this is an entirely new problem, which cannot be solved with the intellectual means of ‘bourgeois’ culture. As a true Realpolitiker, he does not think beyond the tasks of the next day. Around him he still sees monetary transactions, and does not notice that, as socialization progresses, money too must lose its position as the universally employed medium of exchange in the same measure as private ownership, and with it exchange, disappears. Lenin wishes to reintroduce into the soviet enterprises the ‘bourgeois’ bookkeeping that calculates in money; that is the meaning of his remarks. That is also why he wishes to restore the ‘bourgeois experts’ to favour²⁰. For the rest, Lenin notices as little as Bauer that in the socialist commonwealth the function of the banks in its present sense is not conceivable. He wishes to carry ‘the nationalization of the banks’ still further and to proceed ‘to the transformation of the banks into the nodal points of social bookkeeping under socialism’²¹.

Altogether Lenin's notions of the economy of socialism, towards which he is striving to lead his people, are rather unclear. ‘The socialist state’, he holds, ‘can come into being only as a network of producing and consuming communes which conscientiously keep account of their production and their consumption, use labour economically, untiringly raise the productivity of labour and thereby attain the possibility of reducing the working day to seven, to six hours and to even less’²². ‘Every factory, every village appears as a producing and consuming commune which has the right and the duty to apply the general soviet legal provisions in its own way (“in its own way”, not in the sense of violating them, but in the sense of the diversity of their forms of implementation in life) and to solve in its own way the problem of reckoning production and distributing the products’²³. ‘The model communes must and will serve the backward communes as educators, teachers and stimulators.’ The successes of the model communes will be made known in all their details, so that the good example may take effect. The communes which show good ‘business results of their economy’ will be rewarded without delay ‘by a shortening of a certain portion of the working day, by an increase in earnings, by the allotment of a greater quantity of cultural and aesthetic goods and values, etc.’²⁴.

From this it can be seen that Lenin's ideal is a state of society in which the means of production are the property of the whole commonwealth, not the property of individual districts, municipalities or even of the workers of the individual enterprise. His ideal is socialist, not syndicalist. With a Marxist such as Lenin this would not need to be specially emphasized. It is striking, however, not in Lenin the theorist, but in Lenin the statesman, the leader of the syndicalist and small-peasant Russian revolution. Yet for the moment we are concerned only with the writer, and may consider his ideal in itself, without letting ourselves be disturbed by the picture of reality. Every single large-scale agricultural or industrial enterprise accordingly forms a member of the great community of labour. Those working within it possess the right of self-government; they have a far-reaching influence in the organization of production and again in the distribution of the goods assigned to them for consumption. Yet the instruments of labour are the property of society as a whole, and the product therefore also falls to society, that it may determine its distribution. How now, one must ask, will economic calculation be carried out in the socialist commonwealth organized in this way? To this Lenin gives only an entirely inadequate answer, by pointing to statistics. Statistics must be ‘carried to the masses, made popular, so that the working people would gradually learn by themselves to understand and to see how and how much one must work, how and how much one may rest, – so that the comparison of the business results of the economy of individual communes would become the object of general interest and of study’²⁵. From these meagre hints it cannot be gathered what Lenin here imagines statistics to be, whether he is thinking of calculation in money or of calculation in kind. In any case we must refer back to what was said above about the impossibility of ascertaining money prices for production goods in a socialist commonwealth, and about the difficulties standing in the way of calculation in kind²⁶. Statistics would be usable for economic calculation only if it could lead beyond calculation in kind, whose slight suitability for these purposes we have demonstrated. That is naturally not possible where no exchange ratio between goods is formed in trade.

In view of what we have been able to establish in the foregoing discussion, it must strike us that the champions of the socialist mode of production claim for it, as against the economic order resting on private ownership of the means of production, the advantage of greater rationality. Within the framework of the present work we need not deal with this opinion in so far as it is supported by the assertion that in the liberal economy the rationality of economic activity can of necessity never be complete, because certain forces are at work which hinder its realization. In this connection we can concern ourselves only with the economic-technical grounds adduced for this opinion. The representatives of this doctrine have in mind a vague concept of a technical rationality which is supposed to stand in opposition to economic rationality, of which likewise no precise notion is formed. It is commonly overlooked that ‘all technical rationality of production is identical with a low level of specific expenditure in producing’²⁷. It is overlooked that technical calculation does not suffice to ascertain the ‘degree of all-round expediency and final expediency’²⁸ of a process; that it is only ever able to grade individual processes according to their significance, but never leads us to those judgements which are required by the economic situation as a whole. Only because technology is able to orientate itself by profitability are the difficulties of deliberation overcome which arise from the complexity of the relations between the vast system of present-day production on the one hand and the needs and the capacities of enterprises and economic units on the other; only thus can that survey of the situation as a whole be gained which economically rational action requires²⁹.

It is the vague notion of a primacy of objective use-value by which these theories are governed. In truth, objective use-value can become significant for the conduct of the economy only through the influence which it exerts, by way of subjective use-value, on the formation of the exchange ratios of economic goods. A second vague notion intrudes: the personal judgement of the observer concerning the usefulness of goods, which stands opposed to the judgement of the multitude taking part in economic transactions. If someone finds that it is ‘irrational’ to spend as much on smoking, drinking and similar enjoyments as is spent on them in the national economy, then from the standpoint of his personal valuation he is undoubtedly right. But in doing so he overlooks that economy is only a search for means, and that the ranking of ultimate ends, notwithstanding all the rational considerations which influence their setting, is a matter of willing and not of knowing.

The recognition of the fact that rational economy is not possible in the socialist commonwealth can, of course, speak neither for nor against socialism. Whoever is prepared to advocate socialism on ethical grounds, even on the supposition that common ownership of the goods of production would diminish the supply of economic goods of the first order to mankind, or whoever, guided by ascetic ideals, desires socialism, will not allow himself to be influenced in his endeavour by this. Still less will it be able to deter those cultural socialists who, like Muckle, expect from socialism above all 'deliverance from the most frightful of all barbarisms: capitalist rationalism'³⁰. But whoever hopes for rational economy from socialism will be compelled to subject his views to re-examination.