This section starts with an item from the January 1945 issue of The Western Socialist, an old journal of the WSPUS. It is a shortened version of an article by the Trotskyite Raya Dunayevskaya that appeared in the September 1944 issue of The American Economic Review. That article was a response to an article published in 1943 by the Soviet theoretical journal Pod znamenem marksizma (Under the Banner of Marxism) and entitled “Some Questions in the Teaching of Political Economy” — an article that established a new official line in the application of Marx’s political economy to Soviet society.
The question under debate was: does the law of value operate in the Soviet Union? The law of value is Marx’s theory of how market forces shape the behavior of capitalist firms as they compete to produce and sell commodities at a profit. The new official view was that the law of value did after all operate in the Soviet Union but that this was consistent with the socialist nature of the economy. Dunayevskaya agreed that the law of value operated in the Soviet Union but took this as evidence that the economy was capitalist. After the text by Dunayevskaya I present my personal view, which is that the Soviet economy was neither capitalist nor socialist and that despite superficial appearances the law of value did not operate in the Soviet Union.
A New Revision of Marxian Economics
. . . Foreign observers who have carefully followed the development of the Soviet economy have long noted that the Soviet Union employs almost every device conventionally associated with capitalism. Soviet trusts, cartels and combines, as well as the individual enterprises within them, are regulated according to strict principles of cost accounting. Prices of commodities are based upon total costs of production, including wages, raw materials, administrative costs, amortization charges and interest plus planned profit and the various taxes imposed as revenue for the maintenance of the state. Essential to the operation of Soviet industry are such devices as banks, secured credit, interest, bonds, bills, notes, insurance, and so on …
The article “Some Questions of Teaching of Political Economy” contends that although the law of value operates in Russia, it functions in a changed form, that the Soviet state subordinates the law of value and consciously makes use of its mechanism in the interest of socialism. In order to show that the operation of the law of value is consistent with the existence of socialism, the article cites those passages from the Critique of the Gotha Program in which Marx states that in a socialist society, “as it emerges from capitalist society,” the laborer will receive in return for a given quantity of work the equivalent of such labor in means of consumption. The present authors reject, however, the formula that flows from these passages, namely, that labor will be paid by “the natural measure of labor”: time. This, the document states, is not in consonance with the experience of Russia, where labor is highly differentiated according to degree of skill and as regards intellectual and physical differences. The authors therefore propose a new slogan: “distribution according to labor.” They consider that they have thus translated the law of value into a function of socialism. It should be noted that they thereby completely identify “distribution according to labor” with distribution according to value.
There is incontrovertible evidence that there exists in Russia at present a sharp class differentiation based upon a division of function between the workers, on the one hand, and the managers of industry, millionaire kolkhozniki [collective farmers], political leaders and the intelligentsia in general, on the other . . . This distinction between [these privileged groups] and the mass of the workers found its economic expression in the formula: “From each according to his ability, to each according to his labor.” This formula should be compared with the traditional Marxist formula: “From each according to his ability, to each according to his need.” “Each according to his need” has always been considered a repudiation of the law of value. The document however, states that “distribution according to labor” is to be effected through the instrumentality of money. This money is not script notes or some bookkeeping term but money as the price expression of value. According to the authors, “the measure of labor and measure of consumption in a socialist society can be calculated only on the basis of the law of value.”
The whole significance of the article, therefore, turns upon whether it is possible to conceive of the law of value functioning in a socialist society, that is, a non-exploitative society.
Marx took over from classical political economy its exposition of the law of value in the sense that labor was the source of value, and socially-necessary labor time the common denominator governing the exchange of, commodities. Marx, however, drew from this labor theory of value his theory of surplus value. He criticized classical political economy for mistaking the apparent equality reigning in the commodity market for an inherent equality. The laws of exchange, Marx contended, could give this appearance of equality only because value, which regulates exchange, is materialized human labor. When the commodity, labor power, is bought, equal quantities of materialized labor are exchanged. But since one quantity is materialized in a product, money, and the other in a living person, the living person may be and is made to work beyond the time in which the labor produced by him is materialized in the means of consumption necessary for his reproduction. To understand the nature of capitalist production, it is therefore necessary, Marx contended, to leave the sphere of exchange and enter the sphere of production. There it would be found that the dual nature of commodities — their use-value and value — merely reflects the dual nature of labor — concrete and abstract labor — embodied in them. For Marx the dual character of labor “is the pivot on which a clear comprehension of political economy turns.” (1).
Marx called the labor process of capital the pro cess of alienation. Abstract labor is alienated labor, labor estranged not merely from the product of its toil but also in regard to the very process of expenditure of its labor power. Once in the process of production, the labor power of the worker becomes as much a “component part” of capital as fixed machinery or constant capital, which is, again, the workers’ materialized labor. According to Marx, Ricardo “sees only the quantitative determination of exchange value, that is, that it is equal to a definite quantity of labor time; but he forgets the qualitative determination, that individual labor must by means of its alienation be presented in the form of abstract, universal, social labor. (2).
In its Marxian interpretation, therefore, the law of value entails the use of the concept of alienated or exploited labor and, as a consequence, the concept of surplus value.
Hitherto all Marxists have recognized this fact. Hitherto Soviet political economy adhered to this interpretation. In 1935 Mr. A. Leontiev, one of the present editors of Pod znamenen Marksizma, wrote: “The Marxian doctrine of surplus value is based, as we have seen, on his teaching of value. That is why it is important to keep the teaching of value free from all distortions because the theory of exploitation is built on it” (3). And again: “It is perfectly clear that this division of labor into concrete and abstract labor exists only in commodity production. This dual nature of labor reveals the basic contradiction of commodity production.” (4).
The new article contradicts this theory and its past interpretation. It recognizes the existence in Russia of concrete and abstract labor but denies the contradiction inherent in the dual nature of labor. It recognizes the pivot upon which political economy turns, but denies the basis of exploitation which to all Marxists as well as to all opponents of Marxism has hitherto been the essence of the Marxist analysis. This is the problem the article must solve. It is interesting to watch how this is done.
In place of the class exploitation, which was the basis of the Marxist analysis, the new theoretical generalization proceeds from the empirical fact of the existence of the USSR, assumes socialism is irrevocably established, and then propounds certain “laws in a socialist society.” These are  the industrialization of the national economy, and  the collectivization of the nation’s agriculture. It must be stated here that both these laws are not laws at all. Laws are a description of economic behavior. The “laws” the article mentions are statements of fact. What follows the laws as a manifestation of the “objective necessity of a socialist society” “distribution according to labor” — does partake of the character of a law. “Objective necessity,” it must be remarked, does not arise from the economic laws; the economic laws arise from the objective necessity; it may, of course, manifest itself differently in the Soviet Union, but the manifestations the present authors cite are precisely the ones that emanate from capitalist society. The document fails to make any logical connection between the new basis, “socialism,” and the law characteristic of capitalist production — the law of value. The implication that the state is really “for” the principle of paying labor according to needs, but is forced by objective necessity to pay according to value is precisely the core of the Marxist theory of value. The supreme manifestation of the Marxian interpretation of the law of value is that labor power, exactly as any other commodity, is paid at value, or receives only that which is socially necessary for its reproduction.
. . . The article argues that the law of value has operated not only in capitalism but also has existed from time immemorial. As proof, its present existence in the Soviet Union is cited and a reference is made to Engels’ statement that the law of value has existed for some five to seven thousand years. Engels’ statement, however, is contained in an article in which he deals with the law of value only in so far as commodity prices reflect the exact value of commodities. The Marxian thesis is that the more backward the economy, the more exactly do prices of individual commodities reflect value; the more advanced the economy, the more commodity prices deviate; they then sell at prices of production though in the aggregate all prices are equal to all values. In that sense, Engels states, the law of value has operated for thousands of years; that is, ever since simple exchange and up to capitalist production. (5).
That Engels did not in any way depart from value as an exploitative relation characteristic only of capitalist production can best be seen from Mr. Leontiev’s own preface to that little booklet, Engels on Capital. There the Soviet economist says: “Where as at the hands of the Social-Democratic theoreticians of the epoch of the Second International, the categories of value, money, surplus value, etc. have a fatal tendency to become transformed into disembodied abstractions inhabiting the sphere of exchange and far removed from the conditions of the revolutionary struggle of the proletariat, Engels shows the most intimate, indissoluble connection these categories have with the relations between classes in the process of material production, with the aggravation of class contradictions, with the inevitability of the proletarian revolution.” (6).
Value, Engels has written, is “a category characteristic only of commodity production, and just as it did not exist prior to commodity production, so will it disappear with the abolition of commodity production.” (7). It would be sheer absurdity, argued Engels, “to set up a society in which at last the producers control their products by the logical application of an economic category (value) which is the most comprehensive expression of the subjection of the producers by their own product.” (8). In the last theoretic writing we have from the pen of Marx, a critique of A. Wagner’s Allgemeine oder theoretische Volkswirtschaftslehre, Marx castigates “the presupposition that the theory of value developed for the explanation of bourgeois society, has validity for the ‘socialist state of Marx.’ ” (9).
In the opinion of this writer nothing in the article contradicts this firmly established co-existence of the law of value with capitalist production.
Note. The following final comment seems to have been added by the editors of The Western Socialist.
What is important is that this revision of Marxian economics actually mirrors the economic reality of Russia — CAPITALISM.
(1) Capital (Chicago, Kerr, 1909) Vol. 1, p. 18.
(2) Theories of Surplus Value. Vol. 2, pp. 183-84 (printed in Russian)
(3) Political Economy, A Beginner’s Course (New York, Internat. Publishers, 1935), p. 38.
(4) Ibid., p. 58.
(5) Engels on Capital (New York, Internat. Publishers, 1937), p. 106.
(6) Engels on Capital. The English translation does not carry this preface, issued by the Marx-Engels-Lenin Institute under the supervision of the Central Committee of the Russian Communist Party.
(7) Works of Marx-Engels, Vol. XXVII, p. 408 (printed in Russian).
(8) Herr Eugen Duhring’s Revolution in Science (New York, Internat. Publishers), p. 347.
(9) Archives of Marx-Engels. Vol. V p. 59, Ed. Adoratsky (printed in Russian).
A Response: No, the Soviet Economy Was Not Capitalist
It is true that such categories as money, wages, prices, costs, profits, and interest existed in the Soviet Union. That, however, does not prove that the Soviet economy was capitalist. These phenomena are not unique to capitalism. They existed in Greco-Roman antiquity and in feudalism. What defines capitalism is the overall pattern of relations that we call “capital” and that Marx analyzed in Capital and other works. The motive force that sustains this pattern of relations in accordance with the law of value is competition among capitals — i.e., separately owned and controlled commodity-producing units — to sell their output at a profit on the market. These units may be called enterprises, firms, companies, corporations, trusts, etc., though some of these terms are also used for subunits wholly under the control of a larger unit. But at some level there must be a multiplicity of capitals if the overall system is to function as capitalism.
In the Soviet system all production units were owned and controlled by a central political authority. For ease of administration they were grouped together into successively larger units, but the way this was done was decided by the central authority, which had the power to reorganize the structure at any time. Under Stalin industrial enterprises were subordinate to ministries for different branches of industry, but Khrushchev decided to abolish these ministries and subordinate the enterprises to regional economic councils. Khrushchev’s successors decided to return to the ministerial system, though not in the same form as under Stalin. Closely related enterprises were merged into “production associations.” My point here is that subunits had no means of blocking such changes if the central authority had decided upon them. There were no separate capitals.
Some proponents of the view that the Soviet Union was capitalist find what they think is a way around this problem. They acknowledge the absence of separate capitals within the Soviet economy, but suggest that the entire country functioned as a single capitalist corporation — USSR, Inc.. Indeed, the Soviet Union was engaged in competition with other powers, but this competition was primarily military. It is true that the USSR competed with other producers to sell arms on the world market, for instance, but this seems a weak basis for defining the nature of the economic system as a whole.
It is true that Soviet enterprises were required to engage in cost accounting and maintain accounts at the state bank. The central authority regarded this as one way (alongside others) of monitoring their activity — the so-called “control by the ruble.” This can be compared to a large capitalist corporation imposing such practices on subordinate “profit centers.” A separate firm that persistently fails to make a profit will go bankrupt or succumb to a hostile takeover. The fate of a subordinate unit in this situation will be decided by higher levels of management, which may find reason to preserve the subunit while trying to improve its performance. In the Soviet system a loss-making enterprise producing output judged essential by the military could count on being rescued.
Dunayevskaya mentions how in the Soviet Union prices are set for goods taking into account “planned profit” (among other factors). A little thought will show that this is not the same as what happens in capitalism. A capitalist firm may aim to sell at a preset price, but whether it can actually do so depends on the market interaction of supply and demand (unless it enjoys a monopoly). In the Soviet economy prices were set in advance, under the ultimate control of the central authority. Profit did figure among the indicators on which the bonuses of enterprise managers were based, but for many years it was considered less important than gross output. Profit was assigned a greater role by the Kosygin reforms of 1965, but even then managers did not aim to maximize profit, as capitalists do, but only to fulfill the profit plan. Plan fulfillment sufficed to get one’s bonus, while significant overfulfillment entailed the risk of receiving an unattainably high plan target for the following time period (a practice known as “planning from the achieved level”).
My argument is that the Soviet economy was not capitalist in the sense of corresponding to the pattern of relations analyzed by Marx in Capital. If you want to regard it as capitalist — and there may be perfectly good reasons for doing so — then you must expand your concept of capitalism in order to encompass it. I discuss this further here.
It should go without saying, but I’ll say it anyway, that I do not regard the Soviet system as socialist. I do think that in considering the range of possible modern societies we need a more diverse set of concepts than the simple dichotomy of capitalism versus socialism.
This is not the “mainstream” view in the World Socialist Movement, but it is a view based on several years of study of the Soviet-type economy, including original research.