Socialism and International Economic Order

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER By ELISABETH L. TAMEDLY

The CAXTON PRINTERS, Ltd. CALDWELL, IDAHO 1969

© 1969 BY ELISABETH L. TAMEDLY

Library of Congress Catalog Card No. 69-11702

Printed and bound in the United States of America by The CAXTON PRINTERS, Ltd. CaldwelL Idaho 83605 110400

To my mother and O.R.

FOREWORD

efficient institutional framework for regulating international economic relations is one of the fundamental concerns of economists. Theorists and practitioners recognize that international trade has been one of the major sources of economic well-being; they know that no state can renounce such a wealth-generating activity. Yet, the increase of obstacles to the interchange of goods and services between nations since 1914 has led to what is generally termed economic disintegration. A great deal of literature undertakes to describe and analyze these various obstacles. However, little effort has been devoted to the investigation of the fundamental causes of economic disintegration—causes that can only be explained by theories and philosophies that engender changes in the internal economic and political orders of nations. This study is an inquiry into these fundamental determinants of international economic cooperation. These determinants will be more easily understood if the primary characteristics of an international economic order are examined. Two such characteristics can be distinguished. The first concerns relationships among individuals residing in different areas of the world who deal with each other on the basis of private interests. Clearly, the problem of their economic intercourse on a worldwide level is essentially identical to that with which any restricted community is faced. This problem has been solved in the past by the establishment of private law which delineates certain minimum standards of behavior and is enforced by the community. The second aspect of the problem is inherent in the existence of sovereign national states. For centuries, men have attempted to devise a system of international law that could subTHE CREATION OF AN

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FOREWORD

ject states, as private law subjects individuals, to the rule of commonly accepted codes and to the judgments of an international arbitration agency in cases of disputes between national governments. All these systems have been frustrated by the fact that the creation of an international coercive force which would automatically enter into action when any state refused to comply with the provisions of international law has been regarded as an inadmissible interference with sovereignty. Even universal and compulsory recourse to a supranational court is usually rejected on the same grounds. Intergovernmental relations therefore have a fundamentally anarchic character. Ultimately, of course, they, too, constitute human relationships, but with the difference that they are based not on a convened standard of right and wrong, but on power. It is a country's political and military strength, on the one hand, and the political and military strength of its opponents, on the other, that form both the basis and the limit of national aspirations. The last resort is war which, as Karl von Clausewitz said, is "nothing but the continuation of state policy with other means."1 It follows that the theory of international economic order is concerned with two basically different types of human relationships: those that belong to the private sphere of the individual and which are amenable to the rule of law—the "dominium"— and those that are backed by sovereign national power—the "imperium" (W. Röpke). The essential question to be answered by this theory is whether, and how far, the element of order in international relations can be extended over the element of arbitrariness; the prevalence of peace and stability over the "assumption of violence." It is not difficult to see that individual human relationships are characterized by a tendency toward universalism, as distinct from the realm of political domination which presupposes a clearly defined national territory. This universalism is brought about by the institutional and the specific economic laws which govern dominium. These economic laws characteristically work independently of any single human will. They result, via the price mechanism, in the coordination of millions of individual decisions. Conversely, the very essence of the political sphere is the reign of human will—that of the stronger (or the majority)

FOREWORD

ix

over the weaker (or the minority). The principle of coordination is here replaced by that of subordination. Hence, it becomes very important to know which fields of human activity are subject, within a given state, to imperium and which are left to the regulating influence of market values and private law. In other words, it is the internal political constitution of a country that provides the final answer to the question of whether political frontiers will also become economic and human division lines or whether the forces of dominium are strong enough within each nation to restrict political power and arbitrariness at home. In practice, the international community can only be approached to a greater or lesser degree. The very fact that national states were able to develop shows that the urge toward social integration within them was far stronger than it was with outside groups which, in turn, were merging into separate political units. Tradition, national character, and differences in historical evolution led to widely differing legal, moral, and institutional settings among nations. Yet, to the extent that the beneficial effects of international trade were becoming more vividly discerned, and to the extent that the division of power as well as the safeguard of individual liberties against the State were accepted as the leading principles of political theory, it became possible to speak of an international open society. This society constituted a community bound by an unwritten rule of law and a set of generally recognized standards, principles, and values. These principles included a voluntary renunciation of national sovereignty by a state's monetary authorities who shaped policies not according to the will of the government, but according to the dictates of international commodity and capital flows. Such an international economic order was largely realized in the nineteenth century. In short, the problem of international economic order is the problem of approximating the legal and moral climates between national states so that citizens, free to move, to buy, and to sell wherever they like, gain a feeling of confidence and security far beyond the limits of their own political territory. To the degree that this goal can be achieved, international relations will follow the rules of dominium rather than the rules of imperium. "It is the spirit of commerce which cannot coexist with war, and which sooner or later takes hold of every nation. For, since the

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money power is perhaps the most reliable among all the powers subordinate to the state's power, states find themselves impelled (though hardly by moral compulsion) to promote the noble peace and to try to avert war by mediation."2 The underlying problem of international economic disintegration, then, is caused by powerful forces that seem to restrict "the spirit of commerce" originating from the individual's sphere. The objective of this investigation is to study the effect of socialism on the framework of international economic cooperation. Without attempting an elaborate definition of socialism, we shall use this term to indicate a social order in which all economic activities are consciously determined (planned) by a restricted group that represents society. This group is conceived of as an elite which, due to its members' alleged superior character, knowledge, and intelligence, is regarded to be best qualified to determine society's real needs and to use society's productive apparatus to best satisfy these needs. The socialist concept of the future international economic order is that of a world united under a single government and centrally planned by experts for the benefit of all peoples. However, the present world is divided into national states, governed by particular economic and political systems. The principal questions which will form the object of this analysis are therefore the following: —Is the continuing existence of separate political units compatible with the postulates of socialism and, if so, what is the internal political and economic organization that characterizes a socialist state? —How will this organization affect the object of reversing international economic disintegration? —Is the socialist ideal of a future international economic order identical with the postulate of an open society? If not, what is the essential difference? —What forces are at work, under socialism, that will induce "the creation of a single world economy regulated by the proletariat of all nations according to a common plan" (Lenin) ?

FOREWORD

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This book is divided into three parts. Socialist views on international economic cooperation are, for the most part, given only implicitly; they must be distilled from the general philosophical context of their author. Part I therefore contains brief summaries of the most relevant socialist systems and the international implications of their ideas. Here, the authors speak for themselves. A critical evaluation of their thoughts is given in the Summary and Conclusions section at the end of each chapter. By acquiring an understanding of the ideological roots of socialist thought, it becomes possible to judge objectively the validity of the socialist claim that their system, being outside any social order hitherto known, is not amenable to analysis with traditional intellectual tools. Only if this claim proves unfounded will it be admissible to apply the familiar "box of tools" to a theoretical investigation of the impacts of socialism on the international economic order. These impacts are analyzed in Part II. Part III reviews the major aspects of international economic cooperation such as is realized by the Council of Mutual Economic Aid (Moscow). Although research was completed before the introduction of economic reforms in the Eastern European countries, the latter illustrate the problems faced by these states rather than impair the conclusions of this investigation. The late Wilhelm Röpke, whose lifelong work was centered on the interrelationship of political, economic, and social orders and their effects on international peace and cooperation, introduced me to the subject of this book. Without the encouragement and helpful criticism which he was able to give me until the completion of the first draft, this study may not have been possible. I would like to express my thanks for the advice and assistance which I received from the Graduate Institute of International Studies, in Geneva, Switzerland, especially from its Director, Professor Jacques Freymond and also from Professors Gerard Curzon and Miklós Molnár. The opportunity to use the well documented libraries of the United Nations' European Office and the University of Geneva was a decisive advantage. My warm appreciation goes to the personnel of these libraries for their expert and friendly assistance. I express my gratitude to the Earhart Foundation in Ann

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Arbor, Michigan, for a grant that made the completion of this book possible. I also sincerely thank Professor Arthur Kemp, Claremont, California, for his kind cooperation and advice. South Pasadena June, 1967

TABLE OF CONTENTS Part I. SOCIALIST THEORIES AND THEIR IMPLICATIONS FOR AN INTERNATIONAL ECONOMIC ORDER Page 1

INTRODUCTION Chapter I.

Chapter II.

Chapter III.

IDEAL

COMMONWEALTHS

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Introduction - - - - - - - - - - - - Plato: Politeia and Nomoi Sir Thomas More: Utopia }ohann Gottlieb Fichte: Der geschlossene HandeL·staat Summary and Conclusions Notes to Chapter I

5 6 10 13 19 20

THE PRE-MARXIAN SOCIALISTS

24

The Sociological Roots of an Emerging AntiCapitalistic Theory - - - - Robert Owen C. H. de Saint-Simon and His Followers - - - Pierre-Joseph Proudhon: from Anarchy to Federalism Summary and Conclusions Notes to Chapter II - - - - - - - - - - -

33 37 40

KARL MARX A N D HIS FOLLOWERS: THEIR CRITIQUE O F T H E CAPITALIST M O D E O F PRODUCTION - - - - -

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Introduction -– The Elements of Marxian Political Economy Concentration and Centralization of Capital

44 46 47

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24 26 28

xiv

TABLE OF CONTENTS Capitalism and the World Market - - - - - Marx's Views Rise of Finance Capital T h e Seeds of a F u t u r e Socialist O r d e r - - Lenin's Thesis . .

Chapter IV.

Chapter V.

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Summary and Conclusions

58

Notes to Chapter

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ORGANIZATION I N S T E A D O F LAISSEZFAIRE; INTERWAR PROGRAMS F O R A SOCIALIST W O R L D O R D E R - - - - - -

65

General Ideas Production for Needs Science The Representatives of Collectivity - Human Solidarity The Internationalist Approach International Control of Raw Materials International Migrations International Money and Credit Control Methods of Achieving World Planning Summary and Conclusions Notes to Chapter IV

66 66 67 68 70 71 72 75 77 80 84 87

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THE COLLECTIVIST STATE-THE TRANSITIONAL STAGE FROM CAPITALISM TO WORLD PLANNING 92 Marxism and the National State 92 Marxism and Economic Organization 95 Marx and Engels 95 Lenin - - 97 Stalin 100 The National Socialist Approach 102 The Foreign Trade System of a Collectivist State - 105 The State Monopoly of Foreign Trade - - - 106 Collectivist Foreign Trade and the Theory of Comparative Costs - - 108 The Problem of External and Internal Equilibrium - – 109 Long-Term Capital Movements - - - - HO The Future Socialist International Order - - 112 Summary and Conclusions -113 Notes to Chapter V - 114 CONCLUSION TO PART I - - 120

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xv

Part II. INTERNATIONAL ECONOMIC ORDER VERSUS STRUGGLE FOR WORLD DOMINATION: A THEORETICAL ANALYSIS OF THE INTERNATIONAL ECONOMIC IMPLICATIONS OF SOCIALISM Page

C h a p t e r VI.

INTRODUCTION

125

T H E PROBLEM O F VALUE AND E C O N O M I C CALCULATIONS IN A COLLECTIVIST ECONOMY - - - - - -

128

The Problem - Socially Necessary Labor - - - - - - - The "Mathematical Solution" - The Impossibility of a Rational Evaluation of Capital Goods under Collectivism T h e " M a r k e t S o l u t i o n " of S o c i a l i s m - - - - Critical Objections - - The "Theory of Planning' According to Sweezy Summary and Conclusions - Notes to Pages 125-127 and to Chapter VI - C h a p t e r VII.

P L A N N E D F O R E I G N T R A D E A N D ITS CONSEQUENCES FOR INTERNATIONAL ECONOMIC RELATIONS The Place of Foreign Trade Commonwealths - - Plato - - - - - Thomas More - - Johann Gottlieb Fichte

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129 1 3 0 133 135 1 3 7

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139 143 145 146

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T h e Pre-Marxian Socialists' Attitude to International Economic Relations - - - - Robert Owen - - - - - - - - - - Saint-Simon and His Followers - - - - Pierre-Joseph Proudhon - The General Problem of International Economic Relations under Socialism -– The Permanent Pressure on Internal Resources The Impossibility of Measuring Profitability of Individual Foreign Trade Transactions - -

150 150 151 153

155 155 155 156 157 158 160

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Trade Relations between Collectivist and Free Market Economies 161 Trade Relations between Collectivist States - 162 Summary and Conclusions 165 Notes to Chapter VII Chapter VIII.

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167

LIBERAL VERSUS SOCIALIST ECONOMIC ORDER. A COMPARATIVE ANALYSIS - -

170

Preliminary Remarks 170 Balance of Payments Adjustment and National Monetary Policies 172 Three Concepts of the Balance of Payments - 172 International Payments Adjustment in a Liberal Economic Order - - - - - 173 The International Impact of National Full Employment Policies 175 The Collectivist Solution - - - - - - 181 The International Problem of Raw Materials - - 183 The Liberal Solution Resting on the Divisibility of Ownership and Its Invalidation in Times of War - 183 The Collectivist Solution - - - - - - 186

The International Population Problem - - - - 188 The Problem of International Capital Movements - 191 Summary and Conclusions 193 Notes to Chapter VIII C h a p t e r IX.

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ECONOMIC DEVELOPMENT AND THE PROBLEM OF INTERNATIONAL ECONOMIC ORDER

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The Problem 199 The Socialist Approach 203 "Monopoly Capital" and State Planning - - 203 The Politicalization of International Capital Movements - . _ . 206 The Liberal Approach 209 Summary and Conclusions 212 Notes to Chapter IX 214 Chapter X.

THE FUNDAMENTAL PROBLEM OF WORLD PLANNING; CONCLUSION TO PART II - - 217

TABLE OF CONTENTS

xvii Page

The Internationalist Approach: a Critical Examination

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The "Explosive Effect of Collectivism"

217

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Who W h o m ? - - 222 Conclusion - - - - - - - - - - - - 226 Notes to Chapter X - - - - 2 2 7

Part III. THE TEST BY PRACTICAL EXPERIENCE INTRODUCTION Chapter XL

THE "SOCIALIST" WORLD MARKET"

- - - 231 - - 232

The Soviet System of Economic Planning: A Short Survey - - - - - - - - - - - - - The Main Aspects of Centralized DecisionMaking and the Problem of Constructing an Efficient Administrative Hierarchy - - The Foundations of Soviet Managerial Behavior The Problem of Economic Rationality - - -

National Planning, International Solidarity and the Council of Mutual Economic Aid The Initial Years Characterized by an Autarkic Industrial Development within Each Country Attempts at Closer Cooperation within Comecon by Plan Coordination - - - Soviet Proposals for a Central Comecon Planning Agency - - - - - - - - The "Dialectical" Contradiction between the International Character of Socialist Production and the National Ownership of the Means of Production The Basic Problems of Socialist International Economic Intercourse The Effects of the Foreign Trade "Mechanism" Operating in Each C.M.E.A. Country - The Need for an Objective Measure of Profitability for International Economic Transactions

232 233 236 239

241 242 244 247

250 252 253 257

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TABLE OF CONTENTS Page P r i c e F o r m a t i o n o n t h e Socialist W o r l d M a r k e t : Theories a n d Reality - - - - - - - 263 International Clearing b e t w e e n C.M.E.A. Countries - - - - - - - - - - - 264

The Problems Connected with East-West Trade - 266 Foreign Trade Problems with C.M.E.A. Countries as Seen from the West - - - - 267 Foreign Trade with "Capitalist" Countries as Seen from the East - - 269 The Prospects of East-West Trade - - - - 270 Summary and Conclusions

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N o t e s t o C h a p t e r XI CONCLUSION BIBLIOGRAPHY

INDEX OF AUTHORS

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PART I SOCIALIST THEORIES AND THEIR IMPLICATIONS FOR AN INTERNATIONAL ECONOMIC ORDER

INTRODUCTION

that something is fundamentally wrong with the "society" in which they live.1 Consequently, they feel compelled to change it.2 This uncompromising will to reform is directed toward a thorough transformation of existing social and political institutions. Concurrently, it postulates a basic change in human character in the sense of "freeing" men from their narrow, egoistic outlooks. To arrive at lasting happiness and justice, it is thought that human beings must be taught to place more value on the well-being of the community, of which they are but subordinated members, than on personal comfort. A third element is added by the socialist's contention that history moves in the direction of ever more perfect social conditions—even though it is generally agreed that this development must be aided and accomplished by a restricted group of individuals (aristoi) who possess the indispensable insight into what is just and right and what is therefore in accordance with history. Most socialists are convinced that such absolute knowledge and wisdom really exist. Hence, they demand that all "command positions" of society be transferred to men of superior capacity and character and that these men be given the necessary freedom to carry out their designs. At the root of this postulate is the belief that mankind has been granted the ability to create a near perfect social order on this earth. The main target of socialist criticism, therefore, is the liberals'3 stress on individual freedom and utility. Such freedom and utility, it is argued, lead to particularism and chaos. Since the profit motive is founded on considerations of individual as distinct from collective welfare, it is, in the opinion of socialists, totally unsuitable as a means of regulating the economy. Unlike the liberals, therefore, the socialists are primarily preoccupied SOCIALISTS HAVE CONCLUDED

2

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

with the exaltation of the community, and the subordination of the individual to it. The desire to abolish private property has often been identified with socialism. But this is true only to a very limited extent. The authors advocating such a system, from Plato to Owen and his followers (the "communistic" authors as they came to be called) have always constituted a minority among socialist writers. Moreover, the motives underlying their theories were by no means uniform in character. Most socialists, however, while leaving the share of consumer goods allotted by the community to the exclusive enjoyment of the individual, have advocated the collectivization of the means of production. Two major reasons have been advanced in support of this measure: (1) it was alleged to be a requirement of "distributive justice" and (2) it was said to constitute the necessary prerequisite for a rational and sagacious control of the production process. A particular group of socialists was not slow to perceive that this control could be achieved equally well without legally abolishing the private property of capital goods. This group knew it was sufficient to replace individual with centralized decisionmaking to arrive at the same result. Hence, the essence of socialist doctrine, despite divergence of detail, is the demand for the collective and centralized control of the economic process. Socialists usually speak of "society," "community," or "collectivity" as the basic units of their proposed order. But where are these units located, and in what way are they to share the world's geographical surface and natural resources? How do the authors whose views will soon be examined deal with the problem of territorial delimitation? We shall encounter four major methods of looking at these questions. The first group of authors devote their attention to the construction of an abstract, ideal commonwealth and place special emphasis on the internal setup of that commonwealth. The prototype of this imaginary state is a happily ordered island situated in the midst of an ordinary, defective world. Relationships with this world are consequently regarded as undesirable and to be minimized in order to safeguard the achieved standard of social perfection. This Utopian approach is treated in Chapter I.

INTRODUCTION

3

A second group of socialists simply ignore the existence of national states and conceive the future world as consisting of small, socialistically organized communities whose relations are governed by brotherly love and mutual interests. Such a community can then be thought of as extending to cover the whole world under one single, hierarchically organized body which will guide economic activity and distribute its fruits to those who have the greatest need. These ideas are the subject of Chapter II. A third group of authors start with the assumption that the greatest evil is to be seen not in the existence of distinct political units, but in the division of mankind into two classes—the exploiting and the exploited. Abolish exploitation and the system on which it rests, say these authors, and you will create an order of perfect harmony and justice. Representatives of this order will consciously combine man's efforts with the world's abundant resources to achieve plenty for everyone and universal peace; this age-long dream of all peoples will at last become reality. This is the Marxist approach, dealt with in Chapter III. Chapter IV is devoted to the practical proposals and implications which socialists advance midway between the realm of ideology and concrete reality. The authors reviewed in this chapter, and indeed in the entire first part, need by no means be "officially" recognized socialists. Their writings or opinions were selected because they appeared relevant to this context, and not because of the author's political affiliations. Finally, some writers consider the area within which collective control is to be exercised over economic, as well as political, matters to be identical with the territory dominated by an existing State. This group represents most modern socialists including Marx and Lenin. Their theories on the dictatorship of the proletariat and the international economic implications of the collectivist state are described in Chapter V. The same chapter also contains a section which illustrates the "national socialist" approach. Socialism is usually regarded as a profoundly internationalist movement. This is because of its emphasis on human equality, solidarity, and brotherhood—ideals which suffer no human division lines. But is collective (that is, centralized economic and political) control, whatever the territory on which it is exer-

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SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

cised, compatible with a true international economic order? Let us seek an answer in the writings of the socialists themselves.

1. 2.

1.

2. 3.

NOTES TO PAGES viii-xi Clausewitz, Karl v., On War. Prefatory note. In Seldes, G., The Great Quotations. New York, Lyle Stuart, 1960, p. 160. Kant, Immanuel, Zum ewigen Frieden. Königsberg, 1795, reprinted in Friedrich, C. J., The PhiL·sophy of Kant. Immanuel Kant's Moral and Political Writings. New York, The Modern Library, 1949, p. 455, italics original.

NOTES TO PAGES 1-4 "Socialism, then, will flourish in proportion as the consciousness grows that there is something vitally wrong in the industrial organization of society." Guthrie, W. B., Socialism Before the French Revolution. New York, Macmillan, 1907, p. 68. As Robert Owen expresses it: "Until society can be made to understand the impracticability of improving its conditions under the existing circumstances and can be induced to change these circumstances in toto, no real advantages can be obtained for mankind." Lectures on an Entire New State of Society. London, 1820, p. 138. Cf. Karl Marx's 11th Thesis on Feuerbach. In Borkenau, F. (ed.), Karl Marx. Frankfurt/M., Fischer, 1956, p. 42. The term "liberal" is used here in its original European sense. "Liberalism is a belief in the value of human personality, and a conviction that the source of all progress lies in free exercise of individual energy; . . . it therefore involves a readiness to use the power of the state for the purposes of creating the conditions within which individual energy can thrive, of preventing all abuses of power, of affording to every citizen the means of acquiring mastery of his own capacities and of establishing a real equality of opportunity. . . ." Encyclopaedia Britannica, Vol. XIII, 1959, p. 999d.

CHAPTER I

IDEAL COMMONWEALTHS INTRODUCTION

How is THE SOCIALIST world order to be accomplished? Most reformers know it cannot be established in one stroke. They are also aware of the two main obstacles to its realization: individual selfishness, and the traditional institutions and customs which are embodied in the existing State. This new world order must therefore be implemented outside the spheres which are dominated by these two factors, at some distant place beyond the oceans. What mainly interests us here is not the geographical location, but the intellectual elaboration of that basic unit which is to form the kernel of future order. "Let us found a State" said Socrates when opening discussion in "Politeia." In this work Plato endeavors to design a model state which may one day be turned into reality by men of action. The Utopias treated in this chapter are not unbridled phantasies of their authors; rather the authors are, as H. Freyer rightly points out, animated by a responsible political will. Their commonwealths—calculated to exercise a manifest influence on their contemporaries—are therefore "a closed, consistent, convincing and so to speak viable world . . . which, if non-existent, could at least be real in theory."1 This world is consciously organized and balanced. As Johann Gottlieb Fichte writes: In government, as well elsewhere, everything possible must be conceptualized; whatever can be computed must cease to be left to blind chance, in the hope that chance will make it.2

Thus, Utopian writers do not propose to overcome the State, but only to change its structure. A utopia is a state that possesses the proper solution to all human problems—and more than that: it is identical with this solution. Human conflicts

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SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

cease to exist; individual and community, dominium and imperium, all merge into one. Every part is bound together by the common, righteous cause, and the one derives its perfection from the other. The old antinomy between personal freedom and central control, manifested by constraint and even terror, is replaced by perfect harmony. The citizens of such a Utopian State, whose lives are spent between collective work and leisure, are so happy, so free from fear and worry, that they eagerly encourage other peoples, and eventually all mankind, to follow their example. Freyer compares the inner organizational structure of an ideal commonwealth with the "cosmos of the Greek philosophers :finite,round and numerically ordered so that it can simply and clearly be governed by static laws."3 To this self-inclusive system all forces not rooted in its laws, and which therefore threaten to interfere with its proper functioning, must appear hostile and dangerous. The only choice a Utopian author leaves his reader is an uncompromising take it or leave it.4 Hence, a Utopia must be strictly isolated from the rest of the world; "all factors and forces which by their nature transgress borderlines and join countries, must at the outset be viewed suspiciously in Utopias."5 PLATO: POLITEIA AND NOMOI

Mankind will always be indebted to Plato for the prototype of the ideal commonwealth. This author lived at a time when democracy, the long cherished political order of Athens, had degenerated into a "bustle of rancour and baseness."6 In this period of political disintegration and liberated individualism, Socrates had been sentenced to death and executed by the Athenian authorities. The rising philosophical school of the Sophists relativized all moral institutions as being solely dependent on human will in general, and that of the strong in particular. Against this philosophical anarchism Plato set his theory of the objective existence of absolute principles, the highest of which was justice. Justice may be recognized by an intelligible act and thus refuses to tolerate any authority besides itself, not even that of laws. "What is just can only be discerned for each individual case with respect to the Idea and by the one who

IDEAL COMMONWEALTHS

7

possesses the necessary capability; that is, by the philosopher. . . . The just in the highest sense, hence the one who discerns, is therefore himself the law and thus above the rigid letter."7 Human domination is thus openly admitted, but it must be domination by the chosen few endowed by nature, as an old Greek legend has it, with golden hearts. Plato's goal is to found a state which would personify the moral Idea. The first prerequisite for such a state is unity of purpose, directed at the attainment of absolute justice. The second step is to devise a way of life for the "lovers of wisdom" which would bring them into closest communication with the Idea and its dictates. To achieve this end, Plato established severe rules for the philosophers, forbidding them to have families and private possessions and forcing them into a life of military discipline.8 Here, for the first time, the ideal of asceticism was linked with the denunciation of gold and silver which was identified with wealth and was regarded as the last cause of human greed and egoism. Plato, well aware that his Politeia was not realizable on this earth, designed, in his "Nomoi," a second-best State in which the rulers were less enlightened and therefore, as the title indicates, in need of a coherent framework of guiding laws. Plato retains the military structure in the interior, he even defines "the well-constituted State" as one which "ought to be organized in such a way as to be victorious in war over all other States."9 Elsewhere he writes: The main principle is this: that nobody, male or female, should ever be left without control, nor should anyone, whether at work or in play, grow habituated in mind to acting alone and on his own initiative, but he should live always, both in war and peace, with his eyes fixed constantly on his commander and following his lead.10

For this purpose, it is necessary to liberate the citizens from their "lust for wealth which allows a man no leisure time for attention to anything else save his own private property."11 And the author continues: "That the laws previously ordained serve to repress the majority of desires, is not surprising."12 This is so because "all our laws must always aim at one single object which, as we agreed, is quite rightly named Virtue.' "13 The State and its citizens are identical in that they both require "the

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SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

salvation of laws;"14 therefore, "everyone shall regard the friend or enemy of the State as his own personal friend or enemy."15 Internal economic life is strictly regimented. Thus, "each several craftsman in the State shall have one single craft and gain from it his living."16 Or again: The Law-wardens must meet in consultation with experts in every branch of retail trade, and at their meetings they must consider what standard of profits and expenses produces a moderate gain for the trader, and the standard of profits and expenses thus arrived at they must prescribe in writing; and this they must insist on—the market stewards, the city stewards and the rural stewards, each in their own sphere.17 By the location Plato gives to his State—it is to be situated on a lonely stretch of Crete, eighty stades away from the s e a he implies that he aims at maximum self-sufficiency. Thus, we read: Most of the Greeks arrange for their food to be derived from both land and sea, but our people will derive it only from the land. This makes the lawgiver's task easier.18 And again: For if the State was to be on the sea-coast, and to have fine harbors, and to be deficient in many products, instead of productive of everything —in that case it would need a mighty savior and divine lawgivers, if, with such a character, it was to avoid having a variety of luxurious and depraved habits. As things are, however, there is consolation in the fact of that eighty stades. Still, it lies unduly near the sea, and the more so because, as you say, its harbors are good; that, however, we must make the best of. . . . Our State has compensation in the fact that it is all-productive; and since it is hilly, it cannot be highly productive as well as allproductive; if it were, and supplied many exports, it would be flooded in return with gold and silver money—the one condition of all, perhaps, that is most fatal, in a State, to the acquisition of noble and just habits of life.19 What remains of foreign trade is severely guarded by the State. It is true that "no toll shall be paid in the State by anyone either on exported goods or on imports,"20 but this is practically meaningless since Frankincense and all such foreign spices for use in religious rites, and purple and all dyes not produced in the country, and all pertaining to any

IDEAL COMMONWEALTHS

9

other craft requiring foreign imported materials for a use that is not necessary, no one shall import; nor, on the other hand, shall he export any of the stuff which would of necessity remain in the country. . . .21 In regard to arms and all instruments of war, if there is need to import any craft or plant or metal or rope or animal for military purposes, the hipparchs and generals shall have control of both imports and exports, when the State both gives and takes, and the Law-wardens shall enact suitable and adequate laws therefor; but no trading for the sake of gain, either in this matter or in any other, shall be carried on anywhere within the boundaries of our State and country.22

It can be seen that foreign transactions are to cover only "essentials" and that they are to be conducted on the basis of strict barter. Foreign exchange reserves—in the form of precious metals—are therefore unnecessary. As with the movement of commodities, the lawgiver must also concern himself with the movement of men across the State's frontiers. His prescriptions are a compromise between two antagonistic tendencies. On the one hand, the intermixture of States with States naturally results in a blending of characters of every kind, as strangers import among strangers novel customs: and this result would cause immense damage to peoples who enjoy a good polity under right laws.23

On the other hand, the State must not "get the reputation of adopting harsh language," since reputation in the eyes of others, whether for goodness or the reverse, is a thing that should never be lightly esteemed.24

The State may send out "inspectors," i.e. men over fifty years of age and of great merit, "who desire to survey the doings of the outside world in a leisurely way."25 But they must be "incorruptible, so as to confirm thereby such of his native laws as are rightly enacted, and to amend any that are deficient."26 On their return, the inspectors will report to a "mixed body of young men and old" on "anything important they may have learnt elsewhere."27 But if, on the other hand, such an inspector appears to be corrupted on his return, in spite of his pretensions to wisdom, he shall be forbidden to associate with anyone, young or old; wherein if he obeys the magis-

10

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

trates, he shall live as a private person, but if not, he shall be put to death.28

All foreigners—whether in a public capacity or on a private visit—are, immediately upon their arrival, taken care of by State officials or by priests. Plato is especially distrustful of that "inevitable emigrant" choosing "summer, as a rule, for his annual visits."29 SIR THOMAS MORE: UTOPIA

"Plato was the intellectual father of socialists as well as of philosophers."30 But whereas he "had a more general abstract end in view . . . , More was interested in the practical solution of actual and present social problems, and busied himself with plans to alleviate existing unfortunate conditions."31 These conditions resulted from the enclosure movement in sixteenthcentury England. Therefore, "the appearance of 'Utopia' marks the beginning of the modern social problems as they show themselves in the incipient stages of the capitalistic period."32 The sixteenth-century was also the age of overseas discoveries. The living conditions of the newly found lands and peoples, as they were related by the tales and reports of the explorers, seemed to be a challenging contrast to the misery which was thought to be provoked by the progress of productive methods based on private property. The qualities of primitive society began to be studied and soon became identified, especially by the "natural" philosophers of the eighteenth century, with happiness and equality. It was believed that nature had granted every man equal access to the fruits of the land, originally owned in common. The influence of this philosophy can be seen in Thomas More's work. The Island of which Hythloday enthusiastically reports is in the form of a horseshoe and its shores are washed by a calm and friendly sea. However, when Utopus first conquered "Abraxa," it was a peninsula. This wise king made it an island by cutting an isthmus of fifteen miles.33 The entry into Utopia's inviting bay is, moreover, made treacherous by nature because of dispersed rocks and shallows—the safe passages being known only to the fortunate inhabitants themselves.

IDEAL COMMONWEALTHS

11

The secret of the Utopians' joyful life lies in the fact that they do not think felicity to rest in all pleasure, but only in that pleasure that is good and honest. . . . They define virtue to be a life ordered according to nature . . . and that he does follow the course of nature who in desiring and refusing things is ruled by reason.34

This greatly simplifies the economic process. Both men and women work and, since private property is unknown, there is no distinction between rich and poor. Hence, an idle class which must be supported does not exist. In addition, the demand for goods and services is reduced because homespun garments "are throughout all the Island of one fashion . . . seemly and comely to the eye, fit both for winter and summer."35 Simple but abundant meals are taken in common, and whatever else is produced is done so in good and lasting quality. Hence, six hours of daily work are sufficient to provide for the Utopians' necessities; the rest of the time is devoted to common recreation, games, and studies. But even so, the inhabitants cannot help producing surplus. All commodities are stored in warehouses or markets; from hence the father of every family or every householder fetches whatsoever he and his have need of, and carries it away with him without money, without exchange, without any gage or pledge. For why should anything be denied to him; seeing there is abundance in all things, and that it is not to be feared lest any man will ask more than he needs.36

To provide against poor harvests, stocks sufficient for two years are accumulated. When the present and possible future requirements of the community are thus met, then of those things whereof they have abundance, they carry forth into other countries great plenty; as grain, honey, wool, flax, madder, purple dye, felles, way, tallow, leather and livestock. And the seventh part of all these things they give frankly and freely to the poor of that country. The residue they sell at a reasonable and mean price. By this trade of traffic or merchandise, they bring into their own country not only great plenty of gold and silver, but also all such things as they lack at home, which is almost nothing but Iron. And by reason they have long used this trade, now they have more abundance of these things than any man will believe.37

Here More implies that Utopia's balance of payments shows

12

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

a permanent surplus. However, in this respect, she is also behaving like an ideal creditor country: Now, therefore, they do not care whether they sell for ready money or else upon trust to be paid at a day, and they have the most part in debts. But in so doing they never follow the credence of private men, but the assurance or warrantise of the whole city, by instruments and writings made in that behalf accordingly. . . . The most part of it they never ask. For that thing which is to them of no profit, to take it from others to whom it is profitable, they think it no right nor conscience. But if the case so stand that they must lend part of that money to another people, then they require their debt; or when they have war.38 Of course, the Utopians will never go to battle because of unsettled trade matters.39 But they will do so in defence of their own country or to drive out of their friends' land the enemies that had come in or . . . to deliver from the yoke and bondage of tyranny some people that be oppressed with tyranny. Which things they do by mere pity and compassion.40 There may be still another occasion for war. It may happen that the Utopian population (despite institutional attempts at regulation) so increases that it "exceeds the due number throughout the whole island."41 In such a case, they build up a town under their own laws on the nearest part of the mainland where the inhabitants have much waste and unoccupied ground, receiving also the inhabitants to them, if they will join and dwell with them. . . . But if the inhabitants of that land will not dwell with them, to be ordered by their laws, then they drive them out of those boundaries which they now mark out for themselves. . . . For they account this the most just cause of war when any people holds a piece of ground void and vacant to no good nor profitable use, keeping others from the use and possession of it which notwithstanding by the law of nature ought thereof to be nourished and relieved.*2 The Utopians readily observe this law by returning the colonizers to their native cities as soon as the Island's number of inhabitants has become deficient. Beyond that, only "very few" go to foreign countries and this only "for some reasonable cause"43 such as trading. Utopia's chief instruments of war are gold and silver. These precious metals are used to hire mercenaries and to lavishly reward foreign agents charged with the outright murder of a hostile prince or to "procure occasions of debate and dissention

IDEAL COMMONWEALTHS

13

to be spread among their enemies."44 The Utopians themselves, though well trained and prepared for war, fight only if they must to defend their country. JOHANN GOTTLIEB FICHTE: DER GESCHLOSSENE HANDELSSTAAT

"The first socialistic theorist, Sir Thomas More,"45 wrote his Utopia as a reaction against the social evils of his time. General humanitarian feelings and a strong empathy with the miserable lot of the poor classes merged, in the eighteenth century, into the powerful current of thought which was set free by the Enlightenment. History and politics were now subjected to the analysis of reason. A natural and reasonable social, political, and economic order was supposed to exist, derivable from the knowledge of human character. The "social contract" offered a normative formula which indicated how society should be built if its construction were influenced only by reason and not also by error, lust for power, and custom. Johann Gottlieb Fichte, at the turn of the century, combined French rationalism and radicalism with German nationalism. Unlimited freedom, he wrote, means no freedom at all since "no one may appropriately put something into effect and rely for one moment on its duration. This antagonism of the free forces can only be counteracted by the individuals making a mutual agreement."48 This agreement restricts the liberty of its participants equally and contains the assignment of an exclusive right to a determined "free" activity to each participant. The agreement thereby constitutes property.47 The outward manifestation of this multilateral contract and of the corresponding unification of human activity is, as Fichte sees it, the Vernun†tsstaat (Rational State). To the customary assumption "that property exists independently of the State, and that the latter needs only to safeguard the present state of property in which it finds its citizens without inquiring into the lawfulness of the acquisition," Fichte opposes the idea that it is the State's function to assign property to each and then only to protect his corresponding rights.48

In the Vernunftsstaat, agriculture, manufacture, and comrce merce form the three main categories of economic activity. The

14

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

groups of citizens engaged in these fields are bound by a network of contracts that contain the "negative" provision that each group stick exclusively to its own profession and the "positive" stipulation that each group supply the others with what they require to carry out their trade to common satisfaction. It is the State which gives a legal status to these contracts and watches over their execution. By doing so, however, it cannot remain a passive observer. On the contrary, it actively participates in the economic process to the point of comprehensively planning it. Fichte distinguishes four aspects of this activity: 1. The membership of the three main corporations must be calculated in proportion to the production possibilities of agriculture. Furthermore, the State cannot guarantee work to everyone unless it fixes the exact number of those who are permitted to work in a given branch and provides for production of the necessary means of subsistence for all. It is only through this closure that a branch of activity becomes the 'property of the class which works in it.49

2. Each citizen is to be assured his proportional share of all agricultural and manufactured products of the country in such a way that all members of the State may live on an "equally agreeable" standard. This implies that the superfluous is always to be set behind the things which are indispensable or hard to dispense with. . . . All should first have enough to eat and be permanently accommodated before anyone decorates his dwelling; all should have warm and comfortable clothes before anyone puts on a sumptuous gown. . . . It is inadmissible to say 1 can pay for it.' It is very unjust that one person is able to afford the unnecessary whereas his fellow citizens lack the essentials.50

3. The government guarantees not only work, but also a ready market to its citizens. This is possible on the basis of the general plan.51 Prices arefixedby the State, and have a legal character. 4. Fichte now comes to the fourth and principal aspect of his Vernunftsstaat: The State is obligated to guarantee to all citizens, by law and coercion, the conditions resulting from this equilibrium of mutual intercourse. Yet it is unable to do so if any person outside its laws and dominion has any influence on this equilibrium. It is therefore imperative to cut off

IDEAL COMMONWEALTHS

15

the possibility of such an influence. All intercourse with foreigners must be forbidden and made impossible to its subjects.52 This is because the government, in order to continuously guarantee its subjects the fulfillment of their customary needs, must be able to rely on the fact that a certain quantity of goods is being traded. How can it count on the foreigner's contribution to this quantity since he is outside the government's dominion? It is tofixand warrant the price of a commodity. How can it succeed with respect to the foreigner if it is unable to determine those prices which prevail in his country and at which he buys the raw materials? If the government sets him a price which he cannot afford, he will henceforth avoid its market and deficiency in the satisfaction of customary needs will result. It is to guarantee to each subject the sale of his products at the due price. How can it do so if the subject sells on foreign markets where different commodity relations prevail which it can neither survey nor influence?53 Fichte is very emphatic on the external consequences of the Rational State. It is a closed commercial state just as it is a closed imperium of laws and individuals.54 Each man as well as each commodity belongs either to its jurisdiction or it does not: "there is no third choice."55 It follows that any foreign trade that may be judged necessary falls to the exclusive competence of the government "just as it alone is to decide on war, peace, and alliances."56 This has important consequences for the monetary system in that the State becomes free from all ties resulting from customary international economic intercourse: A closed commercial state . . . can turn into money whatever it desires, provided only that it declares to accept this and no other money. . . . It would thus create a national currency without even raising the question as to whether this money would or would not be accepted abroad, since for a closed commercial state foreign countries are as good as nonexistent.57

Furthermore, A closed commercial state is utterly indifferent to whether there is, to speak in customary language, a large or a small circulation of money.

16

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

The total sum of circulating money simply represents the total quantity of publicly traded goods.58

Fichte gave clear policy directives by which to achieve the closed commercial state. His rigorous and analytic mind distinguished the following mutually complementary government actions and decrees: In the first place private foreign trade is to be made impossible by depriving citizens of all international means of payment.59 This deprivation must be preceded by the following measure: Immediately before the promulgation of the new national currency, the government buys all foreign goods existing in the country. . . . This purchase takes place partly in order to assess the available stock and the present needs for these commodities, and partly in order to centralize their price fixing.60

As a third measure, the government sets up a foreign trade monopoly: By the same stroke with which it introduces the new national currency, it is to take over all assets and liabilities resulting from foreign trade.61

Henceforth, the government will decide which commodities will continue to be exported and imported.62 Fourthly, the government creates a central clearing agency which immediately takes control of and liquidates all international claims to and from its citizens. The method hereby adopted is the following: The government pays to or claims world currency from the foreigner and then pays to or claims national currency from the citizen.63

The same method of control will be applied to all foreign trade transactions and their corresponding payments. The separation of currencies will be paralleled by a separation of the internal price level from that prevailing on the world market.64 Therefore, the citizen does not buy at the price the government pays to the foreigner for a commodity, but at the one prescribed by internal law with due consideration for the citizen's fair subsistence during the time he resells it.65

IDEAL COMMONWEALTHS

17

Exports are to be similarly regimented. The prices of foreign goods are gradually raised so as to break the citizens of their habit of desiring them, the final aim being "that the State completely isolates itself from any foreign trade."66 Fifthly, "simultaneously with the execution of these measures the State is to move into its natural frontiers."67 This leads us to an interesting point of Fichte's political theory. He writes: Certain areas of the earth's surface, including their inhabitants, are clearly destined by nature to form political units. They are separated from the rest of the earth by large rivers, seas, inaccessible mountains. . . . It is these indications of nature as to what is to remain united and what is to be separated that one has in mind when speaking, in modern politics, of the natural frontiers of empires; a consideration which should be taken far more seriously than is commonly done. Nor is sole emphasis to be placed on strong and militarily well protected frontiers, but much rather on productive independence and self-sufficiency.™ The author concludes: governments will speak of the necessity of rounding off their borders and assert that, in view of their other lands, they cannot exist without this fertile province and that mine or salt work, always dimly thinking of the acquisition of their natural frontiers.69 Wars are therefore inevitable and must be fought by the State, though "not properly speaking by the peoples, to whom, if only they are united, it can be indifferent under whose name or dynasty this takes place."70 The State, once it has reached its legitimate goal, must give and be able to give its neighbors the guarantee that it will henceforth refrain from further expansion. However, it can give this guarantee only on the condition of becoming a closed commercial state. Closure of territory, and closure of commercial intercourse are mutually interrelated and complementary measures. A state which adheres to the ordinary system of commerce and aims at supremacy in world trade, retains a continuing interest in expanding beyond its natural frontiers in order to increase its trade and hence its wealth. . . . To the closed commercial state, on the other hand, not the slightest advantage can accrue from an expansion beyond its natural frontiers since its whole constitution is calculated only for its given extension.71 The Vernunftsstaat, finally, establishes the foundations of the future closed economic order. It does so by systematically

18

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

exploring the production possibilities of the country with respect to import substitutes and by setting up plans accordingly. In its calculations, the government must, on the one hand, distinguish "between such needs which can really contribute to well-being and others which merely serve prestige purposes."72 On the other hand, it will not be difficult to find adequate substitutes for foreign products if neither trouble nor costs are spared.73 The government has enough means to try everything at its own costs and calmly await success. Within the country, this costs nothing more than a piece of money which it can easily produce.74

At this time, foreign trade is still being transacted so that the State can use all foreign exchange reserves for building up the fundaments of the present and future economy.75 Fichte has so much confidence in the size and efficiency of the Rational State's gold and silver stock that the latter's purposeful devotion to the preparation of war—the acquisition of raw materials and armaments—may exclude any serious resistance of its enemies so that it may reach its goal without bloodshed and almost without striking a blow, and that its operation is more like an occupational campaign than a war.78

Fichte imagines the future world to be divided among a number of closed commercial states that have reached their natural frontiers. Their mutual trade is severely restricted to those commodities which, for climatic reasons, cannot be produced in certain countries. It is to be conducted on a bilateral basis: Between such states, destined by nature to a continuing barter, a trade agreement could be reached according to which one partner is pledged for eternal times to grow for the other a certain quantity of wine in exchange for the delivery of a specified quantity of corn. Neither partner is to aim at a profit, but at an absolute equality of value. Hence, there would be no need for money for such trade, only for clearing.77

Beyond that, each nation must content itself with the level of production made possible by the natural and social conditions within its borders. Questions such as: why should I not have a commodity in the same

IDEAL COMMONWEALTHS

19

perfection as that manufactured in another country, comes down to asking: why am I an inhabitant of this country, and amounts to the same as if the oak tree should ask: why am I not a palm tree and vice versa. Every man must content himself with the sphere in which nature has placed him and with everything that comes from this sphere.78 SUMMAKY AND CONCLUSIONS

A study of ideal commonwealths leads to two important insights : first, it sheds light on our problem regarding the internal nature of a socialist state and its external consequences. The community, or rather its top representatives, allocate resources and productive tasks, distribute income and consumption goods, and conduct relations with the outside world. Hence, the forces of dominium are completely paralyzed; international trade and foreign policy are considered as one single field, belonging more than anything else to the exclusive competence of the State. Fichte's treatise on the closed commercial state is, in its clarity and consistency, as yet unsurpassed as a textbook on the theory of socialist foreign economic relations. But secondly, by reading Utopian authors, one already encounters the particular method of socialist reasoning. It basically consists of placing concreteness on abstract terms. By regarding the State, as Plato does, as a model of human perfection, the State acquires a higher form of reality than that possessed by the individual. From this comes the postulate to give utmost freedom to the State and "repress the majority of desires" of its citizens. The intellectual design of a perfect institution, its endowment with unlimited power, and the belief that this institution suddenly awakens to independent life is the device which permits these authors to turn their backs on the real source of social problems: the weaknesses of human character. By subjecting the imperfect individual to the perfect state, the individual either becomes perfect himself, as in More's Utopia, or, at least, his selfish impulses are brought under the stern control of virtue, as embodied by the State. Just as the individual has control only over his proper body and soul, so the State's actions, as Fichte emphasized, must necessarily be limited strictly to the territory under its control. Thus, the decisive question is this: what principles will govern the relationships between the various States? If all States have

20

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become ideal commonwealths, founded upon the same internal principles, governments should play the same role on the international level as individuals do within the State; for a world order can only be established if the various communities readily submit to the interests of the whole. These interests, and this follows from the inherent logic of Utopias, must be embodied in the decrees of a central world authority possessing a power over the States similar to the power the States possess over the citizen. But this implies the complete disappearance of the hitherto sovereign States, i.e. their merging with and therefore subjection to a comprehensively planned world community. If, however, the individual States should refuse to sacrifice themselves in this way—if they insist on their freedom of action and on their being the last resort of truth and virtue —international tensions and eventually war would become inevitable, unless international relations were strictly minimized. In Part II of this study we shall go more deeply into the analysis of "closed commercial States" and their implications for peace and international order. If, however, the ideal commonwealth is thought of as a single unit, surrounded by "ordinary" peoples and countries, its establishment signifies a disruption of the existing international order. Utopia becomes a heterogeneous body within this order, and both must view each other with increasing mutual suspicion. More than that, the outside world is forced, if it wishes to entertain relations with Utopia, to introduce certain features alien to its system, but typical for that of this strange, isolated community (such as state trading). It must constantly fear hostile propaganda, subversive activities, and "wars of liberation." Thus, the assumption of war is by no means absent from the works of Utopian authors. On the contrary, the internal structure of the ideal commonwealth, as is most impressively illustrated by Plato's State, corresponds to strict military discipline, eased only by the citizens' preparedness to accept it joyfully. Living space and "natural frontiers" are regarded as the legitimate goals of warfare.

1.

NOTES TO CHAPTER I Freyer, H., Die politische Insel. Eine Geschichte der Utopien von Platon bis zur Gegenwart. Leipzig, Biographisches Institut, 1936, pp. 22-23.

IDEAL COMMONWEALTHS 2. 3. 4. 5. 6. 7. 8.

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

25. 26. 27. 28. 29.

30. 31. 32. 33.

21

Fichte, J. G., Der geschlossene HandeL·staat. Jena, Fischer, 1920 (originally published in 1800), p. 12. Freyer, H., op. cit., p. 26. "It follows from what has been said that the system here established, if it is to be realized, should be adopted or rejected in entirety." Fichte, J. G., op. cit., p. 103. Freyer, H., op. cit., p. 26. Heuss, A., "Hellas. Die archaische Zeit." Propyläen Weltgeschichte, ed., G. Mann and A. Heuss, Berlin, Propyläen Verlag, 1962, III, p. 373. Ibid. "They will go to mess and live together like soldiers in a camp. . . . They alone of all the citizens may not touch or handle silver or gold, or be under the same roof with them or wear them, or drink from them. And this will be their salvation, and they will be the saviors of the State." Quoted from Republic, Book I, in Gray, A., The Socialist Tradition. Moses to Lenin. London, Longmans, 1946, p. 19. Plato, Laws. With an English translation by R. G. Bury, London, Heinemann, 1926, Vol. I, Book I, p. 9. Ibid., Vol. II, Book XII, p. 477. Ibid., Book VII, p. 135. Ibid., p. 149. Ibid., Book XII, p. 547. Ibid., p. 537. Ibid., p. 521. Ibid., Book VII, p. 185. Ibid., Book XI, p. 413. Ibid., Book VIII, p. 171. Ibid., Vol. I, Book IV, pp. 257-59, italics added. Ibid., Vol. II, Book VIII, p. 185. Ibid. Ibid., p. 187. Ibid., Book XII, p. 503. Ibid. Plato lays down the following rules: "First, no man under forty years old shall be permitted to go abroad to any place whatsoever; next, no man shall be permitted to go abroad in private capacity, but in a public capacity permission shall be granted to heralds, embassies, and certain commissions of inspection. . . . These men, when they return home, will teach the youth that the political institutions of other countries are inferior to their own." Ibid., p. 505. Ibid., p. 507. Ibid. Ibid., p. 509. Ibid., p. 511. Ibid. "The officials . . . shall have a care lest any such strangers introduce any innovation, and they shall duly dispense justice to them, and shall hold such intercourse as is necessary with them, but to the least extent possible." Ibid., p. 513. Guthrie, W. B., op. cit., p. 64. Ibid. Ibid., p. 68. More, Sir Thomas, The Utopia. In Latin from the edition of March 1518 and

22

34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59.

60. 61. 62. 63. 64.

65. 66. 67.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER in English from the first edition of Ralph Robynson, translated in 1551, edited by J. H. Lupton. Oxford, Clarendon Press, 1895, p. 118. Ibid., p. 119. Ibid., p. 140. Ibid., p. 157. Ibid., pp. 170-71. Ibid., pp. 171-72. Ibid., p. 245. Ibid., p. 244. Ibid., p. 154. Ibid., pp. 154-55, italics added. Ibid., p. 179. Ibid., p. 251. Guthrie, W. B., op. cit., p. 54. Fichte, J. G., op. cit., pp. 4-5. "I have described property as the exclusive right to actions, by no means to things." Ibid., pp. 5-6, italics original. Ibid., p. 4. Ibid., p. 56, italics original. Ibid., p. 14. Ibid., p. 19. Ibid., p. 26, italics added. Ibid. Ibid., p. 27, italics original. Ibid. Ibid. Ibid., p. 41, italics original. "The wealth of a person does not depend on how many pieces of money he possesses, but on how large a part of total circulating money he holds." Ibid., p. 42. "Every possibility of world trade presupposes the availability of a universally accepted means of exchange. . . . Hence, our task should be solved in the following way: all world money possessed by the citizens, that is all gold and silver, should be brought out of circulation and exchanged for a new national currency which would be valid only inside the country." Ibid., pp. 99-100, italics original. Ibid., p. 111. Ibid. "The import and use of commodities which serve prestige purposes only can at once be prohibited." Ibid., p. 115. Ibid., p. 113, italics original. Fichte clearly realized this and also the danger of inflation it implies. Therefore, in order to assure the success of the monetary reform, "the government formally renounces, for eternal times, to increase arbitrarily and to its own advantage the quantity of circulating national money." Ibid., p. 103. The author goes so far as demanding that the centrally fixed prices must be constitutionally laid down and guaranteed. Ibid., p. 114. Ibid., p. 90, italics original. Ibid., p. 119.

IDEAL COMMONWEALTHS 68. 69. 70. 71. 72. 73. 74. 75.

76. 77. 78.

23

Ibid., pp. 94-95, italics added. Ibid., pp. 95-96. Ibid. Ibid., p. 98. Ibid., p. 94. Ibid., p. 93. Ibid., p. 118 (note). This, however, is in contradiction to Fichte's apprehensions against inflation. Cf. footnote 64 of this chapter. "Foreign machines should be bought and imitated at home. Promise of money defeats any prohibition." Ibid., p. 117. Moreover, the government "should attract, from abroad, at whatever cost, great personalities who are competent in the applied sciences. . . . By paying rewards which no other governments can afford, people will hurry to offer their services." Ibid., p. 116. Ibid., p. 119. Ibid., pp. 122-23. Ibid., p. 16.

CHAPTER II

THE PRE-MARXIAN SOCIALISTS THE SOCIOLOGICAL ROOTS OF AN EMERGING ANTICAPITALISTIC THEORY

and economic changes brought about by the Industrial Revolution decisively influenced socialist thought. The body of socialist doctrine advanced during the early nineteenth century had a twofold aspect: (1) continued utopistic speculation and (2) a sharp theoretical criticism of existing conditions. Both elements supplied the raw material out of which Karl Marx and Friedrich Engels were to forge their comprehensive theoretical system of "scientific socialism." What most occupied the minds of social thinkers at that time was the striking contrast emerging between the huge increase of wealth which was made possible by the mutually enforcing development of the division of labor and machinery, and the concurrent misery of a large and growing portion of the population.1 Some authors, of whom Fourier is the most representative, reacted to these developments by simply turning their backs on the blessings of the industrial age, inescapably accompanied, as it seemed to be, by misery and ugliness. They instead advocated their own version of a return to nature: the establishment of small, self sufficient associations in the countryside where inhabitants would live mainly from gardening. Other authors, such as Sismondi, came out with criticism against the generally accepted economic theories of the classical-orthodox school. Sismondi reproached Ricardo and Say because their method of theoretical abstractions converted economics, in his view, into a "chrematistic" science and thereby lost man from its sight. Sismondi's historical and sociological approach to economic problems led him to emphasize the social suffering caused by the disequilibria of the market and the ensuing process of readjustment. His criticism of the economic

THE PROFOUND SOCIAL

THE PRE-MARXIAN SOCIALISTS

25

and social conditions of his time served as a starting point for many subsequent socialists. In the first half of the nineteenth century, socialist criticism became more and more directed against and crystallized around certain principal institutions with which capitalism was identified. Private wealth was interpreted as being "derived from the unsurrendered earnings of the working class"2 and "the possession of that which gives power over and commands the labor of man."3 Competition was denounced as the triumph of the principle of struggle over harmony and solidarity. Crises came to be explained by the theory of overproduction and the displacement of labor by machines. Finally, many authors refused to make any distinction between trade and treachery and exploitation since trade was not based on what they felt was the only just principle: the exchange of equal amounts of labor. Charles Hall, for example, saw the essence of international trade to be in the export of vital goods in exchange for luxuries; these luxuries were intended to be consumed by the rich whereby the latter "commit greater waste than it would otherwise be in their power to do."4 What conclusions were drawn by the early socialist theorists with respect to international economic cooperation in a future order of production? One author writes: the remedy for the described deficiencies is to find an unfailing market for all sorts of useful produce. The system of cooperative industry accomplishes this, not by the vain search after foreign markets throughout the globe which are no sooner found than overstocked or glutted by the restless competition of the starving producers, but by the voluntary union of the industrial classes in such numbers as to afford a market to each other by working together for each other, for the direct and mutual supply by themselves of all the most indispensable wants in the way of food, clothing, dwelling and furniture.5

But what will happen to the State? And who is going to determine which "industrial class" is to produce which commodities and in what quantities? Let us see what three of the major socialists in the first half of the nineteenth century (or "forerunners of socialism" as some choose to call them) have to say on these subjects.

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SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

ROBERT O W E N

Early socialists, especially those in Britain, were influenced by Robert Owen's tireless and many-sided endeavors. We are concerned, however, only with his theoretical writings, primarily his conception of a completely renewed, happy, and harmonious society. For Owen, the fundamental causes of all evils are the institutions of private property and free competition, interpreted by him as the unhampered struggle for individual profit. What is lacking in society is "an accurate acquaintance with the science of human nature, or the individual and social character of man."6 It is hence Owen's purpose to familiarize his readers with what he calls the Science of Society. "It consists of four parts only . . . the production of wealth, the distribution of wealth, the formation of character and domestic and foreign arrangements of government."7 The most important aspect is the knowledge of human character. Man can control, as Owen sees it, neither his "constitution at birth" nor "the effects of external circumstances," both of which determine his character. But once his external environment is satisfactorily changed, all problems hitherto governing human relations will disappear: New circumstances must be created around mankind which must be in accordance with human nature and with the Science of Society. By this change of circumstances the most perfect individual character will be formed and the most perfect social arrangements will be introduced and rendered permanent. To obtain these results, the population of the world must be divided into such numbers and classed in such a manner that each individual may obtain the greatest amount of permanent advantages that human nature can possess.8

Owen therefore proposes to organize humanity into "Villages of Unity and Mutual Cooperation," with individual membership not to exceed two thousand.9 As regards the first aspect of the Science of Society, new combination of production . . . would constitute a system for the human creation of production, forming its due proportion in the grand, general scientific system of society . . . , would provide all that would be desired to support life, in the best state of existence; and provisions for

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the animal wants of our nature would be made with the same order and regularity with which the seasons succeed each other.10 The "animal wants of our nature" are food, clothing, and shelter; their quantity and quality can be scientifically determined.11 Thus, "the waste of capital and labor by unnecessary establishments and by the production of useless or injurious articles"12 will strictly be avoided. Hence, the new system will possess powers to create a superfluity of all things useful or rationally desirable for the whole population; powers more than abundant to satisfy the wishes of all.13 because these powers are "properly combined and rightly directed.14 Concerning the distribution of the goods produced between the associated members, Owen writes: As the easy, regular, healthy, rational employment of the individuals forming these societies will create a very large surplus of their own products beyond what they will have any desire to consume, each may be freely permitted to receive from the general store of the community whatever they may require. This, in practice, will prove to be the greatest economy.15 But what will, finally, be the relations between the various associations? Unlike the ideal commonwealths, Owen's Villages are not closed against each other: There will be the best means of communication adopted between all the communities: the best roads, railways and water communications— upon which there will be the best that can be constructed of carriage and water conveyances for commodities and persons.16 At this stage, Owen once again summarizes the qualities of his proposed order17 as if, without its moral foundations, the system of the "beneficial interchange" could not fully be grasped. Then he continues: These two points being ascertained,18 they will know what particular commodities will be the most beneficial to create in their own community, for their own consumption, and what to exchange with their own surplus production, for the same amount of labor in the surplus productions of other, similar communities. . . . As truth and perfect sincerity will be the

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sole practice of all the members of these communities, the amount of labor in, or the real prime cost of every commodity produced, will be accurately ascertained and be publicly known.19 In the more advanced state of these superior social communities, there will be no trafficking between the members of the same association. All interchange of commodities will be effected between community and community; and on the only just principal—that is the real amount of labor in one article against the real amount of labor in the article for which it is exchanged.20

However, Owen relegates economic activity as a whole to the second place: "education will be the chief object of interest in the community, because it will comprise the greater part of the operations of its members."21 As a result of this "general superintendence of the individual from birth to maturity,"22 the re-created or new-formed man will be enabled easily to subdue the earth and make it an ever-varying paradise, the fit abode of highly intellectual moral beings, each of whom, for all practical purposes, will be the free possessor and delighted enjoyer of its whole extent, and that joy will be increased a thousandfold, because all his fellow-beings will equally enjoy it with him.23 C. H. DE SAINT-SIMON AND H I S FOLLOWERS

Whereas Owen puts forward the design of a "new milieu" as the prerequisite for the full development of what is best in human nature, C. H. Comte de Saint-Simon attempts to discover the directing principles of the new social order emerging from historical evolution. What are the basic facts of this new order? "A review of the history of society has shown that the industrial class has continually gained in importance at the expense of the others who have been losing it."24 France is "a nation which is essentially industrial, but whose government is essentially feudal."25 The bourgeoisie, having accomplished the great revolution, now "lies heavy with the noble class on the industrial class."26 Against this background, Saint-Simon circumscribes "the real objectives of my ambition": to organize a great industrial establishment, to found a scientific school of improvement, and to contribute, in one word, to the progress of enlightenment and to the betterment of the lot of humanity.27

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Leaving feudalism behind, "human species . . . has been destined to transgress from a governmental or military regime to an administrative or industrial regime."28 How will this future regime work without government? The industrialists will constitute the first class of society; the most influential industrialists will, free of charge, assume the direction and administration of the public fortune; they will make the law and determine the mutual ranks of the other classes; they will attach to each class the importance which is in proportion to the services which each will render to industry. . . . When this result is achieved, tranquillity will be completely assured, public prosperity will advance with all possible speed, and society will enjoy whatever individual and collective happiness human nature may claim.29

Does this mean the abolition of private property? No, only the disappearance of les oisi†s (the idle). But Saint-Simon stresses the necessity "that talent and possession not be divided."30 Therefore, "property should be constituted so as to stimulate its owner to use it in a most productive way."31 Scientific research has, in the past, been carried on separately in each specialized field; it was now necessary to arrive at a great synthesis and to establish the one generally valid law which would manifest itself in all sub-branches of science.32 Consequently, in a society organized to the positive goal of working for its prosperity by means of the sciences, the fine arts, and the crafts, the most important political act is that of fixing the direction where society is to advance. This act is no longer attributed to men of social functions; it is exercised by the social body (corps social) itself; it is in this way that Society, taken collectively, may effectively exercise sovereignty, which then does not consist of an arbitrary opinion exalted into law by the masses, but of a principle derived from the very nature of things that man has done nothing but recognize as appropriate and necessary.33

Politics therefore cease to exist, or rather, they are merged into "the science of production."34 But this science, Saint-Simon argues, must be complemented by a renewed spiritual power which alone can provide a firm basis for a future order of things. This great, unifying force is to be the Church, propagating a purified Christian message. The essence of this message is this: Men must behave toward each other as brothers; and this principle,

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which belongs to primitive Christianity, will undergo a transfiguration. . . . This regenerated principle will be presented as follows: religion must direct society toward the great goal which is the fastest possible amelioration of the lot of the poorest class.36

This improvement must be physical as well as moral. The new clergy not only will attend to religious matters, but also will monopolize knowledge; science and religion are, in fact, considered identical. And if these two powers unite, the power of Caesar which is impious in its origin as well as its pretensions, will be completely annihilated.38

As to the final picture of the world without states, SaintSimon envisages it as follows: The new Christianity is called to bring to a triumph the principles of general ethics in the struggle which exists between these principles and those schemes which aim at obtaining a particular advantage at the expense of the public weal. This regenerated religion is called to constitute all peoples in a state of permanent peace . . . it is called to unite the learned, the artists, and the industrialists, and to appoint them as the general managers of the human species as well as of the special interests of each people which make it up . . . it is finally called . . . to declare as impious all doctrines which recommend to men means for obtaining eternal life other than to work with full capacity toward the amelioration of the life of their fellow-beings.37

It can be seen that Saint-Simon's ideas are founded on the two basic elements we have already encountered in Owen's work: the existence of an objective science of economic administration, coupled with the moral principle of brotherly love. Saint-Simon's followers set themselves the task of completing and spreading the master's theories in the journal Le Producteur. But by developing his doctrine, they gave it a definite direction toward collectivism. In their Doctrine de Saint-Simon Exposition Premiere Année jointly written by P. Enfantin and S. A. Bazard, they erected "one of the most important monuments of modern socialism (Menger)." They maintained that it was entirely false to focus (as most historians did) historical investigation on the individual instead of on le corps organise;38 Humanity . . . is a collective being (être collectif) which develops it-

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self; this being has grown from generation to generation just as an individual man grows in the succession of his ages. While growing, this being has obeyed a law which is its physiological law: and this law is progressive development.39

One aspect of this "law" is the fact that national hatreds are progressively wearing away, and the peoples, ready to form a complete and definitive alliance, offer us the beautiful spectacle of humanity gravitating toward UNIVERSAL ASSOCIATION.40

But all other human institutions are equally affected by this evolution; hence, Saint-Simon's disciples rode a frontal attack against private property and devised a rather detailed system of collective economic control: Property is a social fact, and is subject, like all social facts, to the law of progress; it can thus be differently interpreted, defined, and put into practice in different ages.41

In our time, it is argued, we must view property first in its historical context: and here we see that general human evolution is marked by a "diminution of the exploitation of men by men."42 However, exploitation still prevails and is due to private property and heredity.43 Therefore, if, as we proclaim, humanity is heading toward a state in which all individuals are classed according to their capacity and rewarded according to their accomplishments, it is evident that property such as it exists today must be abolished.44

But there is another reason for this abolition. Economically speaking, property is identical with the instruments of labor. At present, "the owners and capitalists are the trustees of these instruments; it is their function to distribute them to the workers."45 But this function is assigned to them by "the chance of birth" and is therefore discharged with little enlightenment. Moreover, they are lacking "a profound knowledge of the relationships existing between production and consumption"46 so that disequilibria and greater or lesser disturbances of the economy are the inevitable consequences: This is because the instruments of labor are distributed by isolated individuals who ignore both industrial and human needs and the means of satisfying them.47

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Hence, the first step toward the new order "consists of transferring the right of inheritance to the state which has become an association of the workers."48 In this association, it is no longer the owners . . . who determine the choices made in the enterprises and the destiny of the workers. A social institution will be invested with these functions which today are so poorly discharged. It will supervise the use of instruments of production and will preside over the material production process; thereby it will be in a position to overlook the entire process and will perceive all parts simultaneously of the industrial machinery. . . . It is thus able to assess general and individual needs and to entrust the most meritorious industrialists with the instruments of labor. . . . In one word, industry is organized, everything is linked together and calculated in advance: the division of labor is perfected, the combination of efforts becomes stronger each day.49

As the most suitable instrument of this organization, the Saint-Simonians advocate a hierarchically constructed general system of banks, with a central bank at the top guiding and coordinating the entire economy through a network of local and specialized agencies: All needs would converge toward the higher banks; all efforts would diverge from them: the general bank would allocate credits, that is, instruments of labor, to the local units only after having balanced and combined the various operations. And these credits would then be distributed among the workers by special banks, representing the different branches of industry.50

This carefully constructed organization is accompanied by an equally careful selection of the new elite: "The only claim to wealth (droit à la richesse), that is, to the disposition of the instruments of labor, will be the capacity of putting them into operation."51 But this principle must be supplemented by another, still higher principle in order to produce the desired results : The essence of the question is who will have authority, who will class men according to their capacities, who will appraise and reward their performance; and we answer: whatever the extension of the association which one has in view: it is the one who loves most the social destiny.82

The close bond between the "science of production" and religion,53 already propagated by Saint-Simon, is thus emphati-

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cally reaffirmed by his followers. Without this bond, no international order is possible; when it has been established, human evolution will overcome the stages of "family, city, nation," and will arrive at "Church,"64 the final goal of this evolution, which is synonymous with universal association in happiness and peace. "The division of power into secular and spiritual, the separation of the Church from the state"65 led to the development of "military associations" instead of "universal"56 ones. The Saint-Simonians therefore propose to reestablish "the unity of doctrine and activity"57 as the only means of creating "order on the entire globe."68 This order is described as follows: In the state of association . . . each particular group will see its prosperity and growth in that of all the other groups. . . .59 The elements of continued struggle within each association will become weaker as several associations are united into one. . . . This development can be expressed by the constant growth of the reign of love, harmony, and peace.60 Exploitation of man by man . . . this characterizes human relations in the past: exploitation of nature by man associated to man: this is the picture of the future.61 PIERRE-JOSEPH PROUDHON: F R O M ANARCHY TO FEDERALISM

With Proudhon, we enter an era of social and political thought which was deeply marked by Hegelian influence. The author reviewed in this section has often been called a brilliant dialectic; yet "no one could accuse him of having an orderly mind. He was never a system-maker, and was usually more at home in criticism than in construction."62 The last part of this remark, however, is not true of Proudhon's later years; his own life, too, was marked by a dialectal evolution.63 We are particularly interested in his later writings. The balancing of antagonistic forces—this is Proudhon's catchword, and it is the task to be solved by social science. He clearly distinguishes himself from the "communists," who wish to destroy property, and the "socialists," who, in their exaltation of equality, neglect liberty. "What I am postulating for property is its justification and balance."64 Proudhon also boasted that he was the first to have recognized that instead of restricting the economic forces the exaggeration of which is fatal, they should be balanced one against the other. . . . What society is searching for is the equilibrium of its natural forces.65

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Proudhon proposes to establish this equilibrium by the introduction of what he calls the système mutuelliste promising and assuring "service for service, value for value, credit for credit, guarantee for guarantee."66 With the elimination of the monopoly of private property and the droit d'aubaine attached to it,67 this state could be achieved. Then, Proudhon thought, all values would clearly be definable in terms of labor and justly exchangeable against one another. Contracts would take the place of governments whose function as oppressor would no longer be needed: Once capital and labor are united, society will exist by itself and no longer need government.68

Proudhon's mutualism thus points straight toward anarchy. During the last years of his life, Proudhon turned his attention to the basic problems of international order. He wrote: Even though, in 1840, I set out with anarchy as the conclusion to my critique of the idea of government, I finished with federation as the necessary basis for European international law and, later, for the organization of all states.69

In 1861, Proudhon published La paix et la guerre. In this treatise he explains that war is one manifestation of "that antagonism which we accept as the law of humanity and nature."70 Wars are waged between two powers with a view to a new state of things which, in providential order, must be substituted to the old one, whether the war's aim be the formation of a new state replacing others or simply the determination of their extensions and mutual relations.71

In contrast to these aims, however, "the first, universal and unchanging cause of war . . . is the lack of means of subsistence . . . the upsetting of economic equilibrium . . . pauperism."72 Proudhon proceeds to show that there is a striking contradiction between the cause and the goals of war, the cause belonging to the economic, the goals to the political sphere: It is evident. . . that, instead of having one problem to solve, we have two: a political problem concerning the formation, delimitation and dissolution of states . . . and an economic problem relating to the organization of productive faculties and to the distribution of services and goods.73

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A distinction must therefore be made between "the right to force" on the one hand and "economic rights" on the other; between "the public sphere, the one and only goal of conquest, and the private estates (propriétés particulières) situated beyond its reach."74 In the nineteenth century, the economic question has become preeminent; "woe to the nation which, forgetting itself, asks from the weapons what only science, labor, and liberty can give."75 The economic sphere is essentially characterized by a mutuality of interests despite the fact that human antagonism still asserts itself: But there is this enormous difference that in industrial struggles, the really defeated are only those who have fought cowardly or not at all. . . . In the realm of labor, production follows destruction; the consumed forces are revived after their destruction.76

As this new antagonism gains ground, the old one recedes; "the increase in influence which one is forced to admit for labor, is at the expense of raison d'Etat,"77 that is, war. Proudhon's theory did not pass without criticism, but his opponents were unable to shake the author's basic conviction that economy and peace belonged to one fundamental category of international relations, politics and war to the other: They have admitted that it did not appertain to war to solve questions relating to credit, wages, association, exchange; yet there always remained a political question—one could almost say an international petitory—to be settled, on which rested the entire economic structure. To this I reply, using the same style, that the petitory is constantly being modified and transformed by the possessory; that, as property . . . tends . . . to fall entirely under commercial jurisdiction, the state . . . tends to assume a purely administrative character and be reduced to budget regulations; that, as these things happen, international relations tend to dissolve into purely economic relations which dispels the hypothesis of a jurisdiction by force.18

Although maximum freedom from government intervention is the ideal of the economic sphere, some kind of authority must exist. Proudhon's next task is to find a balance between these two antagonistic forces. He distinguishes between two kinds of authority: monarchy and "panarchy," or "communism,"79 which is characterized by centralized administration

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and undivided power, and democracy or self-government which is founded on liberty and law.80 With arbitrariness fatally entering politics, corruption soon becomes the soul of power and society is dragged, without pause or mercy, on to the endless path of revolutions. That is where the world is today.81

The escape from this dilemma is federation, freely entered into by communities or states: A federative contract aiming, in general terms, at guaranteeing to the federated states their sovereignty, their territory, the freedom of their citizens; at settling their disputes; at providing for general measures pertaining to the security and common prosperity . . . this contract then, in spite of the magnitude of the interests involved, is essentially restricted. The authority charged with its execution is never allowed to prevail over its constituting members; I mean that the federal attributes can never exceed in number or reality, those of the communal and provincial authorities, just as the latter cannot exceed the rights and prerogatives of man and the citizen. If it were otherwise, . . . the federation would again become a centralization of the monarchic type.82

The internal structure of the federate system is thus seen to be the exact opposite of the internal structure of hierarchy and administrative centralization. But the political order must be complemented by a free economic order, designed so that it does not give "ceaseless causes for dissolution."83 Proudhon maintains that all states based on undivided power are, by their nature, annexationist: In such systems . . . one can say that the idea of natural frontiers is a fiction or rather a political fraud; rivers, mountains, and seas are regarded in them not as territorial limits, but as obstacles over which the freedom of the sovereign and of the nation provides a challange for triumph. And this is the natural outcome of its underlying principle: the faculty of possessing, accumulating, commanding, and exploiting is infinitely great, limited only by the universe itself. . . . Nothing can stop its encroaching advance [of the State, E.T.] except the collision with another State, just as aggressive, and capable of defending itself.84

The international implications of a truly federal system are quite different. Such a system, again by its nature, excludes aggression: By virtue of the principle which, by limiting the treaty of federation

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to mutual defense and to a few other objects of common utility, guarantees to each State its territory, its sovereignty, its constitution, the freedom of its citizens and, over and above, leaves it with more authority, initiative, and power than it gives up, federation is automatically restricted . . . with the result that a federation provides a guarantee both to its own members and to its non-federated neighbors.85

And Proudhon concludes: A federate people is a people organized for peace; what use could it make of armies? . . . No need for alliance or commercial treaties: between free nations, common law is enough. Freedom of exchange . . . freedom of circulation and residence within the limits of the respect due to the laws of each country. . . . Such is the idea of federation and such are its consequences.88 SUMMARY AND CONCLUSIONS

The ideas and doctrines advanced by the pre-Marxian socialists form the counterpart of classical economic theory. But they do not attempt to provide answers to those basic questions that concerned Adam Smith and David Ricardo. Whereas these authors had asked: what principles guide men in their economic activities? Socialist authors are tormented by the fact of inequality. Their investigations are directed to discovering the causes of human injustice and to abolishing the "system" which has created them. Socialist authors, therefore, focused most of their attention on the moral foundations of human behavior. Economic phenomena were analyzed only with respect to their own ethical standards. They began with the assumption that a perfect order of society exists the principles of which merely await human detection. These principles could not be anything but simple, consistent, absolutely reliable, and generally valid. Hence, all phenomena which were not of this nature were considered as being the outcome of a deficient economic and social system. Similarly, human behavior was regarded as fundamentally virtuous and altruistic; if it did not appear as such in reality, this again was thought to be due to the defects of the existing order of things. Power can be defined as the ability of its holder to claim a greater share of the available goods and services than is justi-

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fîed by his contribution to the production of these goods. Liberals usually agree with this definition and therefore insist on the restriction of political power; they include in the term "contribution to production" the productive services of labor, land, and capital, and leave the valuation of these services to the market. Socialists, on the other hand, consider this contribution to consist of labor only. Hence their demand that trade, to be just, should be governed by the principle of an equal exchange of labor; hence also their view that the most dangerous form of power is economic power, that derived from private ownership of the means of production. Socialists cherished the labor theory of value as a "law" which explained the true character of economic relationships and also provided a sure criterion for man's deviation from the "natural" and the "just." At the same time, this law was presented as one of those unshakable guidelines on which a future socialist order would be built. Robert Owen was primarily concerned with the perfection of human character. His emphasis on education to "truth and perfect sincerity," a persistent element in later socialist doctrine, illustrates the process by which imperfect human beings are to be transformed into the perfect members of a perfect community. Under the impact of this education the problem of economic exchange would disappear along with all other human problems, just as they had already been eliminated in Utopia. A true international community built on justice and mutual solidarity would emerge. Owen himself could have written Mores key phrase that people would no longer "think felicity to rest in all pleasure, but only in that pleasure that is good and honest." Conversely, the "technocrats" among the socialist writers advocated a world scientifically organized for maximizing production. The Saint-Simonians' writings provide a logical synthesis of pre-Marxian socialist ideas. A confined circle of men is to unite "renewed spiritual power" and the knowledge of the "science of production." But Saint-Simon makes it clear that religion has precedence over economic organization as it must "declare as impious all doctrines which recommend to men means for obtaining eternal life other than to work with full capacity toward the amelioration of the life of their fellowbeings." Once "men . . . behave toward each other as brothers,"

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the centralized direction of the economy will be a relatively simple and easily understandable task. The corresponding droit à la richesse will be exercised by men of talent and good will. At the same time, it is argued, society will no longer be at the mercy of human whim because humanity's great goals will be decided by the corps social itself. In the passages quoted on pages 29 to 31, the basic method of socialist reasoning, already referred to, is radically restated: an abstract and, at that, not defined concept takes on life and is endowed with the ability to provide super-human leadership. This être collecti†, to be sure, is not yet perfect, as Plato's State was. But a new constituent of socialist thought is introduced which bridges the gap between the present and the future: the idea of a progressive development of the corps social. The fundaments of socialist philosophy thus appear in full outline already at this juncture: their cornerstone is constituted by an autonomously living collective being, the embodiment of a principle not created by the human mind, but discernible by it, which by successive historical stages grows toward the goal where this perfect principle will govern all human relations. The final stage is thought to be attained when the development of human character will have reached the maturity already possessed by the corps social; and this stage will permit humanity to advance from "exploitation of man by man" toward "exploitation of nature by man associated to man." But again the question arises: will this collective body readily relinquish its unrestricted power over the economic and political life within its jurisdiction to larger and larger social bodies? Are its representatives likely to do anything more than talk about the necessity of creating a super corps social to which all individuals and formerly autonomous communities alike would owe obedience and subordination—unless this new body would be placed under their own, exclusive, leadership? Owen and the Saint-Simonians, relying on religion, the Science of Society, and the Law of Progress, did not hesitate to answer this question in the affirmative. But this answer is founded on the basic dilemma of socialist reasoning which results from the identification of the corps social with the men representing it. The philosophy of the perfect state demands unlimited authority and power; yet authority can only be wielded

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by imperfect individuals, free neither of selfishness nor of arbitrariness and power-lust. Furthermore, an absolute measure of value and objective scientific criteria permitting matters of lower importance to be subordinated to those of higher importance, a central element of socialist theory, do not exist. It is therefore impossible to judge what is the common interest save by an authoritative decision which, however, has validity only within a given community or state. What if la force qui attire et qui renvoie (Pecqueur) on the national level refuses to let itself be attracted to and repelled by a supranational authority? It was this problem of unrestricted domination and its effects on personal freedom and international order which foremost occupied Proudhon in his later years. He found that in human affairs there could be no unity of activities and harmony of wills because their very essence was steeped with antagonism. Hence, the solution was to be seen not in the concentration of power, but in its restriction and division, coupled with a strict separation of dominium and imperium. Proudhon considered the individual's freedom to look after his own interests—which, to be sure, he sharply distinguished from the freedom to exploit one's fellow-beings—to be the safest foundation for international peace and integration. He thereby drew upon himself the contempt of the man whose work will now be examined.

1. 2. 3. 4. 5. 6. 7. 8. 9.

NOTES TO CHAPTER II See, however, Hayek, F. A., Capitalism and the Historians. London, Routledge, 1954, p. 192. Bray, J. F., Labour's Wrongs and Labour's Remedy (1838-1839). Quoted in Beer, M., A History of British Socialism. London, Bell, 1920, Vol. I, p. 240. Hall, C , The Effects of Civilisation on the People in European States (1805). Quoted in Gray, A., op. cit., p. 264. Quoted ibid., p. 267. Thompson, W., An Enquiry into the Principles of the Distribution of Wealth Most Conducive to Human Happiness (1824). Quoted in Beer, M., op. cit., p. 228. Owen, R., The Book of the New Moral World Containing the Rational System of Society. London, Effinghaus Wilson, 1836, p. 91. Owen, R., Lectures on an Entire New State of Society. On the New Religion. London, l82O(?),p. 17. Ibid., p. 136. Arrangements are proposed "by which the production and distribution of wealth, the forming of the character and the governing of the whole, may be the most easily and the most beneficially conducted. With this view, the dwell-

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10. 11.

12. 13. 14. 15. 16. 17.

18. 19. 20. 21. 22. 23. 24.

25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

41

ings will be erected and arranged; a portion of land will be annexed, sufficient to enable the members of the associations to raise, at all times, a full supply of agricultural productions; manufactures will be established. . . ." Ibid., p. 139, italics added. Ibid., p. 41. "That many luxuries in meat and drinks which are ardently sought after by the wealthy, are destructive to their health of body and mind, all physicians as well as all intelligent persons . . . readily admit." Ibid., pp. 161-62. These luxuries will therefore not be produced. Conversely, each member is to dwell in a separate flat of two rooms in which he may receive friends or stay alone as he wishes. Ibid., p. 69. Ibid., p. 18, italics added. Ibid. Report to the County of Lanark, reprinted in The Life of Robert Owen. London, Effinghaus Wilson, 1858, IA, p. 303. Lectures, p. 100. "In our new and superior state of society, the sole object will be to obtain and secure the greatest happiness for all its members—all being considered children of the same family and entitled to the same care, perfection and advantages. Arrangements will therefore be made in the first instance to produce and distribute, in the best manner, the most valuable wealth for the use of the individuals belonging to each family community. The parties will be taught what is the best wealth for them to possess and use and the best mode to produce and acquire it." Lectures, p. 99, italics added. Cf. footnote 17 of this study. For an extensive discussion of Owen's labor theory of value, cf. Report, pp. 278 seq. Ibid., pp. 99-100, italics added. Lectures, p. 139. Ibid., p. 113. New Moral World, p. 98. Catéchisme politique des industriels. In Oeuvres publiés en 1832 par O. Rodrigues. Paris, Capelle, 1841, p. 48. Saint-Simon defines the "industrialists" as all those who actually produce useful things no matter whether in agriculture or in industry. Ibid., p. 37. Ibid., p. 43. Vie de Saint-Simon écríte par lui-même. 1st fragment, ibid., p. XIX. Catéchisme, p. 97, italics original. Ibid., p. 47. Hubbard, M. G., Saint-Simon. Sa vie et ses travaux. Suivi de fragments des plus célèbres de Saint-Simon. Paris, Guülaumin, 1857, p. 74. Saint-Simon, C. H., Vues sur la propriété et L· liberté (1818). In Oeuvres, p. 268. It is an interesting detail that Saint-Simon thought himself to be in complete agreement with the author of The Wealth of Nations. Saint-Simon thought that this was Newton's law of universal gravitation. Organisateur, 1819, cf. Hubbard, M. G., op. cit., p. 233. De I'Industrie, 1816, quoted ibid., p. 157. Nouveau Christianisme, in Oeuvres, pp. 177-78, italics original. Ibid., pp. 146-47. Ibid., pp. 156-57.

42 38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

48. 49. 50. 51. 52. 53.

54. 55. 56. 57. 58. 59. 60. 61. 62. 63.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER Doctrine de Saint-Simon Exposition Premiere Année 1828-1829. 2nd ed., Paris, Au Bureau de l'Organisateur, 1830, p. 113. Ibid., p. 107, italics original. Ibid., p. 109, capital letters original. Ibid., p. 191. Ibid., p. 172. Defined as "the privilege to levy a premium on the labor of others" (ibid., p. 182) and again: "The faculty of living on the labor of others in complete idleness." (Ibid., p. 188.) Ibid., p. 188. Ibid., p. 190. Ibid., p. 191. Ibid., p. 192. In the original, the entire phrase is printed in italics. We quote here, for curiosity's sake, the views held by the authors on orthodox economics —an interesting contrast to that held by the master: "Laissez faire, laissez passer! such has been the necessary solution, such has been the only general principle which they have proclaimed. The economists . . . have entrusted to personal interest the realization of the great percept without being aware that each individual, whatever the extension of his field of vision, is incapable, at the milieu where he lives and at the depth of the valleys, of judging the whole which can only be discovered at the highest peak." What is the result of competition, "this mortal struggle? A few lucky ones triumph; but at the price of the complete ruin of innumerable victims. . . . Hence the countless catastrophies, these commercial crises frightening the spectators and stopping the execution of the best projects." Ibid., pp. 90-91. Ibid., p. 187. Ibid., pp. 193-94, italics original. Ibid., p. 207. Ibid., p. 187, italics original. Ibid., p. 210 footnote, italics original. "The distribution of the instruments and products of industry is not the only objective of the governments of future societies; another distribution claims the paternal cares of the directors of humanity: to inspire all men, to develop, to cultivate in them feelings, knowledge, and liabits apt to rendering them worthy of being members of a loving, ordered, and strong society; to prepare each of them, according to his vocation, to contribute to it his love, intelligence, and strength; education, in one word, which embraces the entire life of each being, his general destination and his particular profession . . . , is the most important aspect of the social system." Ibid., pp. 41-42, italics original. Ibid., p. 147. Ibid., p. 166. Ibid., p. 172. Ibid., p. 160. Ibid. Ibid., pp. 145-46. Ibid., p. 151. Ibid., p. 162, italics original. Cole, G. D. H., A History of Socialist Thought. London, Macmillan, 195361, Vol. I, p. 201. Correspondance A. Micaud. December 25, 1855, quoted by H. M. Moysset in his Introduction to La Guerre et la Paix. Paris, Riviere, 1959, p. 3.

THE PRE-MARXIAN SOCIALISTS 64. 65. 66. 67. 68. 69.

70. 71. 72. 73. 74. 75. 76. 77. 78. 79.

80. 81. 82.

83. 84. 85. 86. 87.

43

La propriété fait indispensable. Quoted in Maury, L., La Pensée vivante de P. J. Proudhon. Textes choisis et prefaces. Paris, Ed. Stock, 1942, p. 10. Quoted in Gide, C , and Rist, C , Histoire des doctrines économiques. 7th ed., Paris, Sirey, 1947, p. 329 footnote, italics original. Quoted in Gray, A., op. cit., p. 245. Proudhon meant by this the "community of the gifts of nature and the exchange of the products of labor only." Quoted in Gide, C., and Rist, C., op. cit., p. 344. Quoted in Gide, C., and Rist, C , op. cit, p. 344. Correspondance, XII, pp. 220-21, quoted in Puech, J. L., and Ruyssen, T., "Le fédéralisme dans l'oeuvre de Proudhon." Introduction to Du Principe Fédératif et ouevres dìverses sur les problèmes politiques européens. Paris, Riviere, 1959, p. 53, italics original. La paix et la guerre, p. 482. Ibid., pp. 477-78. Ibid., p. 326. Ibid., p. 462. Ibid., p. 461. Ibid., p. 466. Ibid., p. 484. Ibid., p. 485. Ibid., p. 486, italics added. Du Principe Fédératif, p. 274. It is to be expected that an absolutist government "will be the more insufficient, oppressive, odious to its subjects and consequently instable in that the State will have become larger. History has conserved the memory of, and modern centuries have supplied examples of, these frightful monarchies, shapeless monsters, real poltitical mastodons which a better civilization should progressively eliminate." Ibid., p. 289. Ibid., pp. 275 and 279. Ibid., p. 307. Ibid., pp. 319-20. Proudhon defines the socialist communities as the "miniature image of all absolutist states. One who joins an association of this kind, particularly if it is to be perpetual, is surrounded by more fetters and is subject to more charges than he had initially." Ibid., p. 319. Ibid., p. 354. Proudhon adds, however, that a free economic order must not rest on exploitation. Ibid., p. 334, italics original. Ibid., p. 335, italics added. Ibid., p. 550. This is not denied by socialist authors. But this authority will, as the SaintSimonians see it, be facile et douce for all those who have let themselves be convinced of the righteousness of the final goal to be achieved. And Constantin Pecqueur writes: "Freedom can only exist in association; in the unity of activities, the harmony of wills, and the conformity of fundamental beliefs. . . . But where all this is, there is necessarily also authority, the center, a force which directs, which attracts and repels; and we repeat: this authority is always tuned to general customs and universal morality; it is despotic, hard, and intolerant or the reverse, just as society deserves and desires it." Théorie nouvelle d'économie sociale et politique ou Etudes sur Vorganisation des sociétés. Paris, Capelle, 1842, pp. 456-57. Italics added.

CHAPTER III

KARL MARX AND HIS FOLLOWERS: THEIR CRITIQUE OF THE CAPITALIST MODE OF PRODUCTION INTRODUCTION

Karl Marx, driven to investigate contemporary social problems by his powerful intellect and by an ardent desire to change the world, never quite succeeded in shaking off the influence of Hegel under whom he had studied in Berlin. For the last time in the history of human thought, Hegel had attempted to explain the universe and man's relation to it by one single system. Hegel taught that the dialectic development of human history was marked by, and its essence found in, the increasing self-realization of the Spirit toward a unity of the rational with the real. This Spirit was manifested in a growing human consciousness which, by the act of understanding, assimilated and thereby mastered all objects until absolute knowledge was attained. This knowledge was regarded as synonymous with the reintegration (Rückkehr zu sich selbst) of the Spirit.1 Hegel regarded the State as the nodal point between the self-realization of the Spirit and man's cooperation in this process. In fact, he came to regard the Prussian State as the last phase of history—the very union of the rational with the real, the divine upon earth. Marx, discarding this conclusion from the outset, nevertheless accepted the theory of history moving in progressive stages toward a definite and superior goal, and of man's ability to control this process. However, one of Marx's principal points of divergence was his view that "it is not the consciousness of men that determines their being, but on the contrary, their social being determines their consciousness."2 Marx summarized his theoretical framework as follows: In the social production which men carry on they enter into definite relations that are indispensable and independent of their will; these relations of production correspond to a definite stage of development of their material powers of production. The totality of these relations of

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production constitutes the economic structure of society—the real foundation, on which legal and political superstructures arise and to which definite forms of social consciousness correspond. The mode of production of material life determines the general character of the social, political, and spiritual processes of life.3

Thus, he clearly distinguishes the mode of production as the fundament of any historical stage from the particular "legal and political superstructure" built on it at that time. And this distinction now provides him with the tools for the explanation of that issue in which he is interested foremost, the problem of social change. He continues his summary: At a certain stage of their development, the material forces of production in society come in conflict with the existing relations of production, or—what is but a legal expression for the same thing—with the property relations within which they had been at work before. From forms of development of the forces of production these relations turn into their fetters. Then occurs a period of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed.4

He goes on: The bourgeois relations of production are the last antagonistic form of the social process of production; not in the sense of individual antagonisms, but of conflict arising from conditions surrounding the life of individuals in society. At the same time, the productive forces developing in the womb of bourgeois society create the material conditions for the solution of that antagonism. With this social formation, therefore, the pre-history of human society comes to an end.5

It is apparent that the science of economics has no independent place in Marxian analysis; the only function attributed to it is the explanation of social phenomena. And since Marx is interested in the social phenomena of the capitalist period only, he sets himself the task, as he writes in the preface to Volume I of Capital, "to lay bare the economic law of motion of modern society."8 This basic law he and Friedrich Engels had already stated in the Communist Manifesto (1848): The history of all hitherto existing society is the history of class struggle.7

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Applying this law to the period under consideration, it follows that the relations between capital and wage labor determine the entire character of the mode of production.8 Hence, Marx's "economic" investigations are concentrated on

these relations. His approach is of a "highly socialized nature" (G. D. H. Cole): "Individuals are dealt with only insofar as they are the personifications of economic categories, embodiments of particular class relations and class interests."9 THE ELEMENTS OF MARXIAN POLITICAL ECONOMY

The essential elements of Marx's theoretical structure are: "commodities," "abstract labor," and "surplus value," all concepts which belong to a particular, namely the capitalist, mode of production. Surplus value is derived from the capitalist's power to compel the suppliers of labor to work more hours than are "socially" necessary to produce their means of subsistence. Marx defines the value of both commodities and labor as expressing "the connection that exists between a certain article and the portion of the total labor time of society required to produce it."10 Because wages represent only the value of labor thus defined, the capitalist is able to appropriate part of his produce for nothing. For a detailed discussion of these concepts, the reader is referred to Paul M. Sweezy's The Theory of Capitalist Development.11 Marx calls the expansion of surplus value (or more precisely of that part of it which is being reinvested by the entrepreneur) accumulation. He regards accumulation as the driving motor of the capitalist mode of production: Competition makes the immanent laws of capitalist production to be felt by each individual capitalist as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot except by means of progressive accumulation.12

The capitalist thus cannot help acting in this way; his desire "to expand the value under his control (to accumulate capital) springs from his special position in a particular form of organization of social production."13 Accumulation, hov/ever, means the production of more capi-

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tal goods. But the introduction of additional productive equipment sets labor free, more labor than can be employed in the manufacture of new machinery. This surplus is called by Marx the Reserve Army; its function is to check wages and to uphold the rate of surplus value. The process of capital accumulation and with it the size of the Reserve Army are subject to cyclical fluctuations. Marx advanced varying explanations for these fluctuations, but most of his followers later referred to passages scattered in Volume III of Capital, such as The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.14

Here, Marx clearly takes up the thread of the underconsumption theorists. "Properly understood . . . , 'underconsumption' and 'over-investment' are opposite sides of the same coin."15 Both are due to the fact that "in capitalistic society the means of production cannot become effective unless they have been turned beforehand into capital, i.e. the means of exploitation of human labor."16 CONCENTRATION AND CENTRALIZATION OF CAPITAL

The accumulation process necessarily implies an increase, or, in Marx's words, a concentration of capital17 in the hands of individual capitalists. At the same time, however, this concentration changes the production process itself because it raises not only the "organic composition of capital," but also the percentage of fixed equipment within "constant capital."18 The latter is a direct consequence of the competitive struggle which compels the entrepreneurs to lower their costs by rationalization. Thus, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under normal conditions.19

The growth of capital requirements may, however, outstrip the concentration of capital and will therefore lead to its centrali-

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zation: this involves the "transformation of many small into few large capitals." Hence, "it only presupposes a change in the distribution of capital already to hand and functioning."20 This introduces an "altogether new force" into capitalist production: the credit system. . . . By unseen threads it draws the disposable money, scattered in larger or smaller masses over the surface of society, into the hands of individual or associated producers. It is the specific machine for the centralization of capitals.21

Concurrent with the development of the credit system there emerges the stock company, the main characteristics of which are described by Marx as follows: 1. An enormous expansion of the scale of production and of enterprises that was impossible for individual capitals . . . 2. The capital . . . is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital. . . 3. Transformation of the actually functioning capitalist into a mere manager, administrator of other people's capital and of the owner of capital into . . . a mere money capitalist.22

The stock company must therefore be regarded as a transitory element in the progress from the capitalist to the socialist mode of production. Marx's description of the centralization of capital was developed by Rudolph Hilferding into a coherent theory of corporations and of the new aspects they introduce into the capitalist mode of production. The freeing of the industrial capitalist from the function of industrial entrepreneur23 results in the rise of two distinct groups: the company directors and the banquiers. Hilferding, generalizing the German experience, assigns to the banquiers an increasingly important role in the capitalist production process because their institutions form the principal reservoirs of "financial capital."24 But in addition, the banquiers are now able to manipulate their portefeuilles of negotiable securities in such a way as to assure themselves a majority not only in the larger stock companies, but also in their subsidiaries. A circle of people is emerging who, due to their own capital strength or as the representatives of the concentrated strength of capital

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owned by others (bank presidents), are represented on a great number of company boards. A kind of personal union is thus formed between the different stock companies as well as between these and the banks, a factor which must be of the greatest influence on the policy of these companies since a common interest of possession (Besitzinteresse) arises among the various companies.25

Unlike this group, the managers, having no funds of their own, become mere employees. The stock company finds accumulation greatly facilitated. The financial means at its disposal are large enough to enable its executives to achieve more security and stability by the formation of reserves. Thus, the expansion of a capitalistic enterprise having been converted into a stock company, freed from the fetters of individual ownership, can now take place purely according to technical requirements.26

This strengthens its competitive position with respect to those entrepreneurs whose scope of action is still limited by their personal capital. But the growing power position of the stock companies on the market is not wholeheartedly welcomed by the banks: The victory of one enterprise is the defeat of others in which the bank was equally interested. . . . Hence the bank is aiming at establishing

monopoly.27

The door is thereby opened to the combination movement; the formation of cartels, mergers, and trusts and the increased centralization of banks provoke each other.28 Thus, the capital magnate and the finance capitalists increasingly unite the control of total national capital by controlling bank capital.29

This excessive centralization of capital and power in the hands of a small and, at that, decreasing group of persons has important economic and political consequences. In the first place, it destroys the price mechanism: When monopolistic combinations abolish competition, they abolish the sole means of realizing an objective price law. Price ceases to be an objective magnitude; it becomes the calculated result of those who willfully and consciously fix it. . . . Instead of being necessarily independent

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from the will and consciousness of the participants, it becomes arbitrary and subject to chance.30

Secondly, the tendency to expand investment following technical innovations is restrained by the fact that competition no longer compels the entrepreneurs to rationalize production to the same degree as was necessary prior to the monopolistic control of markets. Hence, the accelerated rate of accumulation will exceed capital requirements so that it will become imperative to look for favorable investment opportunities abroad. Thirdly, therefore, "Monopoly Capital'31 will induce a profound change in international economic relations. On the one hand, it will become vital to eliminate external, along with internal, competition. On the other hand, the ground must be prepared for capital export. CAPITALISM AND THE WORLD MARKET

But we have rushed ahead. Let us return for a moment to competitive capitalism to which Marx devoted the bulk of his analysis, and summarize his implications on the nature of international trade under this mode of production. Marx's Views We have seen that "in order that capital may be able to arise and take control of production, a definite stage in the development of trade is assumed."32 Capital accumulation necessarily leads to an ever broadening extension of the market until it embraces the whole world: The old-established national industries . . . are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. . . . In place of the old local and national seclusion and selfsufficiency, we have intercourse in every direction, universal interdependence of nations. And as in material, so also in intellectual production; the intellectual creations of individual nations become common property.33

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Elsewhere Marx writes: "The credit system and competition of the world market [form] the basis and the vital element of capitalist production."34 The progress of industrialization and the development of world trade react upon and enforce each other. Marx describes "the dual nature of this effect" as follows: Since foreign trade cheapens partly the elements of constant capital and partly the necessities of life for which the variable capital is exchanged, it tends to raise the rate of profit by increasing the rate of surplus value and lowering the value of constant capital. It generally acts in this direction by permitting an expansion of the scale of production. It thereby hastens the process of accumulation, on the one hand, but causes the variable capital to shrink in relation to constant capital, on the other, and thus hastens a fall in the rate of profit. In the same way, the expansion of foreign trade, although the basis of the capitalist mode of production in its infancy, has become its own product . . . with the further progress of the capitalist mode of production, through the innate necessity of this mode of production—its need for an ever expanding market.35 This passage implies, however, that the workers, unlike the capitalists, derive no benefits from the international division of labor. To the extent to which expenditures for the workers' means of subsistence are reduced by the import of cheap foodstuffs, the value of their labor power also diminishes. Carey's view is completely false, Marx argues, that the wages of the different nations are directly proportional to the degree of productiveness of the national working days. . . . The whole of our analysis of the production of surplus value shows the absurdity of this conclusion.36 Marx draws a sharp division line between his own, "qualitative" value analysis and the view of "the F ree Trade bagmen"; the former has shown that the form or expression of the value of a commodity originates in the nature of value, and not that value and its magnitude originate in the mode of their expression a> exchange value. . . . The modern hawkers of Free Trade who must g it rid of their article at any price, on the other hand, lay most stress on the quantitative aspect of the relative form of value. For them, there cons quently exists neither value nor magnitude of value anywhere except in its expression by means of the exchange relation of commodities, that s, in the daily list of prices current.37

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The author concludes that international exchange, under capitalism, lastly "only transfers the contradictions to a wider sphere and gives them greater latitude.'"38 Rise of Finance Capital In the concluding parts of Hilferding's book, entitled The Economic Policy of Finance Capital, one feels almost a kind of nostalgia in those passages in which the author treats the period of free trade. This period, Hilferding writes, was characterized by the undisputed advantage of British industrialism which required both unhampered import of foodstuffs and raw materials—hence the abolition of the Corn Laws in 1846—and the freedom of exports of manufactured goods to all parts of the world. Britain had only a minor interest in the possession of colonies. . . . The demand for active colonial policy, which was very expensive, raised taxes, and weakened the parliamentary regime at home, receded before free trade propaganda.39

The "newcomers," especially the United States and Germany, however, had already somewhat modified the pure free trade doctrine in that, following the recommendations of Carey and List, they introduced tariffs to protect their infant industries. The rationale of these tariffs was to accelerate economic development within the United States and Germany until equal footing was reached with England, and free trade could be permitted. But from the outset they necessarily introduced monopolistic elements into the economic order of the protected states. Whereas British industry had developed organically from small beginnings to its later greatness, German capitalism, once freed from its political fetters, could of course . . . not repeat the British experience. Endeavors were rather to be made to start development at home, if possible, from the technical and economic level already reached by the more advanced country.40

Because of a general lack of accumulation, the German stock company assumed, along with the functions already described, a new one; it became the instrument

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for raising the necessary capital which . . . was not only unavailable to the individual industrial capitalist, but to the capitalist class as a whole.41

In this way, the money owned by the other classes could be concentrated and placed at the disposal of industry. It is therefore not surprising that not England, the free trade country, but protectionist Germany and the United States have become the model countries for capitalist development.42

But this coincidence of tariff protection with the financing of industry through the banks was, with rapid industrial development, bound to encourage tendencies for cartelization which in turn created a new interest in tariff protection, thereby changing its function.43

The new function of tariffs guarantees to cartels, in addition to their continued existence, an extra profit corresponding to the difference between the protected home market price and the world market price. As more and more countries isolate themselves with high tariff walls, however, the export of commodities and thereby the advantages derived from large-scale production become severely limited. But if the sale of goods across national frontiers is restricted, capital is still free to flow abroad. It is the more ready to do so in that it is available in sufficient quantities to the monopolists and is attracted by extra profits abroad. Protection thus becomes a motive for transferring, instead of commodities, the production of commodities itself. . . . It thus becomes possible for a developed country to overcome the detrimental impact of tariff protection on the profit rate by means of capital export.44

Already Marx had pointed out that the export of investment funds was due not to an absolute, but only to a relative surplus of capital in the lending country—relative, that is, to the existing level of employment and consumption.45 Whereas it lies, Marxists repeat, in the general nature of capitalism to keep this level below its optimum, this "contradiction" becomes even more apparent as competition is being replaced by "Monopoly Capital." As J. A. Hobson put it:

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It is not industrial progress that demands the opening up of new markets and areas of investment, but mal-distribution of consuming power which prevents the absorption of commodities and capital within the country.46

Hilf erding elaborated a systematic theory of the policy of finance capital and its economic and political consequences. Capital export is defined as "the export of value which is destined to produce surplus value abroad."" This policy is governed by three objectives: (1) the creation of an economic territory as large as possible, which is, (2) fenced off by protective tariff walls against foreign competition and therefore, (3) becomes the sphere of exploitation of the national monopolistic combines.48

1. The Importance of Economic Territory. High tariff protection divides the world into separate economic units and thereby reduces or even destroys the preconditions for a rational international division of labor according to comparative advantage.49 The greater the territory under national jurisdiction, the less the disadvantages due to the "slackening development of the forces of production" are felt. Small countries are most severely affected by the disintegration of a formerly unified world market, whereas larger areas adjust more easily to both natural and economic changes and, what is most important to monopolists, they tend to increase profits. Thus, the size of territory possessed by a state is in strong correlation to the international competitive position of its most powerful groups. 2. Enclosure of Economic Territory by Tariff Walls. This, and the corresponding exclusion of foreign competition, constitute the vital basis for the existence of cartels. For the latter, "the endeavor to increase tariffs becomes as unrestricted as the endeavor for profits."50 3. Exclusive Exploitation by National Monopolistic Combines is an objective relating to colonial policy. It raises several aspects which will, according to socialist doctrine, eventually seal the doom of capitalism. In the first place, the export of capital has, particularly in the form of industrial and finance capital, greatly accelerated the upheaval of social conditions and the drawing of the earth into the orbit of capitalism. Capitalistic develop-

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ment did not take place autonomously in each country; together with capital, the capitalistic conditions of production and exploitation were also imported and always at their most advanced stage.51

The development of transport facilities was a decisive milestone in the history of capital export. The construction of roads and railway lines absorbed extensive funds, but at the same time opened new markets and cheapened overseas products. Whether or not the final effects of this process were beneficial to the native country depended, according to Hilferding, on the use which was made of foreign capital apart from being invested in infrastructure. If it was invested in local consumption goods industries, the favorable consequences could not be denied in spite of the fact that the transfer of profits to the mother country extraordinarily slowed down the further development of capitalism. Economic emancipation became impossible, however, whenever the capitalist classes were aiming at securing the domination over raw materials for their rapidly developing capital goods industries,52

leaving no basic materials to the native countries with which they could build up their own industries. However, the penetration of capitalism into the "nations without history" does not proceed smoothly; the necessary propertyless labor force53 and a legal framework have as yet to be created. Usually, these things cannot be achieved satisfactorily without the application of force and this in turn calls for intervention by the metropolitan State. This is the second important aspect of the drive of finance capital for reaching its goals: it cannot attain them unless it captures the State to serve its immediate interests in spite of the fact that these interests are diametrically opposed to those of the majority of the citizens. This alliance of powerful private groups with government is not only necessary to repress native resistance to capitalistic exploitation; it becomes imperative if one remembers that the monopolistic groups of other developed countries are faced with the same problems and also invoke the help of their official authorities. Competition on the world market, where the price of a commodity is the only determining factor, is replaced by competition on the capital

56 SOCIALISM AND INTERNATIONAL ECONOMIC ORD¢R market. . . . Capital export now becomes a means for securing the indjistrial market for the capital exporting country. The receiving state has no choice: it becomes a debtor and dependent on the creditor whose terftis it must accept. . . . The struggle for markets becomes the struggle for investment opportunities of loanable funds between national bank groups. Because, due to the international equalization of interest rates, econorflic competition is confined within relatively close limits, the economic struggle rapidly grows into a struggle for power which is waged with political weapons.54

The outcome of this struggle decisively depends on the si¡ze of the territory dominated directly by a State and indirectly by its finance capital. The corresponding rush for interest sphei†es and colonies generates severe conflicts between national states and further tends to strengthen their internal and external power and, with it, the importance of armaments industries, finance capital develops an ideology entirely contrary to the old liberal ideals of the bourgeoisie. It does not want freedom, but domination; it does not care for the independence of the individual capitalist, but demands his joining combinations. It abhors the anarchy of competition and stands for organization, yet only with the aim of competing on higher and higher levels. But in order to achieve this, to maintain and increase its predominance, it Requires . . . a politically powerful state which does not need to have regard to the opposite interests of other states in shaping its commercial poli¢y. Finance capital finally presupposes a state which is strong enough to pursue an expansionary policy and annex colonies.55

Finance capital thus eliminates humanitarian illusions and realistically considers politics to be the business of capitalistic syndicates at one time struggling against each other, at another time reconciled.56

The Seeds of a Future Socialist Order This statement leaves open two possibilities with regard 0 future development. Will imperialist wars, leading to the selfdestruction of the capitalist system, become inevitable, or c'o sufficient elements of peace and stability survive which, though certainly not capable of upholding capitalism forever, rendi possible a gradual and constitutional transition to socialism? For Hilferding, imperialist wars are probable though n†>t

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inevitable. He and numerous other socialist authors who, after the outbreak of World War I, came to be called "opportunists" by Lenin, thought to discern some encouraging features of this capitalistic phase which were destined to prepare the working class for its leading role. Jean Jaurès, summarizing Hilferding, thus wrote: Interests become more and more diversified, mobilized, intermingled, and enlaced; the great cooperations of industrial and financial capitalism are at work across the frontiers of races and tariffs; and the banks, the great banks, establish themselves behind the enterprises; they finance and subsidize them, but by doing so, they coordinate their activities in the same manner that they subsidize far off branches in all countries and beyond the seas. This is how the power of the banks is set up, coordinating capital flows, interweaving interests. . . .57

Does this passage not evoke the picture of a future socialist world order strikingly similar to that outlined by the SaintSimonians? Jaurès in fact envisages la grande banque at the center of all economic activity, impartially allocating capital among the different countries according to their labor resources and market potentials. The various, by then of course socialist, states (démocraties éclairées et autonomes) will both fruitfully cooperate with and exercise their control over this central agency, and under these conditions, economic expansion will take place peacefully, "without territorial monopoly, without industrial monopoly, without tariff monopoly."58 Thus, for Jaurès, the existence of these monopolies still constitutes a threat to international stability. Karl Kautsky goes one step farther, developing an idea belonging to Hilferding which the latter author had mentioned briefly. It suggests the possibility of a giant cartel, directing world production and eliminating crises.59 Kautsky writes: From the purely economic point of view it is not impossible that capitalism will yet go through a new phase, that of . . . ultra-imperialism60 which would be characterized by "the joint exploitation of the world by internationally combined finance capital."61 The constitutional socialists thus stress the uniting and peaceful aspects of the policy of finance capital. They follow the corresponding tactic of letting the fruit take its time to ma-

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ture until it is ripe to be picked by the socialist parties. They are the precursors of the "internationalist approach" to the problem of a socialist world order which will be treated in the next chapter. Lenin's Thesis Unlike the "opportunists," Lenin, relying heavily on Hilferding, maintained that finance capital was by its nature bellicose. The need for ever larger protected markets, he taught, and the growing requirements of the advanced industries for raw materials make it imperative for the monopolistic combines, backed by their respective states, to dominate large and rich territories. Since no "free" areas remain, the capitalists divide the world among themselves. They do this not out of any particular malice, but because the degree of concentration which has been reached forces them to adopt this method in order to get profits. And they divide it in proportion to "capital," in proportion to "strength," because there cannot be any other system of division under commodity production and capitalism.82

In accordance with this strength, "capitalist alliances based on the economic division of the world"63 come and go until a constellation is reached which makes the starting of a new war of redívision a promising enterprise. The rise of new imperialist powers and the divergent rates of economic development in the various parts of the world—a typical feature of capitalism, especially in its monopolistic stage84—make recurring wars inevitable. These are fought not only over agrarian, that is, underdeveloped areas: even highly industrialized regions form the object of conquest for hegemony-minded states.65 For Lenin, therefore, imperialism is definitely the last stage of capitalism which will be overthrown by the revolutionary proletariat. SUMMARY AND CONCLUSIONS

Marx's analysis of the development of capitalism incorporated various elements. To the basic principles of earlier anticapitalist economic theory centering around labor value, he added his own version of Hegelianism, that is, historical materialism.

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The idea of a progressive historical development had, as we remember, already dominated the Saint-Simonian school. The idea now becomes the cornerstone of "scientific socialism." It is suggested that history is a dialectical evolution, marked by the struggle between two antagonistic classes. Each class has its historically determined task to fulfill, but it must go off the stage as soon as the "material forces of production" have established a new mode of production, releasing new forces and demanding new institutions for their future development. This doctrine is not proved by Marx; it nevertheless provides the basis on which he builds his theoretical edifice. Capitalism, with all its peculiarities (such as the law of value, accumulation and concentration of capital, and crises) is but an historical stage in human evolution. But because this evolution is regarded as a rational process, there must be a point at which human inequality and exploitation will disappear. This, then, is the final and logical goal of historical development. It will be achieved when the most progressive class vanquishes its former exploiters by a worldwide revolution and establishes new and final "property relations" excluding social antagonisms. These two basic elements of Marxist doctrine then—(1) rational historical development and (2) relations of production, leading to the concept of classes—provide the key to understanding the future international order which the author of Capital and his followers anticipated. The internationalization of all human affairs, so forcefully initiated by capitalism, will be brought to its logical conclusion under socialism: the world community. "The workingmen have no country."66 Just as they are uniting as a class to throw off the yoke of capitalist exploitation, they will be bound together by a deep unity of purpose and solidarity after having achieved their common aim. This will provide the safe fundament on which to build the socialist world order. According to this doctrine, men are not free to choose the economic order under which they wish to live. Either they have understood historical materialism and are working for the accelerated advent of socialism; or, if they cling to the principles of capitalism, they are to be regarded as the defenders of ex-

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ploitation. To illustrate the method of Marxist argumentation, the following passage written by Lenin is quoted: The bourgeois reformists, and among them particularly the presentday adherents of Kautsky . . . try to belittle the importance of facts of this kind [i.e. imperialistic wars, E. T.] by arguing that it would be "possible" to obtain raw materials in the open market without a "costly and dangerous" colonial policy; and that it would be "possible" to increase the supply of raw materials to an enormous extent "simply" by improving agriculture. But these arguments are merely an apology for imperialism, an attempt to embellish it, because they ignore the principle feature of modern capitalism: monopoly. Free markets are becoming more and more a thing of the past. . . . Where, except in the imagination of the sentimental reformists, are there any trusts capable of interesting themselves in the condition of the masses instead of the conquest of colonies?67

And the same author asks: Is it not a fact that the more rapidly trade and capitalism develop, the greater is the concentration of production and capital which gives rise to monopoly? And monopolies have already come into being—precisely out of competition.68

Thus, there is no use in yearning for things which definitely belong to the past; instead, all attention must be focused on clearing the road of history by promoting the socialist cause. But what will be the fate of national states in a future socialist order? Marx, as we shall see in Chapter V, did not ignore their reality; but he believed that national states were the political superstructure corresponding to the capitalist mode of production and that they would eventually be displaced by the international class solidarity of the proletariat. Was Marx accurate in discarding the State as a primordial reality from his theoretical system and in building the latter on the concept of class? Is it admissible to deal only with "personifications of economic categories" instead of with individuals? On the answer to these questions depends not only the soundness of his explanation of capitalism, but also the validity of his implications relative to an integrated socialist world order. For the time being, states still exist, and very powerful and aggressive ones at that, as the authors on imperialism attempted to show. What is, in their view, the common feature of these states? That a small minority has succeeded in taking over

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government and in running the state's affairs to its own, exclusive interests. Clearly, dominium is here united with imperium, and a thorough organization of all human activities serves the purpose of national power politics. This is precisely the kind of state against which Proudhon so eloquently warned his readers. The question of whether Hilferding's theses correctly reflect "capitalist" reality at the turn of the century is irrelevant to this context. But we are interested in the international economic consequences of an "enclosed" centralized state, consequences which were accurately analyzed by this author. This raises two interesting points. If Lenin is right in maintaining that it is "the latest stage of capitalism" which produces such undesirable results, what becomes of socialist theory propagating to continue and complete the international division of labor brought about by the forces of capitalism? Conversely, if Hilferding's conclusions are the outcome not of a particular historical stage, but of a particular internal political setup of states, socialists can hope to restore peace and order only by postulating a decentralized and depoliticalized internal order. Our investigations so far have shown that this would lead to an inner contradiction of socialist thought.

1. 2.

3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

NOTES TO CHAPTER III For more details cf. Tucker, R. C , PhiL·sophy and Myth in Karl Marx. Cambridge, Cambridge University Press, 1961, Chapter II. Preface to A Contribution to the Critique of Political Economy (Zur Kritik der politischen Oekonomie). Berlin, 1859, quoted in Bottomore, T. B. (ed,), Karl Marx. Selected Writings In Sociology And Social Phihsophy. New York, McGraw-Hill, 1964, p. 51. Ibid. Ibid., pp. 51-52. Ibid., pp. 52-53. Capital: A Critical Analysis of Capitalist Production. Volume I, edited and translated by D. Torr, London, Allen & Unwin, 1949, p. xix, italics original. The Communist Manifesto (1848). English translation of 1888, edited by Friedrich Engels, quoted in Ebenstein, W., Great Political Thinkers. Plato to the Present. New York, Holt, Rinehart & Winston, 1964, p. 691. Preface to Volume I, p. xix. Ibid., p. xvi. Capital, I, p. 74. Sweezy, P. M., The Theory of Capitalist Development. Principles of Marxian Political Economy. New York, Oxford University Press, 1942, 398p. Capital, I, p. 130.

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13. 14. 15.

Sweezy, P. M., op. ctt., p. 84. Capital, III, pp. 472-73. Sweezy, P. M., op. cit., p. 183. Rosa Luxemburg in her book Die Akkumúlation des Kapitals traced the necessity of capitalist expansionism to overseas territories back to the impossibility to "realize" at home that part of surplus value which is not consumed by the entrepreneur. For the capitalist countries as a whole, the only way out of this dilemma was to sell their surplus production to non-capitalist consumers. However, the backward areas of the world were thereby gradually drawn into the capitalist orbit so that this escape from the basic contradictions of capitalism could only be a temporary one. Rosa Luxemburg's theory was severely criticized by numerous socialist authors and was to be completely overshadowed by R. Hilferding's analysis of finance capital which became the basis of Lenin's doctrine of imperialism. Engels, F., Herrn Eugen Dührings Umwälzung der Wissenschaft. 6th ed., Stuttgart, Dietz, 1907, p. 298. "Concentration of the means of production and of the command over labor . . . is identical with accumulation." Capital, I, p. 640. According to Marx, the value of any commodity produced under capitalist conditions is expressed by the sum of c ("constant capital," i.e. materials and machinery used up in production), v (the outlay for wages), and s (surplus value). The "organic composition of capital" is given by the ratio: c .

16. 17. 18.

19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

Capital, I, p. 640. Ibid. Ibid., p. 641. Capital, III, p. 427. Hilferding, R., Das Finanzkapital. Marx-Studien, Vol. 3, Wien, Wiener Volksbuchhandlung, 1927, p. 112. I.e. capital in money form which is transformed into industrial capital. Ibid., p. 283. Ibid., p. 132. Ibid., p. 138. Ibid., p. 231, italics original. Ibid., p. 280. Ibid., p. 284. Ibid., p. 286. Sweezy suggests to replace the term "Finance Capital" by "Monopoly Capital" since, as the possibilities of large-scale industries to plough back their profits increase, the influence of bank financing decreases. The real source of capital is shifted into the monopolized enterprises themselves. Capital. Vol. II (The Process of Circulation of Capital), edited by F. Engels, Moscow, Foreign Languages Publishing House, 1957-1959, p. 31. The Communist Manifesto. Quoted in Ebenstein, W., op. cit., p. 693. Capital, III, p. 109. Ibid., p. 232. Capital, I, pp. 574-75. Ibid., p. 30. Capital, II, p. 468. Hilferding, R., op. cit., p. 378. Ibid., p. 382. Ibid., p. 383. Ibid.

KARL MARX A N D HIS FOLLOWERS 43. 44. 45.

46. 47. 48. 49.

50. 51. 52. 53.

54. 55.

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Ibid., pp. 383-84. Ibid., p. 389. "If capital is sent abroad, this is not done because it absolutely could not be applied at home, but because it can be employed at a higher rate of profit in the foreign country. But such capital is absolute excess capital for the employed laboring population and for the home country in general. It exists as such alongside with relative over-population, and this is an illustration of how both of them exist side by side, and mutually influence one another." Capital, III, p. 251. Hobson, J. A., Imperialism. A Study. 3rd ed., London, Allen & Unwin, 1938, p. 85. Hilferding, R., op. cìt., p. 395, italics added. Ibid., p. 412. "Protective tariff implies a restriction of economic territory and thereby a slackening development of the forces of production because it diminishes the optimum size of factories, impedes specialization, and thwarts international division of labor, which causes capital to flow to those production branches for which a country is best suited. This has all the more importance in that . . . tariffs are frequently the result of political power struggles between the different industrial groups." Ibid., p. 391. Ibid., pp. 385-86. Ibid., p. 406. Ibid., p. 419. This is done by the "expropriation of the natives from whom the land and hence the traditional basis of their subsistence is taken away. . . . Expropriation at the same time converts these natives into a proletariat which becomes the helpless object of exploitation." Ibid., p. 401. Another possibility to achieve the same result presents itself, according to Hilferding, by the introduction of a tax system which exacts from the natives such high contributions that they are unable to meet them except by incessant work in the service of foreign capital. Ibid., p. 402. Ibid., pp. 408-9. Ibid., p. 426. Joseph Schumpeter, in his essay "The Sociology of Imperialism" (reprinted in his Imperialism and Social Classes. Translated by H. Norden, edited by P. M. Sweezy, Oxford, Blackwell, 1951, pp. 3-130), arrives at very similar conclusions. He underlines, however, that "export monopolism does not grow from the inherent laws of capitalist development" (ibid., p. 117, italics original); its aggressive designs are rather the outcome of pre-capitalist forces, "survivals of the autocratic alignment of interests and they endure wherever the autocratic state endures on the old basis and with the old orientation. . . . They bear witness to the extent to which essentially imperialist absolutism has patterned not only the economy of the bourgeoisie, but also its mind—in the interests of autocracy and against those of the bourgeoisie itself" {ibid., pp. 124-25). However, "such factors will be politically overcome in time, no matter what they do to maintain among the people a sense of constant danger of war, with the war machine forever primed for action. And with them, imperialisms will wither and die" (ibid., p. 130). The same author, in his famous book Capitalism, Socialism and Democracy, 4th ed., London, Allen & Unwin, 1957, "tried to show that a socialist form of society will inevitably emerge from an equally inevitable decomposition of capitalist society" (ibid., p. xiü). Curiously enough, he says nothing about the international economic consequences of socialism, but seems to take for granted the doctrine of the Saint-Simonians and most other socialists that autocratic states essentially belong to a past phase of historical development

64

56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER and will, in due course, disappear along with the international conflicts they have engendered. Hilferding, R., op. cit., p. 428. Speech held on November 19, 1909, quoted in Freymond, J., Lénine et Timpérialisme. Lausanne, Payot, 1951, pp. 46-47. Quoted ibid., p. 50. Hilferding, R., op. cit., p. 372. The author adds, however, that he thinks such a state of affairs socially and politically impossible due to the conflict of interests which, far from being reconcilable, would be sharpened to the extreme. Die Neue Zeit, April 30, 1915. Ibid. Lenin, V. I., Imperialism, The Highest Stage of Capitalism. New York, International Publishers, 1951, p. 75. Ibid. Ibid., p. 63. Ibid., p. 45. Communist Manifesto, in Ebenstein, W., op. cit., p. 701. Lenin, V. I., op. cit., p. 83. Ibid., p. 113, italics original.

CHAPTER IV

ORGANIZATION INSTEAD OF LAISSEZ-FAIRE; INTERWAR PROGRAMS FOR A SOCIALIST WORLD ORDER What shape is the socialist world economy to assume? We have seen that Marx and his followers were primarily concerned with depicting capitalist society in its historical development; very rare and short are the passages in Capital that refer to the guiding principles of the system which is to replace the existing one. But one need not be too surprised at this fact: if it is History which ultimately governs human affairs, there is as yet no necessity (it is in fact quite out of place) to speculate on the details of the future order. When the time becomes ripe, all questions will be resolved and the parts will merge into a marvelous whole. Nevertheless, one thing in the writings of socialists was certain: that the new order would be stripped of all those evils which characterized capitalism and imperialism. War was the most detestable of these evils; hence, after the termination of hostilities in 1918, a general feeling was spreading throughout the world that peace and socialism were identical and that man must consciously set about creating a new, international society based on socialist fundaments. According to socialist doctrine, under capitalism, "freedom" means the unrestricted faculty of the rich to amass wealth at the expense of the poor. It also implies the unbridled course of history toward "the highest stage of capitalism." In contrast, under socialism, man will deliberately plan the present as well as the future order, with a view to the attainment of universal peace and social justice, that is, to the achievement of "real" liberty. Thereby, all human beings will benefit equally from technical progress and the rational organization of industry and agriculture. This will become possible because the profit motive will be replaced by the conscious collective control of all economic activity.1

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The general idea of international planning today is based upon a conception of world development which is both rational and hopeful. In discussing world planning we have in mind the fact that the world is grappling with difficult economic and social issues and that a concentrated effort must be made to substitute peaceful and progressive change for mere drift or for arbitrary and violent action.2

Albert Thomas defines the basic socialist attitude toward the future world order as follows: For protectionism and free trade, both considered to be formulas of struggle and competition, we substitute the principle of association among the peoples by the international organization of exchange.3

And he adds what Hilferding already had implied:4 "Our position is thus not half way between protectionism and free trade, but outside of it."5 GENERAL IDEAS

Let us begin with a review of the general principles on which this new world order is to be built. Again it must be emphasized that we are interested in the ideas of authors proposing a collectivist solution to the problem of international economic order and not in their party membership. Production for Needs Economic activity will henceforth be subjected to the "real" needs of man. But, one may ask, do not needs also underlie effective demand in the capitalist system? Since the incomes of consumers differ widely, socialists answer, an economic system guided by the price mechanism alone leads to the production of luxury goods, while at the same time some basic needs of the masses go unsatisfied.6 In addition, it is argued, people do not accumulate wealth merely to provide for their subsistence or to enhance their physical comfort; rather, the possession of property has become an accepted symbol of status and honor, a measure of social importance attained by its owner. Wealth is therefore spent not according to the owner's personal propensities, but according to the conventional standards of the "leisure class," resulting in "conspicuous waste."7 H. D.

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Dickinson distinguished between "needs," which "are what we really require for life, efficiency, and enjoyment," and "wants," which "are what we think we require."8 If the consumer, as asserted by orthodox economic theory, was really the autonomous judge of his own needs, advertising and salesmanship, the great "waste caused by another waste,"9 would be senseless. It follows that, with the elimination of the squandering of time and resources, "the aggregate economic wants of a community might conceivably be satisfied at some point in the advance of industrial efficiency."10 When this point is reached, the problem of income distribution will lose its relevance. In the meantime, however, the dilemma between "distributive justice" and maximum incentive to productive effort persists and is recognized by many socialists. There is no agreement among them on how to solve this important question. Science But even if the interests of income receivers may not be identical, another powerful factor working for compromise still exists: science. In the first place, the progress of the natural sciences leads to more efficient production techniques; secondly, it is thought, the perfection of "scientific management" contributes to the rational organization of production units;11 and thirdly, extensive statistical research12 is to be placed in the service of economic planning. These three branches of modern science will supply the central authority with all the necessary information to carry out its planning task to general satisfaction and to expand wealth to hitherto unknown dimensions. Research is the handmaiden of planning. It helps, by eliminating mere opinion and whim, to narrow the area of conflict within which compromise had to be achieved in order that any plan may be formulated.13

Science enables men to control the present as well as the future. It will teach statesmen "to think in terms of centuries instead of, at most, in terms of one or two decades."14 It will "throw a mighty beam far into the future, enabling progress to forge ahead with a new speed, a new purposefulness, and a new security from quagmires, blind alleys and precipices."15 As

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steam gives way to electricity and as electricity will some day be superseded by atomic energy production, so scientific progress demands that an obsolete economic order be replaced by a system better adapted to newly created requirements and possibilities. And this system will be collective control. The Representatives of Collectivity If control is synonymous with comprehensive centralized planning, what exactly does "collective" mean? Various answers are given to this decisive question: The solidity and permanence of the organization itself can be guaranteed only by recourse to a higher principle, to an authority guiding, coordinating and controlling the whole movement. . . . It will no doubt appear at once that this body can only be the League of Nations. 16

writes G. de Michelis. "The greatest need of modern age," says A. Salter, "is to bring the specialized inventions and specialized activities of mankind under the control of collective reason."17 To which, however, G. A. Johnston comments: The collectivity contains many ingredients in addition to reason, and for the control of social economic planning it is necessary to distil the reason from the unreason in the collectivity.18

Yet he admits that, "as to the manner in which collective reason should exercise control over social economic planning, it is as yet too soon to expect any agreement."19 Lenin is more precise. In a socialist society, the supreme political and economic power is to reside with the Communist Party. The Party is to be "the conscious expression of the struggle of the proletariat for the overthrow of the yoke of the bourgeoisie."20 This follows from his own theory and from that of Marx that socialism will not come peacefully, but must be preceded by the revolutionary smashing of the ruling classes. But, "not a single class in history has achieved power without producing its political leaders, its prominent representatives able to organize a movement and lead it."21 These representatives must therefore assume "the role of vanguard" which, however, "can be fulfilled only by a party that is guided by an advanced theory."22 This theory the workers are unable to pro-

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duce;23 therefore, the enlightened Party must give a definite direction to the spontaneous awakening of the masses, that is, turn it into "the awakening to conscious life and struggle."24 Lenin repeatedly emphasized the contrast which exists between the spontaneity of the masses and the conscious action of the Party. Spontaneity must never be allowed to put "restraint on the initiative and energy of class conscious fighters," because Marxism, on the contrary, gives a gigantic impetus to the initiative and energy of Social Democrats, opens up for them the widest perspectives and, if one may so express it, places at their disposal the mighty force of millions and millions of workers "spontaneously" rising for the struggle.25

In this context, Lenin cites with approval Kautsky's remarks on the new draft program of the Austrian Social Democratic Party: Modem socialist consciousness can arise only on the basis of profound scientific knowledge. Indeed, modern economic science is as much a condition for socialist production as, say, modern technology, and the proletariat can create neither the one nor the other, no matter how much it may desire to do so . . . both arise out of the modern social progress. . . . Thus, socialist consciousness is something introduced into the proletarian class struggle from without (von Aussen Hineingetragenes) and not something that arose within spontaneously (urwüchsig),26

Lenin concludes: Since there can be no talk of an independent ideology being developed by the masses of the workers in the process of their movement, the only choice is: either bourgeois or socialist ideology. There is no middle course. . . . Hence, to belittle socialist ideology in any way, to deviate from it in the slightest degree, means strengthening bourgeois ideology.27

Thus, science, or rather socialist ideology—the two are synonymous in Lenin's parlance—does not only "narrow the area of conflict," it indeed excludes it. If, nevertheless, economic, social, and political problems subsist under socialism, this will be due to remnants of "bourgeois ideology." Already Marx had foreseen that these remnants will die hard. He therefore considered the dictatorship of the proletariat to be a necessary historical stage on the road toward complete communism, the final era when classes, and with them national states, would have, as Engels put it, withered away. Then, and

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only then, would there reign "association, in which the free development of each is the condition for the free development of all."28 Human Solidarity Underlying this theory is the Marxist assumption of an unconditional class solidarity among the toiling peoples of the world. E. Milhaud extends this solidarity, as the pre-Marxian socialists had done before him, to embrace all mankind. This solidarity is for him "the primordial reality of our time." Thus, the problem does not consist of artificially establishing this solidarity, but of allowing it to assert itself and to develop naturally, within a normal framework, for the benefit of all.29

Hence, there can be no doubt about the objectives of economic planning which is "defined as a system wherein the competent authority or authorities give a general direction to economic activities, in pursuance of definite aims and in accordance with plans for the realization of these aims."30 These are: wealth, security, happiness, and progress. Only the methods of achieving them are subject to discussion. But these discussions received a definite direction through wartime experience during 1914-18: All economic and military efforts aimed at victory, and the main factors capable of ensuring victory, were the material resources placed at the disposal of the armies and the people's morale. Tremendous needs had to be satisfied and supplies were not adequate to meet these needs. It was therefore necessary to weigh up the respective importance of various needs and to regulate their satisfaction according to priority. . . . When, in 1917, the United States also entered into the coalition, its economic field of operation covered the whole globe and regulated to an ever-increasing extent the production as well as the purchase and distribution of goods. . . . The principle of distribution according to needs was supplemented by the principle of production according to needs. . . . The method by which the war had been won would make possible the reconstruction of devastated areas and the development of the wealth and resources of the world for the common good of all its peoples.31

If socialism thus means the general direction of economic activities by a central authority, the all-important question must

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again be raised: what is to be the geographical area within which this authority may exercise its functions? In other words: will the future international order constitute a system in which economic relations are being conducted between socialistically organized states or communities, or will it be governed by one single world plan, set up by a powerful, supranational authority? The remainder of this chapter deals with ideas relating to the second alternative; the next chapter will describe the major aspects of the collectivist state, and Marxian state doctrine in particular. THE INTERNATIONALIST APPROACH

The internationalist approach received a strong impetus from the establishment, after World War I, of the League of Nations and the International Labor Organization (I.L.O.). The former was regarded as the manifestation of the peoples' determination to establish universal peace, while the latter proved that social justice was really an international postulate and had become generally recognized as such. To socialists, however, it appeared to be insufficient to lay down only the legal, political, and social groundwork of peace. In 1924, Leon Jouhaux expressed this general current of thought as follows: Can we forget the role of economic factors in this field? How can we conceive of having truly organized peace among peoples if we have allowed antagonisms of interest to arise and grow between them, which, at certain moments, may cause them to fall upon each other? . . . Only security in political relations gives rise to an economic policy based on agreement and cooperation and only an economic policy of agreement and cooperation gives rise to security in political relations.32

Jouhaux considered the Economic Committee of the League and the I.L.O. as constituting the starting point for an International Economic Council which will appear, beyond doubt, to be necessary to the final organization of peaceful economic relations among peoples.33

"To extirpate the very causes of war, particularly its economic causes,"34 by economic organization—this becomes the

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Leitmotiv of constitutional socialists. Charles Gide, in a memorandum addressed to the French government in 1919, defined the peaceful collaboration of peoples as the "organizing of world production as economically as possible, so as to utilize all the earth's resources and the capacities of each nation in the best interests of all."85 And, Paul Boncour further developed Jouhaux's proposals in a speech to the 1924 League Assembly: The financial and economic agencies of the League of Nations and its assemblies will one day, when security will have been firmly built, have to deliberate on such great issues as raw material quotas, markets, and problems of immigration and emigration. Without a solution of these problems—let there be no illusions on this—our entire edifice would be ruined by internal upheavals.36

Two years later, Painlevé again emphasized the necessity of taming the brutal economic forces by rational means dictated by the internationalist spirit. And President Wilson's declaration in 1917 was not forgotten, claiming "equal rights for all peoples, big and small, to participate under just conditions in the economic resources of the globe." Hence, socialists thought it imperative that for the purpose of developing a concrete programme for the realization of these general objectives, a series of permanent expert committees be set up to study the application of these principles37 to such problems as migration, raw materials, and so on. Such committees would be required to prepare not only general factual statements, but specific proposals of policy.38

International Control of Raw Materials After the termination of the war in 1918, the general shortage of goods and services, particularly that of basic raw materials, was acutely felt everywhere. The buying and selling of vital commodities across national frontiers had increasingly come under the control of nationalistic governments. It was thus considered necessary to grasp the nature of the problem and then to find the means of remedying it. Lawley distinguished two main aspects; on the one hand, there is this question of the monopoly of certain raw materials by a small number of countries and the necessity of providing an adequate access to supplies of such materials for all countries.39

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And on the other, it is essential to prevent disequilibrium between production and consumption, and to provide regular and ample markets for producing countries at prices which are fair to producers.40

He concluded: In both cases, the need for action is urgent; and the only permanent solution is along the lines of international collective control.41

The Inter-Allied and Neutral Cooperative Conference held in Paris in 1919 had come to the same conclusion when it stated the principles to guide international cooperative policy: (1) distribution of raw materials among nations according to their needs, (2) collaboration of public bodies with national cooperative organizations to ensure the just distribution of imported and all other commodities at a just price, (3) creation of an international statistical office compiling data relating to needs, resources, and conditions of production and consumption in each country, and preparing plans for an organized international division of labor.42 These three principles form, in fact, the essence of the solution of the raw materials problem as proposed by coUectivist speakers and authors, although they are given different stress. Baldesi, the Italian workers delegate at the first Session of the International Labor Conference, considered the scarcity of raw materials to be chiefly responsible for unemployment.43 Tittoni, in 1920 an Italian representative on the League Council, stated that, in many respects, "raw materials are unearned commodities for people who hold them."44 And Balfour outright advocated the Proudhonian idea that raw materials, found on a country's territory should, in all fairness, be considered as the common property of the whole world. They are the work of nature and man should not monopolize them.45

In a report presented in 1921 to the Economic and Financial Commission of the League, Professor Gini came to the conclusion that "economic considerations agree in demonstrating the inopportuneness of a policy which abandons the nations to the slow restorative work of natural forces."46 Therefore, in his view, the League should accept as its duty the equitable con-

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trol of raw materials and food supplies, especially with a view to the event of a blockade against an aggressor state. What are the concrete steps to be taken to prevent the disequilibrium between the production and consumption of raw materials? Lawley drew up an impressive, though somewhat undifferentiated list of economic, political, and religious personalities—among whom neither the Japanese Foreign Minister Hirota nor the names of Dr. Goebbels and "Herr Hitler"47 are missing. These personalities denounced the present system, and some of them urged the League to summon a world conference for the sole purpose of "discussing how the vast stores of national resources and the tremendous unsatisfied markets of the world can be organized and regulated for the service of mankind."48 This conference never took place. However, some interesting proposals were forthcoming to solve the problem. In the first place, it was considered necessary that the Colonial Powers should abandon their exclusive rights over colonies and place them under League mandate.49 Secondly, a "co-ordinating international body" was to be created: This body will, at once, control production and, in controlling markets, will ensure fair distribution to all countries according to ascertained needs. Doubtless, eventually it will exercise this function of controlling production without the intervention of national producers through their international organizations and agreements; but, as a first step, it could have a Section to register, and thus control, international agreements concluded by producers, which have become necessary.50

Such agreements—whatever form they may take—are already being concluded with a special effort to protect producers from excessive market fluctuations and to assure them not only stable, but also higher than equilibrium prices. Although the partners are still the owners or directors of private enterprise, guided solely by the aim of maximizing profits, it is better that such enterprises should be organized internationally than that competition and international anarchy should prevail. Moreover, embodying in some degree the collective principle, they prepare the way for a larger and firmer form of international organization.51

As a next step, negotiations should be opened between the

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major interest groups which are (1) "all producing countries . . . and all branches of production of the raw material, together with all artificial or synthetic products or substitutes therefor";52 (2) the consuming countries and industries; (3) the representatives of the final consumers; (4) the workers' representatives. When "complete understanding" is reached between these four groups about quantities, prices and mutual control,53 then, Agreements should ultimately be made by the responsible Governments in the producing countries, which should (and this would) ensure the effective execution of the Agreements. These should be registered with the League of Nations with a special Office or Section of its Economic Organization . . . and a measure of coordination of the production and distribution of these various essential commodities would be effected.64 Once it is recognized that the real problem is "economic rather than political and territorial," that its essence is "the fear of monopoly, of the withholding of essential colonial raw materials,"55 and once the above-mentioned mechanism is set into motion, in due course, doubtless, there will be public international undertakings, performing the necessary functions in the production and distribution of these commodities in relation to the central world economic organization. As a stage on the road in that direction, central organizations, under public ownership or control may be created, as happened during 1914-1919, for a cooperative purchase of such commodities and distribution on a quota-basis according to ascertained needs.56 International Migrations As regards the force represented by labor, it has become almost a commonplace that some countries, which suffer from serious overpopulation, are without one or both of the other two factors of production, while others, which are better off as to raw materials or capital, are still very sparsely populated.57 Two possible solutions offer themselves: (1) the overpopulated areas receive a just share in the world's natural resources

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—as is advocated by Baldesi—or (2) the world population itself be more evenly distributed: To relieve the congestion in overcrowded countries by transferring their surplus to unpopulated areas, would open the way to the full exploitation and consummation of the economic potentialities of the world.58

But, according to the theory of the Reserve Army, relative overpopulation does exist also due to technical progress. Therefore a careful planning of international migratory movements becomes necessary. De Michelis considers the I.L.O. to be the most suitable agency for the task of evaluating in countries suffering from severe unemployment or severe overpopulation the volume of labor available for transference and permanent settlement abroad. In the process of execution this investigation will gain increasing precision as progress is made in the correlative inquiry concerning the land suitable for receiving the workers, and therefore capable of undergoing profound economic transformation.59

Other authors imply that in a future world order absolute overpopulation may become an acute danger.60 They therefore take account not only of numbers, but also of races and do not exclude the "scientific" planning of the globe's population itself.61 The problem of international migrations was discussed at the Stuttgart Congress of the Second International in 1907. The Australian, South African, and some American delegates wished to exclude nonwhite immigrants on the grounds that they threatened the living standards of the white workers. The other delegations, while not accepting any discrimination according to race and color, "were however, quite prepared to take a stand against the deliberate importation of bodies of immigrants for the purpose of undermining the standards of living of the workers in the countries of immigration and to press for public regulation of immigration with this end in view."62 At the same time, however, "the resolution carried by the Congress stressed the need for the education and organization of immigrant workers and for the extension to them of the same wages, working conditions, and social and economic rights as were accorded to the indigenous workers."63

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International Money and Credit Control In a system of private appropriation, most capital originates from accumulated profits, that is, "the absorption of an unjust share of the product of industry."64 In reality, however, capital is regarded as a "collective surplus,"85 produced by cooperative effort. But under capitalism, "the surplus is invested not where it is most needed from the point of view of the needs of the world's peoples as a whole, but from the point of view of private and national interests, of maximizing quickly obtainable profits."66 Thus, to form the obvious counterpart to the international control of raw materials, international collective intervention is pre-eminently required in this field also. However, the ultimate goal is much broader than this: the main objective of international investment control is to be the equalization of living standards among all workers, and of economic development in general.67 With private appropriation the exclusiveness of nationalistic property claims will also disappear. Instead, the principle will prevail that workers as a whole have a right to the accumulations of property and knowledge from the past.68

Consequently, rich nations must be compelled to make some surrender of possessions and wealth to poor ones.69

With the general recognition of government deficit spending as an effective countercyclical measure, numerous proposals were advanced for the international coordination of national public works schemes. For this purpose, the Employers' Delegate from the 1933 International Labor Conference urged the establishment, under League auspices, of a permanent international agency. Albert Thomas suggested the construction of an international net of motor roads through Europe, totaling nearly nine thousand miles and costing about eight hundred million dollars. Other plans were put forward for the development of Eastern European infrastructure. The precondition for the realization of these plans is of

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course the existence of an efficient international monetary and credit system, important now, but considered still more important in the future world order: When one renounces laissez-faire policy and takes to intervention, it becomes natural to look for more radical measures and to attempt to go to the source of the evil, and to aim at a priori directing economic activities instead of merely correcting their disordered outcome.70

What is therefore most urgently needed is a universal monetary standard, furnishing the planning authorities "with a reliable financial instrument to serve both as a medium of exchange and as a store of value."71 As human intelligence has successfully evolved "universal, reliable, stable, and unchanging measures of length and weight,"72 it must at last invent a monetary system which will enable planners to plan without fear that uncontrolled price fluctuations will wash their plans away like castles in the sand.73

Albert Thomas, speaking for the I.L.O., still believed that gold provided the most suitable fundament for an international monetary system. But, he asked, should gold be allowed to be affected by all those political, economic, financial, and industrial circumstances which sometimes so profoundly alter its purchasing power?74

And he answered by quoting R. McKenna: Let the gold standard be made to work satisfactorily—that is, let it give a stable value to money—and they will be quite ready to go back to it.75

What conditions must be fulfilled for this purpose? "The Rt. Hon. Reginald McKenna (Great Britain) suggests, as a credit policy, that trade requirements should be met without regard to gold movements, the discount rate being fixed in relation to general economic conditions, e.g. the volume of production, the conditions of employment, home and foreign price movements, the growth of population and potential productive capacity."76 Other authors proposed the pooling of the world's gold resources; Professor Edie, of Chicago University, for example, came out for the creation of a "gold League of Nations."

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Conversely, there are authors who believe that the retention of the gold standard constitutes a serious obstacle to efficient industrial activity and economic progress. They also point to the waste of productive capacity and effort involved in the production and storage of gold. Lawley is one in this group: World production and trade have been throttled by the worship of gold. . . . The suffering peoples are ready for revolutionary economic changes. They await deliverance through an enlightened national and international financial monetary policy, ministering to human needs. They do not exclude very unorthodox financial measures as experiments. This crisis has shown that gold and cash or currency are not essential to international trade which is exchange of commodities and services.77

Great hopes were attached, by socialists, to the Bank of International Settlements (B.I.S.) created in 1930. Lawley writes: Animated by a desire to promote collective economy, the Bank could dictate the world's monetary evolution along collective lines. It could use its funds to develop backward regions and to promote public works, such as electrification and improved transport facilities. In fact, it could plan the world's economic development in cooperation with a League organ planning world economic development as a whole.78

An interim proposal was made by Professor Edgar Milhaud, based on the experiences gained by the general recourse to international barter, and assigning a major role to the B.I.S. During the period from 1928 to 1932, he writes, there occurred a severe drain of gold reserves in forty countries; they therefore looked for methods apt to eliminate, as far as possible, the use of money in international trade. There emerged a network of bilateral trade agreements which, in spite of all its disadvantages, prevented international economic relations from collapsing. Furthermore, "the principle of reciprocity in foreign trade found increasing acceptance."79 What Milhaud suggested then, was to retain this international compensation and clearing system, but to place it on a "plurilateral," and eventually an "omnilaterai" basis. The essential objective to be attained is to enable the various countries to resume their buying abroad without having to fear that the equilibrium of their economy will be upset and thereby their financial situation worsened and their currency exposed to renewed dangers. . . . Hence, it

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is vital to link every foreign purchase made by a country to the certainty of a corresponding sale from this country. To this end, the states agree among themselves to the effect that foreign transactions are settled not by the transfer of gold or exchange reserves, but by means of special vouchers (bons d'achat) the only function of which is to buy goods and services from the issuing country.80

By this system of international bills of exchange issued and honored by governments, which would replace the gold standard, Milhaud sought to ensure equality of value in international transactions. Furthermore, international credits—given in the form of bons d'achat—would automatically become tied to the subsequent delivery of goods and services. Consequently, financial difficulties, which today stand in the way of solving the problem of large-scale international public works, would be lessened due to the interest which creditor countries would acquire in lending funds.81

Lawley comments: The widespread resort to organized barter is another indication that only collective action can solve modern economic and, in particular, trading problems.82

Methods of Achieving World Planning What are the fundamental measures proposed by socialists to achieve the rational economic organization of the world? Association of the three factors in the production of wealth—labor, land and raw materials, and capital—and their combination with a view to maximum output.83

writes an author rather vaguely. "Syndical organization of national and international industries,"84 suggests E. Milhaud, reviving Louis Blanc's formula, but stressing the necessity of adequate control. But this control, he thinks, will not be difficult: The State, the industries consuming the output of the syndicated industry, and the workers of these industries form the elements, the concurrence of which ensures the organization of such control from within.85

Albert Thomas wholeheartedly agrees with the program of the International Cooperative Alliance which he quotes:

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the creation of a cooperative order established in the interest of the entire community and based on mutual assistance and "self-help."86

The system of cooperation establishes direct relationships between production and consumption; and, by its efforts to use savings rationally, it gives a satisfactory answer to the requirement expressed in many resolutions "regarding the necessary regulation of capital movements."87 Cooperation is the manifestation of "a converging effort of wills:"88 Already we see that . . . coordinating international bodies are emerging which confront needs and resources and ensure stable transactions based on equitable reciprocity.89

At the same time, however, Albert Thomas stresses the necessity to respect the desire of each nation and of each people to preserve the degree of independence which is indispensable if it is to peacefully develop the resources of its genius, all of its moral and spiritual values.90

A writer in Politique91 suggested the creation of an International Bureau of Production to be directed by intelligent and competent businessmen. Just as a certain coordination of central bank policies was achieved by regular contacts within the B.I.S., so managers and directors should come together and deliberate on vital questions of production. Their conclusions reached after careful study would become public and binding. The Bureau, cooperating with the League and the I.L.O., would have adequate authority to have its decisions observed by the industries of the various countries. It would also supervise producers' agreements and entertain close contacts between cartels. Another similar suggestion was made in 1935 by the U.S. Secretary of Commerce, D. Rooper, with respect to the establishment of an international board to divide the world export makers among the producing and manufacturing nations.92 Consciously or unconsciously following Jaurès, many socialists are not unwilling to approach international economic control from the basis of the "latest" forms of private initiative, especially of international cartels: Businessmen have started to abandon more completely as obsolete the

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idea that unrestricted competition ensures the best interests of producers, while certainly consumers are coming to see that, whatever dangers unregulated trusts and monopolies may present, competition does not give them the best terms. Reduced costs, as the basis of lower prices and stability, ensuring the worker smoother employment and thus augmenting his purchasing power, and as a source of economy to the employer, especially through the enabling of a wiser use of capital, and surer and accessible markets, these are some of the fruits of large scale, coordinated organizations.93

It is clear: every kind of control is welcomed by socialists as the useful starting point for further control and as a hopeful step on the way to achieving comprehensive world planning. For the conception of unorganized labor, which is translated by the law of supply and demand, and leads to the "struggle for life," socialism substituted a scientific organization of production and exchange whose elevated moral and social aims are unassailable from the point of view of justice and human fraternity.94

But what about the economic point of view? Albert Thomas' answer is clear: We have arrived at the most perilous stage of economic evolution. To pass beyond it, we must not be held back by the illusions of the doctrines, now outworn of laissez-faire. . . . 95

And, in his last speech, held in 1932 at the International Labor Conference, he said: They say: impossibility of social security charges; they say: economic impossibilities, and at the same time the world seems to overflow with possibilities of wealth and production. Raw materials—they are there. Stocks are not diminishing—they are increasing! Men and workers—they are there. . . . What then is lacking? What is lacking is organization; the possibility of combining all these elements, the desire to put all these resources to work . . . according to the postulates of social justice. What is lacking is the supreme initiative which makes possible international decision-making.96

This initiative must be embodied, in Lawley's view, in a central organization. Production plans must be drawn up according to the comparative advantage of the various regions of the world: It will be most essential that the central body is equipped with an

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expert staff to provide it with a thorough knowledge of production costs. When international production is organized on the true basis of international collective economy, the international organization will fix prices, on which the exchange of goods will occur, bearing in mind the payment of proper wages and salaries, collective transportation, the covering of capital costs, and the cost of maintenance and repairs of plant and machinery.97

On the basis of such "true economic prices,"98 international exchange will be centrally planned and stable: The manipulations and instability of the capitalist exchange system —with varying exchange rates (and quotations of stocks and shares) will no longer exist."

As to the monetary system, "the best solution would be a uniform international currency,"100 managed and controlled by the B.I.S. But this will be of relatively minor importance because the Milhaud plan contains the seeds of the new forms of economic practice in regard to international exchange of the future, inasmuch as it emphasizes that the distribution of goods and services and not the passage of money is the vital thing in economic life.101

As regards investment, "only a central International Authority can determine in the world's general interest, where credit should be allocated."102 The capital charges included in prices will, because of the eventual collective ownership of funds, not be at all similar to those when a return on private capital has to be envisaged. . . . What is now called interest on such capital will go to the collectivity.103

Yet, whatever the approach to the question of international collective organization and whatever forces are stressed as the most appropriate for its achievement, it is generally recognized that the final goal cannot be realized without the active participation of national governments—•which must of course be collectivist governments. Great hopes were attached by socialists to the National Economic Councils established by France and Germany, as well as to the Italian National Corporations System; such organs were to join, under League auspices, into a World Economic Council, eventually to be responsible for

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world planning. Plans were proposed to give representation, in this Council, also to workers' and consumers' interests—in an analogy to the International Labor Organization in which governments, as well as employers and workers, are represented. However, the basis of its work must be a firm foundation National Economic Councils.10*

laid by

authoritative

Here then, the "internationalist" approach merges with the theory of those socialists who have considered, from the beginning, the complete collectivization of national economies to constitute the sine qua non for a planned world order. Thus, there is lastly only one way leading to this order: and it leads through the separate political unit that is formed by the State. SUMMARY AND CONCLUSIONS

In this chapter, the future socialist international order, conceived as the final stage of historical, economic, and human development, has been presented in full outline. It is a world united under one single control: for the first time, efforts were made to convert the age-old dream of a world government into concrete reality. Political conflicts, arising from national sovereignty, will be replaced by the complete integration of the world's peoples into one great community. Economic disputes will, so socialists believe, equally belong to the inglorious past, because economic affairs are no longer to be conducted by individuals. A central authority will take care of them, and will direct men, capital, and raw materials to those places and uses which are the most beneficial to the world as a whole. It is tacitly implied that with the aid of science, an objective order of priority can be established between all possible economic objectives; this already traditional socialist belief is coupled with the conviction that a thus wisely balanced world plan will meet with the full approval of all segments of the world population. They will therefore joyfully accept and carry out the decisions and directions of the universal government, knowing that they are in their best interests. Marx and Lenin are more realistic on this subject. They expect this solidarity to come forth from the working class only.

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For them, a socialist world order can only be thought of after the revolutionary annihilation of the bourgeoisie and of the economic, political, and ethical principles for which it stands. Thus, as they see it, the immediate future has no peaceful international order, but an embittered struggle for domination in store, the outcome of which must be the victory of the proletariat. This is, for Lenin, synonymous with the arrival to power of the Communist Party. The leaders of this party do not derive power from any kind of democratic consent on the part of the workers, but from History and from their advanced knowledge based on History. It is one of their very tasks to render this truth accessible to the masses and to awaken their class consciousness. Hence, the Party's scope of action must be unrestricted. Leninist theory thus continues the already familiar utopistic tradition by relying on the fundament of socialist philosophy: the autonomous life of the corps social. The Party constitutes, just as Plato's State and the Saint-Simonian être collecti† had done, a body independent of the will of the individuals which it claims to represent. The terms "working class" and "Communist Party" are nevertheless used interchangeably; although individual party members may err, "the Party is always right." It is, like Utopia, the model of human perfection. At the same time, it is regarded as the only truly international force. Claiming to be the outward expression of Marx's class theory, it apparently suffers no territorial limitation. It follows that the Communist Party must, by its nature, aim at world domination. It is to constitute that supreme authority of which Pecqueur had spoken, the center of all countries and continents, la force qui dirige, qui attire et qui renvoie. To be sure, constitutional socialists and collectivists, to whose views this chapter has largely been devoted, would reject the concentration of such absolute power in the hands of a small elite. Nevertheless, they too fall victim to Utopian thinking. The term "collective" has for them a magic attraction; all their various and often contradictory theories and proposals rest on the assumption that there exists a higher reality than that in which individuals and national governments are the main actors. They believe that the representatives of collectivity, whoever they are, alone possess the necessary insight to

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solve all those problems with which "capitalism" grapples in vain. This way of thinking is best illustrated by the demand to place colonies under collective administration. Does the problem of colonies not arise from the fact that the states possessing them deliberately exclude the citizens of other nations from free access to them? How is it then to be expected that a state practicing such a policy will readily consent to relinquish these territories to a supranational agency? It seems very improbable that it will allow itself to be convinced by "collective reason" to renounce its power politics. Hence, unless force is applied, everything must remain as it was before. In the same way, the other problems with which the authors of this chapter were concerned have their origin in an extensive use (and abuse), by national governments, of their sovereignty. Is there any chance of these governments suddenly becoming "reasonable" and submitting their actions to the dictates of an international organization? The socialist authors attempt to evade this basic dilemma by postulating collectivist states, that is, states which have abolished, within their jurisdiction, private economic initiative and replaced it with a central national plan. This, according to them, is the necessary precondition for a rationally planned world order. Now it is clear that this change in the internal economic order may only occur (again setting aside force) if the citizens can be persuaded that the economic power, henceforth to be invested with their governments, will be used for their best interest, i.e. to raise their standards of living more effectively than could be accomplished by a free market economy. On the other hand, the authors under review presuppose that the new socialist governments will abolish national power politics and be inspired by true international solidarity. Hence we must ask the decisive question: are the national obligations of these governments toward their citizens and their international solidarity mutually compatible? Only if it could be shown that the world planning authority would allocate the various resources precisely in the same way as do national governments; only if, therefore, national plans could be regarded as different, but complementary parts of a single world plan, so that it would be irrelevant which particular authority is drawing them up—only then would the problem of world planning be, theoretically,

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solved. However, because a socialist world order openly aims at a redistribution of resources, a taking from the rich and a giving to the poor, and because the different peoples of the world have reached widely differing stages of economic development, the criteria which would determine the world plan would be entirely different from those of the national plan. Consequently, who is to dispose of the productive resources in the various parts of the globe becomes an issue of utmost importance. Thus, not a fundamental solidarity, but rather a fundamental conflict of interests prevails among collectivist states for which, as we shall see, the necessity of politically and economically controlling as many raw material sources and strategic points as possible becomes even more imperative than for their "imperialist" predecessors. Hence, a voluntary abolishment of political power, to which, under collectivism, all spheres of a country's internal life are subjected, and a corresponding "growth" of a unified socialist world economy, must be regarded as Utopian. NOTES TO CHAPTER IV 1. "The cure for world disorder is not the replacing of closed national economies by open ones and the encouragement of freedom of trade between nations. What is required is international collective intervention to ensure that the dominant force in international economic life is no longer the quest for private and national profit. National and private economic ambition and selfassertion must submit to the collective will." Lawley, F. E., The Growth of Collective Economy. Vol. II: The Growth of International Collective Economy. London, King & Son, 1938, pp. 4-5. 2. Lorwin, L. L., "The I.L.O. and World Economic Policy." International Labour Review No. 4, April, 1936, p. 458. 3. "Protectionnisme, Libre-échangisme et Organisation Internationale des échanges." Report presented to the XHIth Congress of Federation Nationale des Cooperatives de Consummation held in Lille on May 13 and 14, 1926, reprinted in Annales de I'Economie Collective, Vol. 18, Nos. 202-4, AprilJune, 1926, p. 97. 4. "To the bourgeois dilemma: protection or free trade, the proletariat provides the answer: neither protection, nor free trade, but socialism, organization and production, conscious control of the economy not to the advantage of the capital magnates, but to the advantage of all society which eventually will subject to itself the economy as it has subjected nature since it had discovered its basic laws of motion." Hilferding, R., op. cit., p. 472. 5. Thomas, A., foe. cit., p. 99. 6. These ideas were first expressed by Sismondi. 7. Veblen, T., The Theory of the Leisure Class. In What Vehlen Thought. Selected Writings. Edited by W. C. Mitchell, New York, The Viking Press, 1936.

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8. Dickinson, H. D., Economics of Socialism. London, Oxford University Press, 1939, p. 31. 9. Ibid., p. 36. 10. Veblen, T., op. cit., p. 226. 11. "The principle of scientific management is being applied to national industries and to national economy. It must be carried a step further and be applied to the whole international economic system." H. S. Person's address to the World Social and Economic Planning Congress, quoted in Lawley, F. E., op. cit., p. 371. 12. Statistics—the quantitative study of social and economic phenomena—is in fact regarded as the essential preliminary instrument of planning. "Stock taking must evidently be the first step toward any comprehensive scheme of world order." Archer, W., The Great Analysis. A Plea for a Rational World Order. London, Williams & Norgate, 1931, p. 25. 13. Lorwin, L. L., loc. cit., p. 461. 14. Archer, W., op. cit., p. 21. 15. Ibid. 16. "A World Programme of Organic Economic Reconstruction." International Labour Review, Vol. XXIV, No. 5, November, 1931, p. 504. 17. Quoted in Johnston, G. A., "Social Economic Planning." International Labour Review, Vol. XXV, No. 1, January, 1932, pp. 76-77. 18. Ibid., p. 77. Cf. also W. Archer: "At any rate, we assume that some group of men (and women?) capable not merely of voting 'aye' or 'no' on a cut-anddried proposition, but of sustained and accurate collective thinking, is entrusted with the task of planning the new order of things." Op. cit., p. 11, italics added. And elsewhere: "A collective thought, emanating from a collective brain, consciously organized for inquiry and reflection on a planetary scale, would command . . . a wholly new order of critical attention." Ibid., p. 37. 19. Johnston, G. A., he. cit., p. 77. 20. Lenin, V. I., Preliminary Draft of Theses on the National and Colonial Questions (June, 1920). Selected Works in Twelve Volumes, translated from the Russian and issued by the Marx-Engels-Lenin Institute, Moscow and London, Lawrence & Wishart, 1936-39, Vol. X, p. 232. 21. Lenin, V. I., The Urgent Tasks of Our Movement (December, 1900). Ibid., Vol. II, p. 13. 22. Lenin, V. I., What Is To Be Done? (1901-2). Ibid., p. 48, italics original. 23. "The history of all countries shows that the working class, exclusively by its own effort, is able to develop only trade union consciousness, i.e. it may itself realize the necessity for combining in unions, for fighting against the employers, and for striving to compel the government to pass necessary labor legislation, etc. The theory of socialism, however, grew out of the philosophic, historical, and economic theories that were elaborated by the educated representatives of the propertied classes, the intellectuals. According to their social status, the founders of modem scientific socialism, Marx and Engels, themselves belonged to the bourgeois intelligentsia." Ibid., p. 53. 24. Ibid. 25. Ibid., p. 70. At the time this pamphlet was written, no split had occurred as yet between "Social Democrats" and "Communists." The Russian Party adopted the name "communist" only in 1918. 26. Neue Zeit, 1901-2, quoted ibid., p. 79, Lenin's italics. 27. What Is To Be Done? Ibid., p. 63, italics original. 28. Communist Manifesto, in Ebenstein, W., op. cit., p. 703.

ORGANIZATION INSTEAD OF LAISSEZ-FAIRE 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

44. 45. 46. 47. 48. 49.

50. 51. 52. 53.

54. 55. 56.

89

Milhaud, E., "La paix, la cooperation et les accords économiques entre Etats." Ånnales de VEconomie Collective, Vol. XVII, Nos. 187-89, January-March 1925, p. 39. Milhaud, E., "National Planning, International Planning, and International Exchanges." Annals of Collective Economy, Vol. XXI, No. 1, January-March, 1950, p. 145. Ibid., p. 148, italics added. Speech held before the Third Commission of the League Assembly, quoted in Milhaud, E., "La paix, etc.," he. cit., pp. 31-32. Ibid., p. 32. Boncour, P., quoted ibid, p. 33. Quoted in Lawley, F. E., op. cit., p. 31. Quoted in Milhaud, E., he. cit., p. 33. I.e. "the equalization of opportunities of all countries with regard to raw materials, credits, markets, e t c ' Lorwin, L. L., he. cit., p. 464. Lawley, F. E., op. cit., p. 160. Ibid. Ibid., pp. 160-61. Quoted ibid., p. 20. "Before the war we witnessed periodic crises due to over-production which caused distress among the working masses, in spite of abundance of products. Since the war we have noticed, in certain countries, the contrary phenomenon of insufficiency of production due to the scarcity of raw materials to industry. This phenomenon had similar results, that is to say very grave unemployment, accompanied by the misery which follows the closing of factories or reduction of their staff. Wherefore it is very important to demand that the League of Nations should study the question of a just distribution of raw materials. . . ." Quoted in Lawley, F. E., op. cit., p. 22. Quoted ibid., p. 24. Quoted ibid., p. 25. Ibid., p. 27. Ibid., p. 246. G. Lansbury in a letter to The Times, August 28, 1935. "The time is long overdue when the League should face manfully, with the willing cooperation of the Great Powers, the task of putting on a mandate and perhaps a joint mandate basis all colonial possessions. To achieve this would remove a potent cause of war." Lawley, F. Ê., op. cit., p. 244. Ibid., pp. 235-36. Ibid., p. 237. Ibid., p. 238. But "international agreement and organization must not be on the basis of restricted production. . . . There must be a central mechanism for attempting to relate production to real needs and to make these needs into effective purchasing power. All nations must have an equal right of access to supplies according to needs. Prices must remunerate producers on a reasonable 'public utility' basis but there must be no artificial maintenance of a high price level." Ibid., pp. 238-39. Ibid., pp. 239-40. /fc»d.,p.242. Ibid., p. 238.

90 57. 58. 59. 60.

61. 62. 63. 64. 65. 66. 67. 68. 69.

70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER De Michelis, G., "A World Programme of Organic Economic Reconstruction." International Labour Review, Vol. XXIV, No. 5, November, 1931, p. 497. Ibid., p. 498. Ibid., p. 502. "When once the routine of life was established, the chief difficulty would be to maintain the just balance between population and subsistence; for the people would probably show a constant tendency to breed beyond the margin fixed by the established standard of comfort." Archer, W., op. cit., p. 15. Ibid., p. 35. Cole, G. D. H., op. cit., Vol. III/I, p. 74. Ibid. Lawley, F. E,, op. cit., p. 2. Ibid., p. 3, cf. also pp. 44 seq. Ibid., p. 3. Milhaud describes the same process in terms more akin to the theory of Hilferding. Cf. "Les Accords économiques entre Etats." Annales de I'Economie Collective, Vol. XVII, Nos. 187-89, January-March, 1925, p. 66. Ibid. Hall, R. L., Economic System of a Socialist State. London, Macmillan, 1937, p. 230. Lawley, F. E., op. cit., p. 5. This idea reoccurs in the closing chapter of his book: "All large economic enterprises should be governmentalized in some form, so as to internationalize all wealth whose utility is too general to allow its exploitation to be reserved for one single nation." Ibid., p. 425. Milhaud, E., ibid., p. 63, italics original. Johnston, G. A., loc. cit., p. 74. Ibid., p. 75. Blackett, Sir Basil, The Function of Finance in International PL·nnkig. Quoted in Johnston, G. A., ibid., p. 75. Report of the Director. International Labor Conference, 16th Session, Geneva, 1932, p. 60. Speech made at the Ordinary Assembly of Shareholders of the Midland Bank Limited, January 30, 1933, quoted ibid., p. 60. Lawley, F. E., op. cit., p. 390. The author refers to McKenna's Post-\Var Banking Policy. A Series of Addresses. London, 1928. Ibid., pp. 391-92. Ibid., p. 115. Ibid., p. 326. Milhaud, E., "Trêve de l'Or et Clearing des Transactions. Plan pour le rétablissement des échanges internationaux." Annales de I'Economie Collective, Vol. XXV, Nos. 284-88, February-June, 1933, p. 73, italics added. Ibid., p. 94. Lawley, F. E., op. cit., p. 334. De Michelis, G., foe. cit., p. 496. Milhaud, E., "Accords, etc.," loc. cit., p. 70. Ibid., p. 72. Thomas, A., "Protectionnisme, etc.," loc. cit., p. 109. Ibid., p. 112. Ibid. Ibid. Ibid., pp. 109-10.

ORGANIZATION INSTEAD OF LAISSEZ-FAIRE 91. 92. 93. 94. 95. 96. 97. 98.

99. 100. 101. 102. 103. 104.

91

"Politique" (journal), mentioned in text on p. 81. No. 6, June 15, 1930. Daily Herald, January 31, 1935. Lawley, F. E., op. cit., p. 378. Franq, R., L'économie rationnelle. Quoted in Lawley, F. E., op. cit., p. 371. Report presented to the Thirteenth Congress of the National Federation of Consumers' Cooperative Societies at Lille, 1926, quoted in Lawley, F. E., op. cit., p. 364. "L'O.I.T. face au problème de l'organisation de l'économie. Les derniers enseignements et le supreme appel d'Albert Thomas." Annales de TEconomie Collective, Vol. XXIX, Nos. 335-42, May-December, 1937, p. 166. Lawley, F. E., op. cit., p. 374. "The theory of the capitalist market price, which dies hard among economists, will then have died. Market price, under capitalism, has no relation to the true economic price which is based on actual economic services conceived as collective functions, without reference to the need, under private capitalism, of assigning part of the product of industry to be utilized as private profit in a competitive market." Ibid., pp. 387-88. Ibid., p. 388. Ibid., p. 392. Ibid., pp. 386-87. Ibid., p. 390. Ibid., pp. 374-75. Ibid., italics added.

CHAPTER V

THE COLLECTIVIST STATE-THE TRANSITIONAL STAGE FROM CAPITALISM TO WORLD PLANNING MARXISM AND THE NATIONAL STATE

The man who had summoned the proletarians of the world to unite never allowed himself to speculate along the lines described in Chapter IV. He bitterly attacked Bakunin's antiState view of the future international order, even though both subscribed to the doctrine defining the State as the institutionalized form of oppression. Yet, for Marx, the latter was also a necessary historical category. As capitalism had a specific historical task to fulfill, so had the national state, created by the capitalist class and used as its instrument: The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.1

Consequently, a collision between the ruling classes and the forces of socialism became inevitable, but, and this is the essential point, the State was not to be destroyed by the "international proletariat"; it was instead to be conquered by the national working classes in each state: Though not in substance, yet in form, the struggle of the proletariat with the bourgeoisie is at first a national struggle.2

The proletariat's aim is to achieve political power: Political power, properly so called, is merely the organized power of one class for oppressing the other. If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organize itself as a class; if, by means of a revolution, it makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms, and of classes generally, and will thereby have abolished its own supremacy as a class.3

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For international relations this means: In proportion, as the exploitation of one individual by another is put an end to, the exploitation of one nation by another will also be put an end to. In proportion, as the antagonism between classes within the nation vanishes, the hostility of one nation to another will come to an end.4

This is an early statement of the familiar "withering away" theory. But this process, according to Marx, is able to begin only in a "higher phase of communistic society" when both individual character and the forces of production have reached a stage of development which makes possible its organization on the principle "from each according to his ability, to each according to his needs."5 However, between capitalist and communist society lies the period of the revolutionary transformation of the one into the other. There corresponds to this also a political transition period in which the State can be nothing but the revolutionary dictatorship of the proletariat.6

The dictatorship of the proletariat is characterized by two basic functions: the gradual extinction of all traces of capitalism and the construction of socialism. To fulfill these tasks, the State must undergo a complete transformation. There can be no question of the socialist state's continuing to operate (†ortwirtschaften) with the administrative apparatus inherited from capitalism; it must shatter it. Parliamentary control, being regarded as the control by the possessing classes,7 is to be replaced by a pyramid of workers' councils wielding both executive and legislative powers.8 This system is called, by Lenin, democratic centralism. "Insofar as these councils are representative institutions, there is democracy. Insofar as the greater power goes with the higher council and insofar as the unity of the nation is not to be broken, there is centralism."9 Both Marx and Lenin stress the fact that this system has nothing in common with traditional federalism. In fact, it is an entirely new form of community which could best be characterized, as Engels has suggested, by the word "Gemeinwesen," as opposed to "State." It follows from Marx's writings that the dictatorship of the proletariat is to be instituted in the wake of a victorious and separate revolution of the working class in each state and that "the unity of the nation should not be broken up." But this

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postulate is clearly in contradiction to Point 9 of the program adopted by the Social Democratic Workers' Party of Russia in 1903 containing "the recognition of the right of self-determination to all nationalities contained in a State."10 It is impossible, in this context, to trace the various views held by the major socialist protagonists such as Rosa Luxemburg, Otto Bauer, Karl Renner, and Karl Kautsky—on this question at the turn of the century. Both Marx and Lenin have unmistakably pointed out that "it is to the class-struggle that we must subordinate the demand for national self-determination."11 And Lenin argues dialectically: We demand the freedom of self-determination—not because we dream of an economically atomized world, nor because we cherish the ideal of small states, but on the contrary, because we are for large states and for a coming closer, even a fusion, of nations, but on a truly democratic, truly international basis. . . .12 For the advantages of large states, both from the point of view of economic progress and from the point of view of the interest of the masses, are beyond doubt, and these advantages increase with the growth of capitalism.13

Socialism will lead to the complete elimination of all national friction, of all national suspicion, to the speedy establishment of intimacy between and amalgamation of nations, culminating in the "withering away" of the state.14

This process will result in the creation of a single world economy regulated by the proletariat of all nations according to a common plan.15

The practical solution of the self-determination issue, adopted by Lenin and his successor, sheds important light on the major point of interest in this context—the kind of internal order corresponding to the dictatorship of the proletariat. In an article published in Pravda on October 10, 1920, Stalin analyzed the proper relations to be established between Central Russia and the different nationalities which have been united under Czarist domination: The demand for the secession of the border regions from Russia . . . must be rejected . . . because it is fundamentally opposed to the interests of the mass of the peoples both of the centre and of the border regions.

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Apart from the fact that the separation of the border regions would undermine the revolutionary might of Central Russia . . . , the seceded border regions themselves would inevitably fall into bondage to international imperialism.16 In 1922, only two years later, considerations relating to the internal economic situation, foreign policy, and the "structure of Soviet power" led to the establishment of the Union of Soviet Socialist Republics. This structure, "being international by its intrinsic nature . . . systematically fosters the idea of unity among the masses and impels them towards amalgamation."17 Stalin described the nature of unified economic cooperation as follows: The People's Commissariats of Finance, National Economy, Food, Labor and Inspection shall continue within each of the contracting republics, but in such a way as to operate in accordance with the instructions of the corresponding central Commissariats of the Union.18 Some months later, at the 12th Congress of the Communist Party of the Soviet Union, he said: The political basis of the dictatorship of the proletariat consists mainly and primarily of the central, the industrial regions, and not the border regions which are peasant countries. If we over-emphasize the peasant border regions at the expense of the proletarian districts, a fissure in the system of the dictatorship of the proletariat may result. . . . It should be borne in mind that besides the right of nations to self-determination there is also the right of the working class to consolidate its power and to this latter right the right of self-determination is subordinate.19

MARXISM AND ECONOMIC ORGANIZATION

Marx and EngeL· To the transitional political period—the dictatorship of the proletariat—there will correspond, according to Marx, a "first phase" of economic organization: What we have to deal with here is a communist society, not as it has developed on its own foundation, but, on the contrary, just as it emerges from! capitalist society; and which is thus in every respect, economically, morally and intellectually, stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society—after the deductions have been made

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—exactly what he contributes to it. What he has contributed to it is his individual quantum of labor. . . . Here obviously the same principle prevails as that which regulates the exchange of commodities, as far as this is exchange of equal values. Content and form are changed, because under the altered conditions no one can give anything except his labor, and because, on the other hand, nothing can pass into the ownership of individuals except individual means of consumption. . . . Hence, equal right here is still in principle— bourgeois right, although principle and practice are no longer at loggerheads.20

This right, however, has severe defects: One man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time; and labor, to serve as a measure, must be defined by its duration or intensity, otherwise it ceases to be a standard of measurement. The equal right is an unequal right for unequal labor. It recognizes . . . unequal individual endowment, and thus natural privileges in respect to productive capacity. . . . Further, one worker is married, another not; one has more children than another, and so on. Thus, . . . one individual will in fact receive more than another, one will be richer than another. . . . Right can never be higher than the economic structure of society, and the cultural development conditioned by it.21

The "altered conditions" to which Marx refers, are, of course, the outcome of the fact that society openly and directly takes possession of the productive forces which have outgrown all control except that of society as a whole.22

Friedrich Engels devotes particular attention to the production side of a socialist economy: As soon as society takes possession of the means of production and uses them in direct socialization for production, the labor of everyone, however different may be its specifically useful character, immediately becomes social labor. The quantity of labor contained in a product no longer needs to be determined in a roundabout way; everyday experience directly shows how much of it is needed on the average. Society can simply compute how many labor hours are contained in a steam-engine, in a hectolitre of wheat of last year's crop, in a hundred square yards of cloth of a certain quality. It will not even consider expressing labor quantities specified for production . . . in any other unit . . . than in its natural, adequate, absolute measure: time. . . . Hence, society, under the above conditions, does not ascribe values to the products. . . . To be sure,

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society will continue to be aware of how much labor will be required for the production of each commodity. It will have to draw up its production plan according to the available means of production including, in particular, labor forces. It is the utility of the various commodities, balanced against each other and with respect to the quantities of labor necessary to their production that will eventually determine the plan. People will settle everything very simply, without interference of the much talked of value.23

Socialist planning will, according to Engels, achieve considerable economies of productive resources first because of its superior organization, secondly because there will be no more crises, and thirdly, because it sets free for the community at large a mass of means of production and of products, by doing away with the senseless extravagance of the ruling classes of today, and their political representatives.24

Consequently, the government of persons is replaced by the administration of things, and by the conduct of processes of production. The state is not "abolished." It withers away.25

With respect to the international division of labor, Engels writes: Capitalistic industry has already made itself relatively independent of local barriers of its raw materials' production sources. . . . A society freed from the barriers of capitalistic production can go much farther. By producing a generation of universally educated producers who understand the scientific foundations of the entire industrial production and of whom each has worked himself through numerous production branches, it creates a new productive force that more than counterbalances the work of transport involved in the supply of raw materials and fuels from longer distances.26

Lenin The "higher phase of communistic society," Lenin maintained, was foreseen, though never "promised" by the great socialists, since it "presupposed both a productivity of labor unlike the present and a person unlike the present man in the street."27 For the time being,

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the Socialists demand the strictest control by society and by the state of the amount of labor and the amount of consumption. But this control must start with the expropriation of the capitalists and must be carried o u t . . . by a state of armed workers.28 The Communist Party, having fulfilled its task "to capture political power and to suppress the resistance of the exploiters"29 was now faced with the organization of accounting, of the control of large enterprises, the transformation of the whole of the state economic mechanism into a single huge machine, into an economic organism that will work in such a way as to enable hundreds of millions of people to be guided by a single plan. Such was the enormous organizational task that rested on our shoulders.30 However, our work of organizing nation-wide accounting and control of production and distribution under the guidance of the proletariat has lagged very much behind our work of directly expropriating the expropriators.31 And this in spite of the fact that accounting and control have been so utterly simplified by capitalism that they have become the extraordinary simple operations of checking, recording and issuing receipts which anyone who can read and write and who knows the first four rules of arithmetic can perform.32 The Soviet government must make use of the latest achievements of capitalism33 as regards the best auditing methods as well as such devices as the Taylor system and scientific management. But its principal task is an educational one: The fight to instill into the minds of the masses the idea of Soviet state control and accounting . . . the fight to break with the cursed past which taught the people to regard the gaining of bread and clothes as a "private" matter, as buying and selling, as a transaction "which concerns only myself"—is a great fight of world-historical significance, a fight between socialist consciousness and bourgeois-anarchist spontaneity.34 The authorities must also, by all means, raise labor productivity. This "first of all requires that the material basis of largescale industry shall be assured, viz. the development of the production of fuel, iron, the engineering and chemical industries."35

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It is also necessary to improve the discipline and organization of labor: The form of coercion is determined by the degree of development of the given revolutionary class. . . . Large-scale machine industry— . . . the material productive source and foundation of socialism—calls for absolute and strict unity of will which directs the joint labors of hundreds, thousands and tens of thousands of people. . . . But how can strict unity of will be assured? By thousands subordinating their will to the will of one.36 The Communist Party, "with the transition of all power— this time not only political and not even mainly political, but economic power, that is, power that affects the most deep-seated foundations of every-day human experience—to a new class,"37 is faced with a historically unique and therefore particularly difficult task. It goes without saying that in view of the supreme importance and the supreme difficulty of the organizational tasks that confront us, when we must organize the most deep-seated foundations of the human existence of hundreds of millions of people on entirely new lines, it is impossible to proceed according to the proverb "measure your cloth seven times before you cut it." Indeed, we are not in a position to measure a thing innumerable times and then cut out and fix what has been finally measured and fitted. We must build our economic edifice in the process of work, trying out this or that institution, watching their work, testing them by the collective common experience of the toilers and, above all, by the results of their work. . . . It goes without saying that if even in a short space of time we have again and again to alter types, regulations and organs of administration in various branches of national economy, there is nothing in this that can give grounds for pessimism, although, of course, it may give considerable grounds for angry outbursts on the part of the bourgeoisie.38 However, Lenin points out that the possibility of building up socialism depends entirely upon whether we shall be able . . . to safeguard our internal economic independence for a given transitional period.39 Hence, one of the first measures of the Soviet government was the establishment of a state monopoly of foreign trade.

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Stalin Stalin, with more than a decade of centralized state planning to look back upon, contributed three "new" aspects to the theory of socialist economy. The first refers to the character of economic laws: while it is true that they exist independently of the mode of production adopted, it has been proven that society is not powerless with respect to the laws; that it can, by knowing the economic laws and by relying on them, limit the sphere of their action, use them in the interest of society and take them into account as this is done with the forces of nature and its laws.40

The author illustrates this by "the objective law of harmonious and proportioned development of the national economy" governing socialism, which he contrasts to "the law of competition and anarchy of production prevailing under the capitalist regime."41 What is the nature of the first-mentioned objective law? Here is Stalin's dialectic answer: The law of a harmonious development of the national economy offers to our planning agencies the possibility of correctly planning social production. But possibility should not be confused with reality. . . . In order to convert this possibility into reality, one has to study this economic law, to master it, one has to learn how to apply it with full knowledge of what is involved. . . . One cannot say that our annual plans and our five-year plans fully reflect the requirements of this economic law.42

Secondly, Stalin analyzes the role of the law of value under socialism. As far as commodity production in the USSR still exists and it does at the present stage of historical development —the law of value asserts itself. Is this a good thing? the author asks and answers: It is not bad. . . . The calamity is not that the law of value influences our production. The calamity is that our economic and planning experts, with few exceptions, have a poor knowledge of the effect of the law of value, that they fail to study it and do not know how to account for it. This explains the confusion which still exists in our price policy. Here is an example among so many others. Some time ago, it was decided to adjust the relation of cotton and corn prices in the interest of cotton cultivation, to fix the price of corn sold to the cultivators of cotton, and to raise the price of cotton delivered to the State. Our economic and planning experts now came out with a proposition which could not but sur-

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prise the members of the Central Committee since it was suggested to fix the price of a ton of corn almost at the same level as that of a ton of cotton, the price of a ton of corn being identical with that for a ton of bread. . . . Perforce, the Central Committee itself had to attend to this matter, to lower the price of corn and to raise that of cotton.43

This does not mean, however, that the law of value directs production with respect either to its volume or to its proportions, as under capitalism.44 It is only allowed to work insofar as it does not collide with the law of proportional and harmonious development and the centrally established plans based upon it. If its sphere of action had a greater scope, as some comrades suggested that it should have, one could rightly ask: Why should not our light industries be fundamentally developed since they are more remunerative than heavy industry which is sometimes less remunerative or at times not remunerative at all? . . . It is clear that, by following the recommendations of these comrades, we had to renounce the primacy of the production of the means of production on the production of consumer goods. . . . This would mean the impossibility of an increasing growth of our national economy.45

Stalin's third contribution to socialist economic theory is found in this statement: The most important economic result of the second world war and of its consequences for the economy has been the disintegration of the single universal world market. . . . One has witnessed . . . the detachment of China and the other European countries having adopted popular democracy from the capitalist system in order to form, with the Soviet Union, a sole and powerful socialist camp, opposed to the camp of capitalism. . . . We have now two parallel world markets and they, too, are opposed to each other.46

This is how the author views the nature of the socialist world market: The experience of this cooperation shows that no capitalist country could have given equally efficient and technically qualified assistance to the people's democracies than that which they received from the Soviet Union. The fact is that on the basis of this cooperation there is the sincere desire to help one another and to achieve general economic progress. As a result, we observe rapid industrial development in these countries. One can say with assurance that, with such a rhythm of industrial development, these countries will soon no longer need to import goods from

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capitalist countries, but will themselves feel the necessity of selling the surplus of their production abroad.47

When reading this passage, one must wonder whether Stalin had read More's Utopia. We shall examine more closely these contentions, along with the nature and results of socialist international economic cooperation, in the last part of this study. T H E NATIONAL SOCIALIST APPROACH

It is interesting to note that the internal structure of the collectivist state became equally elaborated by another line of thought, represented with particular force and clarity in Germany. The authors in question, philosophers and historians alike, approached the subject not from the premise of international solidarity, but from the viewpoint of national might and greatness. They drew their inspiration from the Prussian state which, as we have already seen, was regarded by Hegel as the most perfect manifestation of historical development, the identification of reason with reality.48 It is impossible, in this context, to give more than a few highlights to illustrate this line of economic and political speculation which eventually resulted in the establishment of the National Socialist state. The State is seen as an "ideal, total personality placed above the individual."49 Or one can read: The State . . . is the intimate union of the entire physical and spiritual needs, of the entire physical and spiritual wealth, of the entire internal and external life of a nation to a great, energetic, infinitely moved and living whole.50

It is impossible to achieve the national state as long as minds are divided by a twofold desire, the one to live in civic order in the state . . . the other to exempt oneself again from the entire civic order, to cut oneself out of the same state with one's family, one's private life, one's most intimate feelings, even with one's religion.51

Hence, there can exist no human sphere outside the State. All property should lastly belong to the State. The Ministry of Foreign Affairs is to supervise if not outright to conduct foreign trade. It is only "the free and powerful intercourse of the states

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among them"52 which has ultimate reality in international relations. At the same time, states cannot possibly be subjected to international law, for it would far exceed the capacity of any single human being to act as an arbitrator in international disputes.53 Clearly, this doctrine has its roots in the theory of the Utopian State. It was radically restated by Oswald Spengler after the end of the first world war: World history is the history of states. The history of states is the history of wars. Ideas, if they press toward a decision, assume the form of political units, states, peoples, parties. They will be fought out with weapons, not with words. . . . War is the eternal form of higher, human existence and states exist for the sake of wars; they are the expression of the readiness for war.6*

States are thus not only territorial and political units, they are also the embodiment of ideas. In our day, and this is Spengler's main contribution, two sets of ideas are clashing: the Prussian state idea and British parliamentary liberalism. English society is founded on the difference between rich and poor, the Prussian one on that of command and obedience.55

Therefore, the old Prussian spirit and the socialist way of thinking, which today hate each other with the hatred of brothers, are one and the same.58

The deep, inner antagonism between Prussia and Britain is therefore that between socialism and capitalism. The socialist idea is basically "will to power, struggle for the happiness not of the individual, but of the whole. Frederick William I and not Marx was, in this sense, the first conscious socialist."57 International socialism does not as yet exist,58 since socialism necessarily differs in each country: A true international is only possible by the victory of one race over all others and not through the dissolution of opinions into a colorless mass. . . . We Germans who are placed in this century, interwoven with our being into faustic civilization, have rich, untapped possibilities in us and huge tasks before us. To the international which is irrevocably in the making, we have the idea of world organization, of world state, the English that of world trusts and world exploitation, the French nothing to

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contribute... . With Prussianism, the idea of order in true socialism stands and falls. . . . The true international is imperialism, domination of the faustic civilization, hence of the whole earth, by one creative principle, not by compromise and concession, but by victory and destruction.59

Spengler, as Marx before him, thus envisages, for the time being, not a peaceful international order, but a war or series of wars for supremacy. A war, to be sure, not between classes, but between national states for the "leading principle" (Leitprinzip) they stand for. And that also other motives besides the ideological ones will play a decisive role in these conflicts, is expressed by Moeller van den Bruck, the famous author of Das dritte Reich: The German nation is astir. Its path is blocked. It has lost its bearings. It seeks peace. It seeks work: and fails to find it. We are becoming a nation of proletarians.60

Germany's overpopulation is a severe problem although it "is part of Nature's design. Nature must solve the problem."61 It will do so by allowing Germany to found a "Third Empire" which will include territories large enough to provide ample living space for its population. The only question is whether the national elements in the German working-classes will have the power and the will to wheel the proletarian battle front in a "national-socialist" direction; or rather to wheel it right round, so that the forces which were directed to class war against our own nation shall face the foreign foe. Our political fate hangs on the answer.62

These themes were discussed earlier by the "realpolitische Sozialisten" in their monthly review, Sozialistische Monatshefte, of whom Karl Kautsky, the spokesman of the German Social Democrats, admitted that "many of their lines of thought live on today in national socialism."63 These socialists openly advocated an active colonial policy to be pursued by the Social Democratic Party of Germany: The vital economic interests of the peoples cannot be violated by whatsoever principles, they wipe out these principles and prevail.64

Concerning postwar plans for a closer economic cooperation in Central Europe, another author writes:

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The central European plans for a rapprochement are good insofar as they fit into the framework of general German economic and world political progress.65

It is important to grasp the fact that the organization of the world through economic imperialism (wirtschaftlichirnperiale Durchorganisierung der Welt), in which the European continent represents one big economic complex, forms the essential prerequisite for the creation of a socialistic way of production.68 But this process of "Durchorganisierung" can only take place at the basis of national policies;67 hence it becomes decisive for the socialist parties to pursue an independent foreign policy. This evidently presupposes a strong state and a corresponding government endowed with full power.68 In regard to this, Werner Sombart develops his "Führerprinzip" which culminates in the assumption of a supreme will of the leader who can receive his orders only from God. . . . The volonté generate which is to be realized, is a metaphysical, not an empirical reality, it has nothing to do with the volonté de tous, the leader cannot ascertain it by a plebiscite, he must know it and he can have learned it only by revelation. Therefore also, he does not need the consent of the "people" for the justification of his acts . . . the statesman serves not the interest of the people, only the national idea.69 The national economy is to be centrally planned "since only this leads to the necessary unity and consistency":70 The "whole" we have in mind is the national economy merged into a harmonious unity. It follows from this that the national economy must have a certain completion, seclusion, self-sufficiency which give it a stable equilibrium. We stand for this national economic principle (nationalwirtscha†tliche Prinzip) for strategic, ethnical, and economic reasons. But mainly out of the consideration that socialism, that is, as we know, a well planned order of the community, requires for its realization an economic body which, in all its activities, is essentially independent of occurrences abroad.71

THE FOREIGN TRADE SYSTEM IN A COLLECTIVIST STATE

The above statement coincides remarkably, in its essence, with Lenin's determination "to safeguard our internal economic independence" and in fact with the theories of most socialists

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reviewed so far. During the 1930's, a growing number of economists attempted to elaborate a general theoretical framework for a collectivist economy, parallel to the one developed for a liberal economic order. Naturally, these theoretical investigations drew much of their inspiration from the introduction, in 1928, of the first Russian Five-Year Plan. In fact, most of them consisted of a more or less detailed description of the economic system, or more precisely the organizational structure, of the world's First Socialist Power. But gradually, some basic features of a centrally planned economy were worked out, one of which was indeed the fact that the corollary to this order was "a watertight economic system."72 The State Monopoly of Foreign Trade Whether the problem of international economic relations was approached from the viewpoint of "international solidarity," as was done for example by G. D. H. Cole,73 or from the internal nature of the collectivist economic order itself, all authors agreed that national planning implied a "unified control over its foreign trade."74 Hall, Mossé, and Dickinson developed a consistent theory of collectivist foreign trade on the basis of the "national" approach. Mossé, after having shown that free trade is utterly incompatible with a centrally planned economic order,15 asserts that a trade organization directed by a state monopoly of foreign trade necessarily corresponds to this order: The directing bodies of the economy determine the goals and limits of foreign trade. The principal objective is to procure to the country, first, goods and services which are indispensable and which it cannot obtain at home and, secondly, those which can be obtained by international exchange more advantageously than by producing them at home. However, in order not to depend on foreign countries, extra-economic concerns may demand home production, even under unfavorable conditions. Economic considerations regarding the future may yield the same result (List), because it may be advantageous, for the time being, to renounce profitable purchases in order to develop productive forces internally.76

Thus, state planning necessarily begins with fixing general economic goals to be achieved in a given period of time. This authoritative decision is made, as implied in the above passage,

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with respect to national interests, even if this means a temporary reduction of international trade and hence world welfare. The next step consists of so combining and balancing all available productive resources as to ensure fulfillment of the plan. In this process, foreign trade has an important task: The main objective of foreign trade is to acquire certain foreign goods and services. It is thus imports which are the goal, exports being only the means to pay for them, that is, to force the supplier to deliver them. This reduces the problem of foreign trade to its true position whereas, in the liberal-individualistic economy, the fragmentary vision of particular interests arbitrarily cuts out a portion of reality and makes the means, exports, appear to be the end, and neglects the essential thing: imports.77

Hence, it falls to the monopoly of foreign trade, assisted by its various specialized departments, (1) to set up national import and export plans which are to be integrated into the general plan; (2) on the basis of these plans, to conclude international treaties and individual contracts; (3) to supervise, in every aspect, the correct execution of foreign trade operations.78 However, it cannot do all these things unless it finds itself in close cooperation with another state monopoly: the monopoly handling international payments. The monopoly of foreign trade entails the monopoly of foreign exchange, since foreign exchange operations are nothing but the means of settling commercial operations. The maintenance of a foreign exchange market is no longer required when external operations are no longer conducted by private enterprises.79

Mossé clearly outlines the full consequences of this system, but by doing so, he essentially repeats what Fichte had said 140 years earlier: The state monopoly of foreign payments implies the complete separation of the monetary system from the external monetary systems. . . . The conversion rate of internal money into external currencies is fixed by the Administration of Foreign Trade as are the conditions under which it is permitted to obtain foreign exchange (tourists, students, etc.)80. . . . The Administration of Foreign Trade deals with internal enterprises on the basis of internal money and with foreign enterprises in an international unit of general use, that is a certain gold weight. . . . In order to assure the watertightness of the internal monetary system, the export and re-import of internal means of payment are prohibited.81

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Collectivist Foreign Trade and the Theory of Comparative Costs All authors under review maintain that the principle of comparative costs will not only be observed under collectivism, but will be much more effective than in an individualist economic order. Yet, Mossé admits that in a planned economy, the volume of operations is determined by the plan which may not go as far as the optimum.82

And Dickinson enumerates the following qualifications to this principle: (1) The State Economic Commission must discriminate between supplies of cheap foreign goods that are permanently cheap owing to low real costs of production and those that are only temporarily cheap;... (2) A planning authority ought to be able to look ahead and forecast future trends a) in costs of export goods, b) in costs of goods that compete with or might compete with imports and c) in the barter terms of trade.83

Mossé underlines the particularities of collectivist foreign trade based on comparative costs. In the first place, there is no need for a fixed relation between the two currencies; nevertheless, profitability calculations are easy. The Administration of Foreign Trade, in fact, expressly combines imports with exports. It has a complete vision of the phenomenon of exchange. It reasons and calculates as do the theoreticians of international trade.84

Secondly, "internal disturbances, caused by international exchange, can be remedied."85 What Mossé and other authors have in mind are the social as well as the economic costs which, they assert, can now correctly be assessed by the central planning authority, the social costs including the losses due to transference of productive resources, especially of labor, to new economic uses as a result of foreign trade. The cost of change can and must be calculated in its entirety by adding to the internal value of the product exported in "payment" the losses incurred by the renunciation of an existing line of production. The exchange is deemed advantageous only if the value of the imported product is higher than the value of the exported product—including these costs.86

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Socialists recognize, however, that the actual problem of collectivist foreign trade does not merely consist of determining the quantities of two given goods to be exchanged—the case on which the above reasoning is based—but also of knowing what groups of commodities should most rationally be exported and imported. Several methods of calculation were proposed in this respect, but the main difficulty is found to exist in the fact that "for want of a free foreign exchange market, there does not 8 exist an objectively determined exchange rate.""87 The Problem of External and Internal Equilibrium It is deemed essential for a collectivist state to seek a balance of the current account. Short-term borrowing and lending to cover temporary surplus and deficits are to be used only to a very restricted extent. This applies especially to trade relations with capitalist countries where the danger exists "that the socialist community would find itself more deeply involved than it cared to be in the financial complexities of non-socialist countries."88 According to Mossé neither credit taking nor the export of gold is an appropriate means of achieving international equilibrium "since they invoke a certain dependence on foreign countries or a loss of substance and, what is more, they cannot be used permanently."89 The foreign trade administration has the great advantage "of knowing, with precision and exactness, the true situation of the international accounts"90 at any moment in time. If an important deficit is appearing, the agency can easily modify its foreign trade plans by making more home goods available for export or by cutting down imports. Mossé maintains that a collectivist economy is better adapted than a liberal-individualist economic order to solve the basic dilemma91 which exists between optimum international economic relations and internal equilibrium: The Administration of Foreign Trade assumes, in this respect the role of a sluice; it buys foreign goods at world market prices and sells them again, at internal prices, to internal enterprises. In the same way, it buys at internal prices and resells on the basis of world market prices; the sluice is the means of preventing the operation of the law of communicating vessels which imposes an identical level on each vessel. At the same time, it

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makes possible relations between two water pools with different levels. The error of the classical theory consisted of the belief that relations are possible only among systems which are on the same horizontal level and that they bring about this levelling. The collectivist economy, on the contrary, admits the difference of levels as a given fact and seeks to establish relations all the same.92

Mossé thus contrasts the subordination of national to international equilibrium and the corresponding world economy conceived by the classics as a unified, interdependent system to its exact opposite, represented as the ideal of collectivism: the breaking up of the world system into separate national economies which tolerate international economic intercourse only insofar as they do not upset the painfully calculated international equilibrium. Long-Term Capital Movements We remember that according to socialist theory, capital export is closely tied to the "basic contradictions of capitalism," especially those of its imperialistic phase. It was thought that, with the introduction of a socialist economic order, the "maldistribution of consuming power which prevents the absorption of commodities and capital within the country"93 would eo vpso be eliminated. Hence, it would be quite consistent with the just-mentioned doctrine if international economic relations between collectivist states were to be strictly limited to the movement of goods and services. This, in fact, is Mossé's position, as we have seen. Nevertheless, most socialist authors concede in principle that international long-term borrowing and lending may have advantages to both partners if they take place in accordance with the relative abundance of capital at home and abroad, as expressed by interest rates.94 Dickinson observes, however, that in making these calculations95 the planning organ of a socialist community would need to take into consideration the net effect on the national dividend of foreign borrowing and lending. That is to say, it would have to compute not only the return on capital at home and abroad, but also the effect of the import or export of capital on the return of labor. This suggests that a socialist community, acting on purely economic calculations, would be more ready to import capital and less ready to export capital than a capitalist economy under similar conditions.96

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But there are other difficulties. Hall points to the fact that international borrowing requires "careful adjustment of the industrial structure"97 by the borrowing country at the moment of importing capital as well as at the time when it must pay it back by additional exports. And he warns: It is easy to make mistakes about the gain to be expected from expenditure of capital on a large scale; and when the saving required is to be done by others, the temptation to resort to borrowing to overcome temporary difficulties is great.98

Considerations of a political nature must also be taken into account: It seems to be inexpedient to allow private capital to develop the country . . . since the success of the whole system depends on the possibility of unified control. The borrowing must be done by the state, and in order to take advantage of the lower rates available elsewhere, strict guarantees would be necessary which would hamper the political relations of the country."

And Dickinson comments: Borrowing from abroad makes the socialist community dependent on foreign and possibly hostile countries; hence it should be avoided as much as possible on political grounds. Lending abroad, if carried out on a large scale and over a long period of time, would turn the community into a corporate exploiter of workers living in other communities; it would undermine its morale and create in the debtor country a sense of resentment that would embitter international relations and might lead to conflict. On social and political grounds, therefore, there is a case against it.100

Owing to the socialist theory that capital export is simply the transfer of value destined to produce surplus value abroad, this problem is usually viewed only from the lender's point of view which is regarded as immoral. But does not the rationale of international capital movements lie in the raising of labor productivity in those countries where capital is relatively scarce? Socialists do not ignore this problem, but, in their opinion, it must be solved by truly socialistic principles, that is, by gifts and disinterested aid to be given by the more advanced states to their poorer brethren. However, the realization of

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these principles, it is maintained, must await the time when all states will have become socialist communities. The Future Socialist International Order Thus, the authors reviewed in this section, like those reviewed earlier, firmly believe that a true system of international division of labor cannot be achieved unless its participants become collectivist states: Trade between socialist countries will exemplify the principles of nineteenth-century economic liberalism: it will be a mutual benefit and a force making for peace.101

Yet, the results of his analysis led the author who wrote these lines to the following complementary remarks: Strictly speaking . . . , this harmony of interests applies without any serious qualification to the exchange of goods. . . .102 The import and export of capital, although beneficial to both parties, may give rise to conflicts of interest between debtor and creditor communities. . . . The migration of peoples, especially where they are of widely different social conditions, may also be grounds of economic disharmony. . . . War for possession of territory is conceivable between a community with a sparse population, abundant national resources and a high standard of life and a community with a dense population, few natural resources and a low standard of life.103

But the author minimizes the force of his objections by asserting that such disharmonies v/ould be "improbable in practice."104 As a matter of fact, It is improbable that a number of independent socialist commonwealths would isolate themselves, each in its own distinctive economic system, when self-interest and socialist principle alike would impel them to adopt an integrated system of economic planning and costing.105

Thus, the socialists of all denominations strictly adhere to the conception of a gradual and progressing fusion of socialist states into a worldwide system of planned economic cooperation. C. Bettelheim consistently applied Marx's distinction between the two phases of communism to international economic relations when he wrote:

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In the first phase, economic relations are essentially trading relations, but their purpose is not mercantile. It is a question of coordinating exchanges in such a way that these may contribute to the parallel development of the various planned economies. The nature and magnitude of the exchanges are then determined by the various national economic plans. External trade is an instrument of coordination and of "mutual collaboration in economic development" (Mikojan). The political significance of external trade becomes decisive. This signification can be expressed, in particular, in the prices charged, which can be "privileged prices"; credit conditions and the various forms of reciprocal technical aid that supplement purely trading relations. In the second phase it seems that the integration of the various economic plans must progressively increase which means that it will be necessary to consider more and more the possibility of redistributing certain productive forces among the planned economy countries and taking into consideration not only relative saving of labor, but also absolute saving.106

SUMMARY AND CONCLUSIONS

The internal structure of a collectivist state is comparable to a pyramid in which the "unquestioning submission to a single will" (Lenin) is an absolute necessity, a will that governs "die most deep-seated foundations of the human existence of hundreds of millions of people." Yet, this will is independent of the wishes of these millions; it is "a metaphysical, not an empirical reality" (W. Sombart). The state organization that it requires is the exact opposite of Proudhon's federation: the greatest, indeed all, power resides at the top of the pyramid. The lower agencies are reduced to receiving and executing central "instructions," whether they are ethnic groups, "democratically elected workers' councils," or appointed state officials. This is the implication of "democratic centralism" and this, also, is interpreted by Spengler as forming the essence of the "old Prussian spirit." Because state planning is identical with "unified control," it is self-evident that this control is to include all factors and resources of production available within the political frontiers of existing national states. The breaking up of these into smaller units is considered to be contrary to historical development. In fact, larger and larger states are called for by the progressing forces of production and this means that more and more productive resources are to be united under a single control. This

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process is to find its completion when the "supreme will" will have extended its droit à la richesse over the entire globe. Whose will and whose right? That of the working class, represented by the Communist Party, is one answer. But, because "the struggle of the proletariat with the bourgeoisie is at first a national struggle" (Communist Manifesto), each state will emerge, after a successful revolution, with separate directing "single wills," embodied by national communist parties. Whose droit à la richesse is gradually to be increased at the expense of whom and from whose will is the common world plan finally to emanate? These issues will be taken up again in Part II. The "national socialist" thinkers have replaced the concept of class war by the "national idea." In their theory, international socialism is identical with imperialism, the "domination of . . . the whole earth by one creative principle" (Spengler). Or, as Plenge expressed it: T h e m o s t i m p o r t a n t a n d critical question f o r socialism . . . is neces-

sarily this: what people is pre-eminently summoned to power, because it is the exemplary leader in the organization of peoples?10'7

The fourth section of this chapter showed that interwar economists concerned with the theory of a collectivist economy fully confirmed Fichte's theories with respect to foreign trade. A full discussion of its implications will follow in Chapter VII.

NOTES TO CHAPTER V 1. Communist Manifesto, quoted in Ebenstein, W., op. cit., p. 692. 2. Quoted ibid., p. 697. 3. Quoted ibid., p. 703. 4. Quoted ibid., p. 701. 5. Critique of the Gotha Programme. Published by F. Engels in Neue Zeit, 1891, newly translated by Bottomore, T. B., in Karl Marx. Selected Writings in Sociolgy and Social Philosophy. New York, McGraw-Hill, 1964, p. 258. 6. Ibid., p. 256. 7. Marx, K., Adresse des Generalrats (der internatwnaL·n Arbeiter-Assoziation) über den Bürgerkrieg in Frankreich 1871. In Borkenau, F. (ed.), Karl Marx. Frankfurt/M., Fischer, 1956, p. 173. 8. Ibid., p. 176. 9. Chang, S. H. M., The Marxian Theory of the State. Ph.D. Dissertation, Philadelphia, University of Pennsylvania, 1931, p. 116. 10. Farner, K., and Pinkus, R. (eds.), Der Weg des Sozialismus. Quellen und

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11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

27. 28.

29. 30. 31. 32. 33.

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Dokumente vom Erfurter Programm 1891 bis zur Erklärung von Havanna 1962. Hamburg, Rowohlt, 1964, p. 21. Lenin, V. I., The National Question in Our Programme (July, 1903). Selected Works, Vol. II, p. 330, italics original. The Right of Nations to Self-Determination. New York, International Publishers, 1951, p. 72. Ibid., p. 76. Ibid., p. 90. Preliminary Draft of Theses on the National and Colonial Questions, prepared for the Second Congress of the Communist International in June, 1920. Point 8. Selected Works, Vol. VIII, p. 234. Reprinted in Marxism and the National and Colonial Question. New York, International Publishers, 1936, p. 79. Ibid., p. 123. Ibid., p. 125, italics added. Ibid., p. 168, italics added. Critique of the Gotha Programme, quoted in Bottomore, T. B., op. cit., pp. 256-57, italics original. Ibid., pp. 257-58. Engels, F., Herrn Eugen Dührings Umwäízungen der Wissenschaft. 6th ed., Stuttgart, Dietz, 1907, p. 300. Ibid., pp. 335-36, italics original. Ibid., p. 304. Ibid., p. 302, italics original. Ibid., p. 320. Karl Kautsky envisages the future international order as follows: "State boundaries will lose . . . the character they had up to the present. Since production will no longer be private, but social, since the profit of individual entrepreneurs ceases to be their propelling force, all 'protective tariffs,' the source of artificial profits and capital accumulation, will lose their significance. But, with the abolition of tariffs the seclusion of states into artificial economic units will also come to an end." Die Befreiung der Nationen. Stuttgart, Dietz, 1917, p. 46. Elsewhere, however, the same author writes: "The final goal of development, once the proletariat has achieved political power, is the unification of all production units into one huge state firm, that is the transformation of the state into one single economic cooperative. . . . Production of commodities and private ownership of the means of production are overcome; the new economic cooperative which grows out of the state possesses all means of production which it needs and it produces essentially by itself all that is necessary to itself and to its members." Grundsätze und Forderungen der Sozialdemokratie, 2nd ed., Berlin, Verlag Vorwärts, 1898, p. 25, italics original. State and Revolution. Selected WorL·, Vol. VII, pp. 88-89, italics added. Ibid., p. 89, italics original. "The Soviet government is nothing more nor less than the organizational form of the dictatorship of the proletariat, the dictatorship of the advanced class." Immediate Tasks of the Soviet Government. Selected Works, Vol. VII, p. 338. The Fundamental Tasks of the Party after the Seizure of Power by the Proletariat, Vol. VII, p. 315. Ibid., p. 287. Ibid., p. 325. State and Revolution, he. cit., pp. 92-93. "We, the party of the proletariat, have no other way of acquiring the ability to organize large-scale production of the trust-type except by acquiring it from

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SOCIALISM AND INTERNATIONAL ECONOMIC ORDER thefirst-classcapitalist specialists." Fundamental Tasks, loc. cit., p. 375, italics

34. 35. 36.

37.

38. 39. 40. 41. 42. 43. 44. 45.

46. 47. 48.

49.

original. Ibid., p. 328, italics original. Immediate Tasks, loc. cit., p. 330. Fundamental Tasks, loc. cit., pp. 341-42, italics added. Lenin continues: "Given ideal class consciousness and discipline on the part of those taking part in the common work, this subordination would more than anything remind one of the mild leadership of a conductor of an orchestra. It may assume the sharp forms of a dictatorship if ideal discipline and class consciousness are lacking. But be that as it may, unquestioning submission to a single will is absolutely necessary for the success of labor processes that are based on largescale industry. . . . The technical, economic and historical necessity of this is obvious, and all those who have thought about socialism have always regarded it as one of the conditions of socialism." Ibid., p. 342, italics original. Ibid., p. 387. It may, here, be referred to a controversy between Lenin on the one and Trotsky and Bucharin on the other side, who reproached the former of approaching production problems "politically" instead of "economically." This is how Lenin defends himself: "The theoretical uncorrectness of this is most striking. Politics are the concentrated expression of economics. . . . Politics cannot but have precedence over economics. To argue differently means forgetting the ABC of Marxism. . . . Without a proper political approach to the subject the given class cannot maintain its rule, and consequently cannot solve its own production problems." Once Again the Trade Unions. The Present Situation and the Mistakes of Trotsky and Bucharin (January, 1921). Selected Works, Vol. IX, pp. 54-55, italics added. Ibid. Fundamental Tasks, he. cit., p. 326, italics added. Les problèmes économiques du socialisme en U.R.S.S. Numéro special des Cahiers du communisme, Revue théorique et politique mensuelle du Comité Central du Parti Communiste Français, November, 1952, p. 6. Ibid., p. 7. Ibid. Ibid., p. 16. "Naturally not. In reality, in our economic system the law of value asserts itself within a strictly limited framework." Ibid. Ibid., pp. 17-18. Increasing economic growth is regarded as another "fundamental law of socialism." As concerns the problem of profitability, Stalin explains: "If one considers profitability not from the point of view of the various enterprises or branches of production, nor for the period of one single year, but from the point of view of the entire national economy and for a period of ten to fifteen years for example—which would be the only means of correctly approaching the question . . . , then the momentary and precarious profitability of the various enterprises and branches of production cannot maintain any comparison with the superior form of a solid and constant profitability: the profitability which we derive from the effect of the law of harmonious development and planning of national economy." Ibid., p. 18. Ibid., pp. 22-23, italics added. Ibid., p. 23. It must be stressed that, in what follows, we are not concerned with describing the real nature of the Prussian state, the appreciation of which would require a separate, differentiated study. We are interested solely in the interpretation which Prussianism received by certain German political thinkers and in the influence of this interpretation on the theory of the collectivist state. "Personality means not only greatest possible autonomy, but also greatest pos-

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50. 51. 52. 53. 54. 55. 56. 57. 58.

59. 60. 61. 62. 63. 64.

65. 66. 67. 68.

117

sible autarky and a harmonious union and development of all inner forces and abilities." Meinecke, F., Weltbürgertum und NationaL·taat. Studien zur Genesis des deutschen NationaL·taates. München and Berlin, O. Oldenbourg, 1919, p. 819. Müller, A., Die Elemente der Staatskunst. Berlin, 1809, Vol. I, p. 51. Müller, A., Vorlesungen über Friedrich II. Quoted in Meinecke, F., op. cit,, p. 152. Die Elemente der Staatskunst, Vol. Ill, p. 215. "How would he be able to omnipresently permeate the life of these powerful individuals?" Ibid., Vol. I, p. 283. Spengler, O., Preussentum und Sozialismus. München, Becksche Verlagsbuchhandlung, 1919, p. 54, italics added. Ibid., p. 45. Ibid., p. 8. Ibid., p. 43. "What really exists, the international of slogans, Marxism as a phrase, can only for decades and, at that, to a much lesser degree than the noise of congresses and the optimism of proclamations makes one assume, awaken in the workers of all countries a feeling of solidarity. In reality, this union is restricted to the belief that it exists." Ibid., p. 83. Ibid., pp. 84-85, italics original. Quoted in Butler, R. D., The Roots of National·Sociaüsm. London, Faber & Faber, 1941, p. 258. Quoted ibid. Quoted ibid., p. 262. Moeller observes "a regrouping of men and nations. All anti-liberal forces are combining against everything that is liberal." Quoted ibid., p. 259. Kautsky, K., Sozialisten und Krieg. Ein Beitrag zur Ideengeschichte des Sozialismus von den Hussiten bis zum Völkerbund. Prag, Orbis, 1937, p. 345. Winnig, A., "Die Kolonien und die Arbeiter." Sozialistische Monatshefte, May 18, 1915, p. 222. The reaction of the French socialists to the German socialists' suggestion to surrender overseas territories in the name of international justice and proletarian brotherhood is well summarized by the socialist Charles Andler: "Since it [our colonial empire, E.T.] was constituted at the immense expenditure of billions, scientific efforts and blood, it may be a good teutonic joke to intend to persuade us that it must be 'shared' with the more prolific countries of industrial Europe, but not much more of this is needed to increase, in the French socialists, that repugnance against the German 'comradeship' which is intensified after each international congress." Le socialisme imperialistic dans I'Allemagne contemporaine. Dossier d'une polémique avec J. ]aurès (1912-13). Paris, Bossard, 1918, p. 57. Schippel, M., "Mitteleuropa und Partei." Sozialistische Monatshefte, May 31, 1916, p. 541. Cohen, M., "Sozialdemokratische Aussenpolitik und sozialdemokratischer Parteitag." Ibid., October 4, 1920, p. 741. Poetzsch, H., "Der Krieg und die sozialistische Internationale." Ibid., December 9,1914, p. 1227. Sombart, W., Deutscher Sozialismus. Berlin-Charlottenburg, Buchholz & Weisswange, 1934, p. 212. Cf. also the socialist professor Plenge: "It is high time to recognize the fact that socialism must be power policy, because it is organization." Quoted from an article in the socialist journal Die Glocke in Hayek, F. A., The Road to Serfdom. London, Routledge, 1944, p. 128, italics added.

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69. Deutscher Sozialismus, p. 213, italics added. 70. Ibid., p. 280. 71. Ibid., p. 284, italics added. The author continues: "It is self-evident from what has just been said that German socialism rejects the hitherto prevailing order of the world economy as contrary to its innermost nature." 72. "The Theory of Planned Economy. A Study of Some Recent Works." International Labour Review, Vol. XXXVI, No. 3, September, 1937, pp. 371-93. 73. This author distinguishes between nationalistic planning, such as is increasingly being adopted by capitalist governments, and planning "under the right auspices" which is to be effected "by those who mean to use it . . . for the liberation of the vast productive energy which is now lying unused all over the world by creating a system of organized international exchange on a basis of mutual advantage and superseding tariffs and other restrictive devices by large-scale arrangements for the collective interchange of complementary products." This is what Cole calls a "fully developed system of international planning." Cf. "The Planning of International Trade." In: Studies of World Economics. London, Macmillan, 1935, p. 185. 74. Ibid., p. 178. 75. "In the particular case of a collectivist economy, especially during the period of construction, the danger of external influences is much greater [than in a liberal-individualistic economic order, E.T.]. Free communication with foreigners may lead to wastes of energy and, to say the least, tend to constitute, within, a heterogeneous economic sector; its contacts with the dominant collectivist system create additional difficulties. Moreover, free relations with the outside world cannot even be thought of in a system in which economic activity is no longer a private affair; from the moment the state and its agencies administer the whole of economic activity, there is no reason for making an exception in favor of external relations and to withdraw them from its control." Mossé, R., L'économie collectiviste. Paris, Pichon, 1939, p. 179, italics added. 76. Ibid., p. 180. Cf. also Hall, R. L., Economic System of a Socialist State. London, Macmillan, 1937, p. 218: Before any foreign trade is to take place, the "Socialist state . . . should first decide the question as to whether there are any key industries which are necessary to the economic structure or to the conduct of any wars in which it has reason to expect that it may be involved. . . . The importance to be attached to this factor will obviously depend on the likelihood of supplies being interrupted, whether by wars or by other circumstances which may alter the world supplies." As to the infant industry argument, H. D. Dickinson writes: "A socialist community could foster infant industries without the fear that they would become infant Gargantuas devouring the substance of whole provinces in their greed. No private vested interests would be created by such a policy of development nor would protected industries develop that penumbra of submarginal undertakings which makes it almost impossible to remove protection from an industry under capitalism even though the more efficient establishments no longer need it." Economics of Socialism, p. 175. 77. Mossé, R., op. cit., p. 181. The whole passage is printed in italics. 78. Ibid., p. 182. 79. Ibid. 80. These conditions must, according to Dickinson, include "the right of individuals to order books and newspapers from abroad," this being "an essential guarantee of political freedom." Op. cit., p. 178, footnote 2. 81. Mossé, R., op. cit., p. 184, italics original. 82. Ibid., p. 190. 83. Dickinson, H. D., op. cit., p. 173. 84. Mossé, R., op. cit., pp. 190-91. In the original, this passage is all in italics.

THE COLLECTIVIST STATE 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102.

103. 104. 105. 106.

107.

119

Ibid., p. 192. Ibid., p. 193. Ibid., p. 195, italics original. Dickinson, H. D., op. cit., p. 181. Mossé, R., op. cit., p. 199. Ibid. "The real problem is to maintain, and even to develop, external economic relations without disturbing the internal structure." Ibid., p. 203. Ibid., italics original. Hobson, J. A., op. cit., p. 85. "The collectivist state's own rate of interest represents its estimate of the marginal productivity of its own capital." Hall, R. L., op. cit., pp. 27-28. I.e. balancing capital export against the use of additional imports bought from its proceeds. Dickinson, H. D., op. cit., p. 182, italics added. Hall, R. L., op. cit., p. 228. Ibid., p. 229. Ibid. Dickinson, H. D., op. cít., p. 182. Ibid., p. 187. Cf., however, ibid., p. 177, where Dickinson observes: "Where a socialist community was trading with another socialist community (if such existed) or with a capitalist community that had adopted a now popular policy of totalitarian state regulation of foreign trade, a situation would arise similar to that called 'bilateral monopoly' by the theoretical economists, in which it is probable that there is no determinate stable position of equilibrium, but in which either party has an incentive to get the better of the other by the use of fraud and force." Italics added. Ibid. "The spread of birth-control throughout the world is leading to a state of affairs in which population dearth and not population pressure is the most likely danger to civilization." Ibid., pp. 187-88. Ibid., p. 172, footnote. Bettelheim, C , L·es problèmes théoriques et pratiques de la pL·nif\cation. 2nd ed., Paris, Presses Universitaires de France, 1951, p. 345. The English translation was taken from the English edition. Bettelheim calls "relative labor costs" those which arise as a result of the fact that national economic policies are being independent of the world economy. They can only be overcome and replaced by absolute labor costs if the world economy becomes one planned unit so that "each region would specialize in the kinds of production for which it was absolutely (and not only relatively) best situated." Ibid., p. 354, footnote 2. Quoted in Hayek, F. A., op. cit., p. 128, italics added.

CONCLUSION TO PART I The introduction of a socialist system of society engenders profound economic and political changes. What are the effects of these changes—to repeat the question we have already asked at the beginning of this inquiry—on international economic cooperation? Chapters I through V have yielded two important results. In thefirstplace, a future world will be constituted, at least for the foreseeable period of time, by sovereign political units having at least the same extension as they have under the present order of things. But a thorough modification will occur, secondly, in the internal structure of these states: the division between imperium and dominium, which characterized a liberal society, will give way to "collective," that is, to political control of all human activities. At this point we must remember the socialists' refusal to admit analysis of their systems with "bourgeois" intellectual tools. Can this attitude be seriously upheld? Our answer is no. The claim for the uniqueness of a socialist state is rooted in the particular method of socialist reasoning which, as we have seen, explains social, economic, and political problems not with reference to human nature, but with reference to good and bad institutions, interpreted as living organisms. In the framework of this philosophy, the socialist state cannot be anything but the good institution; as for its shortcomings, they are blamed either on capitalism or on the inability of immature men to fulfill the corps social's expectations. Characteristically, the group of power holders is alternately identified with, and dissociated from, the collective body, depending upon the requirements of "time and place." However, our review of socialist thought in this part has shown that the socialist state is subject to the same inherent

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laws that have governed all other past and present states. Human character being what it is, the single most important criterion for judging the international effects of a given state is its internal order, that is, the degree to which power is divided between the citizen and the government, on the one hand, and among the various government agencies on the other. Not surprisingly, the national socialist current of thought arrived at fundamentally the same results as did socialist philosophy. Both systems of poltical speculation justify the high degree of power concentration in the hands of a few by reference to a superhuman collective being with a will of its own, a will that is merely "translated" by the holders of power. Socialism thus implies that it is the State and its representatives who will acquire command over all national productive resources. It is no longer the individual, guided by market prices and risking his own capital, who makes production decisions, but the central planning authority, disposing of the wealth of the entire nation. This involves a basic decision concerning the two main sectors of national production (investment versus consumption goods). Since every state wishes to develop its productive powers which constitute the foundation of its political power as rapidly as possible, governments will tend to give priority to the development of heavy industry. Yet, at the same time, they have promised to raise the standard of living of their working population. A constant balance is therefore to be struck between Staatsräson on the one hand and "social justice" on the other; and the satisfaction of both goals depends on the variety and quantity of productive resources actually available within the politically dominated territory of the collectivist state. Thus, the size of the territory and its natural endowment are of utmost importance for the establishment of an ambitious national plan. Each collectivist state is a watertight economic system. Its trade relations with other collectivist states are characterized by a situation of bilateral monopoly. Numerous authors reviewed in this part have pleaded for a complete self-sufficiency; others have advocated a close and "brotherly" cooperation among states. Because no state can be found which has in its territory all the raw materials necessary for modern industrial development,

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the "access" to vital resources which "belong" to other countries will be determined by negotiations between partner states. What are the typical forms under which these negotiations are conducted? What principles determine their outcome? And what forces are at work, under this system of production and exchange, to establish the kind of international order which is the "final goal of history," that is, world planning and the withering away of the state? These questions will form our main preoccupation in the next part of this investigation.

PART II INTERNATIONAL ECONOMIC ORDER VERSUS STRUGGLE FOR WORLD DOMINATION: A THEORETICAL ANALYSIS OF THE INTERNATIONAL ECONOMIC IMPLICATIONS OF SOCIALISM

INTRODUCTION We have seen in Part I that socialism leads to a profound transformation of the internal order of national states which, nevertheless, continue to exist as independent political units. There will be only national "collectivities" represented by their respective national governments. A world state, acting on behalf of humanity as a whole, will still be a far-off goal; its establishment would presuppose the subjection of the hitherto sovereign states to a world authority in the same way as the individuals are subjected, within each state, to the comprehensive control of all activities by their respective state authorities. But at the same time, the state, or the party with which the state is identified, is regarded as a vital autonomous personality evolving according to its proper laws, which are considered to be entirely independent of individual will. Hence, this higher entity demands freedom, not subjection. It can recognize no authority above itself other than "history." Thus, the basic problem facing a future world constituted by socialist states is this: individuals are no longer free to trade and move across frontiers, and thereby to establish a network of international relations outside the political sphere; yet national governments, now also responsible for international trade, refuse, in a regular way, to submit to judicial procedures that are regarded by them as an infringement of their sovereign rights. Consequently, "the process of substitution of government business for private business is in the international field . . . also a process of transformation of private quarrels into inter-governmental quarrels."1 In Part II we propose, from a theoretical point of view, to investigate the basic changes brought about by the introduction of socialism into the internal economic order of each national state. Only by acquiring a thorough understanding of the way

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in which this order must necessarily function can one grasp the fundamental problem underlying international economic relations between collectivist states. Under socialism, obviously, goods and services will continue to be produced and their output will require land, raw materials, labor, buildings, machines, and managerial talent. Under certain conditions and with certain combinations of these factors, production results will be more favorable than under other conditions and combinations. Or again, production in one branch of industry or factory can only be increased if in another branch productive resources are either withdrawn or not increased in the same rhythm as in the former. This is so because productive resources continue to be scarce. Therefore, the problem that arises, just as in a liberal economic order, is how to allocate and combine given factors of production so as to achieve optimum output relative to demand, i.e. to maximize the utility of production. But this "utility" means two different things for a free market and a collectivist economy.2 In the former, the personal utility considerations of the final consumer, translated by the price mechanism into corresponding production decisions, is guiding economic activity. Under socialism, it is the central planning authority itself which decides upon the utility of this or that group of commodities and fixes an order of priority among them according to which it then draws up the national production plan. Thus, in a liberal economic order the entrepreneur takes his production goals "from the market" and is concerned exclusively with the most rational combination of productive resources, the prices of which he regards as given. Conversely, the central planning agency decides on both what goods to produce and how to allocate the nationally available resources. Hence, it is of the utmost importance whether the "planning principle"3 (Sweezy) is able to supply this agency with a rational criterion comparable to the price mechanism which collectivism has abolished; a principle able to guide central economic decisions which, as Lenin said, "affect the most deepseated foundations of every-day human existence." This problem will form the subject of Chapter VI. In Chapter VII we shall apply our findings to the problem of international economic exchange between collectivist states. Chapter VIII will

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compare our conclusions to the liberal solution of the problem of international economic order. Today, the clash between the collectivist and the liberal conceptions of economic order is particularly felt in the newly independent states of Asia and Africa and manifests itself in the propagation of rival and mutually exclusive theories and policies of development. The analysis of the international economic consequences of these theories, in Chapter IX, will complement the results of our investigations. In Chapter X, we shall examine the prospects concerning the formation of a collectivist world state.

CHAPTER VI

THE PROBLEM OF VALUE AND ECONOMIC CALCULATIONS IN A COLLECTIVIST ECONOMY The socialist founding fathers openly refused to express themselves in detail on the working of a socialist economic order. "When Lenin, in 1917, wrote State and Revolution, he had no conception of the problem of economic calculation and of the difficulties involved in centrally directing the economic process of a modern national economy. His goal was 'to organize the entire economy according to the model of the post office'. . . . This is not surprising: for one who believes, with Marx, in the predetermination of historical development, economic calculations in a centrally administered economy pose no problem to be mastered beforehand by thought."4 By the socialists' outright rejection of the classics' "chrematistic" approach and by substituting for it a purely sociological and historical way of thinking, the real nature of the economic problem5 was bound to escape their notice. Since land and national resources were regarded as the "gift of nature" to all men and capital as the result of past collective labor belonging to the community as a whole, they acquired the meaning of a definitely given stock independent of human effort. Furthermore, as a logical conclusion to the socialist theory, which stated that capitalism constantly tended toward overproduction, this stock was considered as something plentiful and even overabundant, providing it was wisely used to meet the requirements of social justice. Hence, national economy, united under conscious collective control, was understood as a system of clearly determined quantitative relationships which could be reduced to a common unit of account by the true and absolutely valid economic measure: labor time. The problem of centrally directing the national economy was therefore envisaged as being very similar to that of designing and constructing a building: however huge and complex this

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building was to be, the problem of its erection could be solved by trained experts. Thus, under collectivism, a capable economic "architect" would draw up the national plan, assisted by his no less competent "engineer" doing the static calculations. In such a system, there would be no place left for spontanteously arising and constantly fluctuating market values. It is an ever recurring theme in socialist writings that the future economic and social order will be simple, easily understandable, and manageable. The progressive development of history toward reason cannot be conceived otherwise. F. A. Hayek remarks with respect to this approach: "To treat the existing economic order as merely an 'historical phase' and to be able to predict from the laws of historical development' the emergence of a better future system became the hallmark of what was then regarded as the truly scientific spirit."6 The same author said elsewhere: "To start here at the wrong end, to seek for regularities of complex phenomena which could never be observed twice under identical conditions, could not but lead to the conclusion that there were no general laws, no inherent necessities determined by the permanent nature of the constituting elements and that the only task of economic science, in particular, was a description of historical change. It was only with this abandonment of the appropriate methods of procedure, well established in the classical period, that it began to be thought that there were no other laws of social life than those made by men, that all observed phenomena were only the products of social or legal institutions, merely 'historical categories' and not in any way arising out of the basic economic problems which humanity has to face."7 By rejecting the universal validity of logic, the theoretical framework of Marxism successfully prevented the progress of non-socialist economic science from shaking its foundations. It is therefore not surprising that it was liberal economists who, for the first time, investigated the nature and the possibility of a solution of the economic problem under collectivism. THE PROBLEM

"The problem," writes Hayek, "which the director of all economic activities of a community would have to face, would

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only be similar to those solved by an engineer if the order of importance of the different needs of the community were fixed in such a definite and absolute way that provision of one could always be made irrespective of cost. If it were possible for him first to decide on the best way to produce the necessary supply of say food as the most important need, as if it were the only need, and would think about the supply of say clothing, only if and when some means were left over after the demand for food had been fully satisfied, then there would be no economic problem. . . . But the task would cease to be merely technological in character and would assume an entirely different nature if it were further postulated that as many resources as possible should be left over for other purposes. Then the question arises, what is a greater quantity of resources. If one engineer proposed a method which would leave a great deal of land but only little labor for other purposes, while another would leave much labor and little land, how in the absence of any standard of value could it be decided which was the greater quantity? . . . The economic problem arises therefore as soon as different purposes compete for available resources. And the criterion of its presence is that costs have to be taken into account. Costs here, as anywhere, mean nothing but the advantages to be derived from the use of given resources in other directions."8 It follows that, because productive resources are scarce with respect to human wants, costs are a fundamental economic category in every kind of economic order. It is the "fact that one central authority has to solve the economic problem of distributing a limited amount of resources between a practically infinite number of competing purposes that constitutes the problem of socialism as a method."9 This infinite number of competing purposes naturally includes production for foreign markets, hence the cost problem is primarily relevant also for international economic transactions. On its solution depends not only the rational planning of foreign trade, but the nature of socialist international economic relations in general. SOCIALLY NECESSARY LABOR

We have seen in Chapter V that the economic problem did not fail to assert itself in Russia immediately after the Bolshevic

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party's seizure of power, although it was obscured for a time by the requirements of "war communism." It was to this problem that Lenin referred when he figuratively spoke of the cloth which was to be measured before it was cut. If it cannot be measured seven times, can it at least be measured once? A Russian professor, observing in the thirties the revolutionary changes in his country's economy, speaks of an "atrophy of economic calculation" which "has taken place along with the precipitate growth of Socialism."10 In spite of a "minute supervision of the superficial conduct of employees, of the consumption of materials, of machines and of stock" resulting in an "abnormal disproportion between the producing and controlling mechanisms,... this system . . . provided no guarantee as to the economic rationality of the process of production as a whole; nor did it possess that decisive significance which the calculation of costs possessed under capitalism."11 To remedy this state of affairs, N. Bucharin and, especially, A. W. Tschajanow proposed calculations in kind.12 Tschajanow reduced the different elements of input and output to a common unit with which he attempted to ascertain the degree to which the state undertakings were rationally organized.13 "Now it is clear," Brutzkus comments, "that the value of all these units will be very hypothetical or entirely arbitrary. They will only have any real significance insofar as they are worked out on the basis of a common principle of value; the author, however, did not succeed in doing this."14 Calculations of this kind were therefore rapidly abandoned. Russian economists turned to the writings of the founders of "scientific socialism" from which they hoped to obtain the true solution. And indeed, there it was clearly stated that labor continued to form the basis of value, at least in the "first phase" of socialism. Marx recognized that differences in the quality and intensity of work existed and that this circumstance restricted the practical use to be made of labor as a measure of value. But, he failed to indicate a way out of the dilemma caused by this fact and by his postulate that each worker is to receive "exactly" what he has given to society. Here, the fundamental weakness of his "socialized" approach becomes apparent. He once admitted that it is impossible to ascertain the "product" separately for each individual

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laborer; one could only speak of the product of the working class as a whole. But this statement implies no more than that a given country is entitled to all it has produced in a certain period of time, a pure tautology. To the real questions—how is the individual's share to be determined? and who will decide, and according to what criteria, what kinds and quantities of productive resources are to be "deducted" from current consumption, i.e. reserved for capital accumulation?—Marx only replies that as long as these are problems at all, the "birth marks of the old society" are still effective. It must be left to history to efface them. Therefore, an altogether different approach was needed to analyze the practical applicability of the labor theory of value to rational economic calculations. Brutzkus, who undertook this analysis, arrived at the conclusion that value calculations based on labor were wholly unable to provide a satisfactory solution of the economic problem. Here are his arguments: In the first place, "the unit of value is not simply the amount of time worked, a labor day for example; it is a labor day of a given productivity which productivity is assumed to be normal. . . . As, however, in a single undertaking which produces particular commodities, the labor of all sorts of specialists is employed, and as each of them does different kinds of work, it will be necessary to determine a suitable normal labor day for each type of work."15 Secondly, in each productive unit, labor of highly varying quality is employed resulting from differences in both training and natural skills and talents. Labor, uniting one or all of these advantages, is relatively scarce; "is it reasonable to evaluate it, as an item of daily expenditure, according to the same standards as have been set up for unskilled labor?"16 The solution proposed by Marxists to arrive at a common denominator of labor is entirely unpracticable. According to Marxist doctrine, the "socially necessary labor time" is calculated as the average normal labor day in a certain branch of industry. But the economic significance of this concept depends on the number of undertakings which make up a given branch. Yet, and this is Brutzkus' third objection, even if such an average is based on the labor results communicated to the central authority by a considerable number of productive

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units, "such evidence could only claim to have any objective value in the rare cases where all undertakings had approximately the same kind of structure; that is to say where the combinations of various kinds and various qualities of labor [including 'dead' labor, i.e. capital, E.T.] were roughly the same in all undertakings."17 The more widely capital endowment differs among the various firms, the less is the comparison between labor costs economically conclusive.18 Thus, in addition to the weaknesses just mentioned, the basic deficiency of the labor theory of value—a heritage of the peculiar socialist approach to economic problems—is that it ignores the relative scarcity of the other two factors of production: land and capital. Hence, it is impossible to arrive, by this method, at rational values for each commodity and service, values which reflect its relative scarcity and thereby assign to it its proper place in the process of production. THE "MATHEMATICAL SOLUTION"

The essence of the economic problem, let us repeat, lies in the requirement of converting given productive resources into final consumers' goods to the extent that maximum satisfaction of wants is achieved. The unknowns are therefore the kinds of consumption goods, the quantity of each, and the kinds and quantities of primary and semi-finished products which finally yield these consumption goods at least cost. This implies a choice of the most appropriate technical procedures among the far greater number of known procedures. And unknown are also those quantities of goods which are to be received by each individual against his contribution to the production process. These are hundreds of thousands of values, all mutually dependent. They are to be determined by the arithmetic problem which is called economy.19 In an article entitled "The Ministry of Production in the Collectivist State" published in 1908,20 E. Barone proposed to solve this problem for a collectivist economic order without falling into the Marxian "errors and contradictions." Following Pareto and Walras, he maintained that "the old and simple ideas of demand and supply and cost of production suffice not only to construct into a system of equations the most important inter-

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relations of economic quantities, but also to treat the various dynamic questions which relate to the greater or smaller welfare of individuals and of the community."21 A lengthy mathematical analysis led this author to the evidence "(1) t n a t the system is perfectly determined: there are as many equations as unknowns; (2) that the Ministry of Production . . . comes to the conclusion that production should be so organized that . . . the cost of production may be minimized and that the equivalents for the products and for the additions to capital may be such as will correspond to their respective cost of production; (3) that the system of the equations of the collectivist equilibrium is no other than that of the free competition. 22 When, therefore, "there is no intention of restricting saving and the creation of new capital to narrower limits than in the old regime . . . the total consumption of products and of consumable services can be scarcely different from what it was before."23 This is an interesting conclusion and implies that the collectivist system is, at its best, able to produce the same welfare as a competitive economy. K. P. Maier goes one step farther: he is prepared to concede that the efficiency of a centrally administered economy may be 100%—providing that the central agency comprehended with perfect exactness the data of its arithmetic problem and that it was able to calculate with utmost swiftness since these data are subject to daily, frequently hourly, change.24 Here, however, resides the crux of the matter. Barone himself had to admit that the only way for the Ministry of Production to determine the most economically advantageous technical coefficients was through experiments.25 "It is on this account that the equations on the equilibrium with the maximum collective welfare are not soluble a priori on paper."28 Let us clarify the implications of this. If the experiments are to be conducted "on a very large scale," this cannot be done without the creation of new productive units and/or the expansion of existing capacities; both measures require important investment outlays. It is true that the productive equipment of smaller units can be transferred to the larger ones; but this also involves considerable costs and general economic repercussions and the question arises, which undertakings are to be closed

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down and which to be enlarged. The economic justification of this decision and of the additional capital absorbed appears, however, only after the event. But in the meantime, many economic data have changed as a result of these transactions: capital has become more scarce elsewhere, the abandoned small factories are now used for other purposes, and members of the staff formerly employed by them have found other work. The proposed system of experiments would, therefore, produce the required information only under the entirely unrealistic assumption of the ceteris paribus clause. Since the experiments are initially based on arbitrary decisions and since, as we now see, these decisions cannot, or can only very insufficiently, be corrected later on, their economic consequences will enter into the system of equations of the next period. The economic measures taken by the central administration on the basis of these calculations will, hence, include an important arbitrary element. This cannot be avoided even if the data assembled are precise and are worked up into a national plan within a very short time. But again, even though, with the latest computers, the final calculations may be speedily executed, the gathering and processing of relevant economic data necessarily remains, to say the least, a very time-consuming operation.27 Therefore, "by the time the equations were solved, the information on which they were based would have become obsolete and they would need to be calculated anew."28 It is thus evident that Barone's article and all similar attempts provide no solution for the economic problem in a collectivist system. There is "no hope in this direction of discovering the relative scarcities of alternative kinds of investment."20 THE IMPOSSIBILITY OF A RATIONAL EVALUATION OF CAPITAL GOODS UNDER COLLECTIVISM

Where, then, lies the solution of the economic problem under collectivism? As early as 1920, L. v. Mises30 showed that there was no solution at all under this mode of production. This fundamental problem can only adequately be solved if each article, to whatever stage of production it belongs, possesses its own, objective value which indicates its scarcity with respect to all other commodities. But certain conditions must be ful-

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filled to enable this value to arise and serve as a reliable basis for economic calculations.31 Besides the existence of a universally accepted medium of exchange, the principal condition is that "not only must goods of a lower, but also those of a higher order come within the ambit of exchange,"32 since it is only through exchange that commodities acquire value. But this exchange must be based on the private ownership of the means of production because only this institution can provide an effective system of reward and punishment and thereby prevent the wasteful use of resources. But in a socialist society, only consumption goods will be subject to exchange and therefore to the subjective valuation by the individual. The resulting exchange relationships will form the basis on which prices are fixed, for this sector, by the central administration.33 But since production goods, in a socialist community, are collectively owned, "they are an inalienable property of the community and thus res extra commercium."3i The use of money does not alter this situation; "money could never fill in a socialist state the role it fills in a competitive society in determining the value of production goods."35 What are the consequences of this fact? It is certainly not impossible to establish a national economic plan according to the government's preference lists—independently of whether these preferences do or do not coincide with those of the final consumers. It is not economic calculations, but solely the will of the central agency that forms the decisive element. "But once the decision has been taken, the real task of rational economic direction only commences, i.e. economically, to place the means at the service of the ends. That can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities of production without such aid."38 Yet, because capital goods are now directly allocated by the State, they have lost their objective exchange value. Nor can the rate of interest be determined any longer. Hence, neither the scarcity of the capital stock as a whole nor that of its various components can effectively be measured by the national planning authority. The same indeterminateness prevails in respect to rent and wages.37 "Unless it is possible to ascertain the prod-

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uct of labor directly, the central authority does not know what wages it can afford to pay to any particular kind of labor, and is therefore unable to direct the available labor supply into those branches of production in which it can satisfy the highest effective demand and in which on that account the highest wages can be paid."38 Mises therefore draws the following picture of a socialist society: "There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. All these concerns will be interrelated. . . . In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, or whether work and material have not been wasted in its completion. How will it be able to decide whether this or that method of production is the more profitable?"39 Only private ownership of the means of production and their exchange on the free market can give rise to a pricing mechanism; "without a pricing mechanism, there is no economic calculation."40 In the absence of the compass of economic calculation, however, "we have the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations."41 THE "MARKET SOLUTION" OF SOCIALISM

As a reaction against the challenge contained in the volume Collectivist Economic Planning, a group of socialists, headed by Oscar Lange, advanced the so-called "Market Solution" of socialism. The writers in question42 attempted to construct a socialist model in which "the preferences of the consumers, as expressed in their demand prices, are the guiding criteria in production and in the allocation of resources,"43 just as in a competitive economy. It is true, Lange concedes, that there will be "no prices of capital goods in the sense of exchange ratios on the market"44 in a socialist economy. But he reproaches Mises for not having

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distinguished between "price in the ordinary sense, i.e. the exchange ratio of two commodities on a market"45 and its "generalized meaning of 'terms on which alternatives are offered'."48 And he adds: "It is only prices in the generalized sense which are indispensable to solving the problem of allocation of resources. To solve the [economic, E.T.] problem, three data are needed: (1) a preference scale which guides the acts of choice, (2) knowledge of the 'terms on which alternatives are offered,' and (3) knowledge of the amount of resources available."47 Lange argues that whereas the data under (1) and (3) can be regarded as given, it can be shown with the instruments of theoretical economics that "the 'terms on which alternatives are offered,' are determined ultimately by the technical possibilities of transformation of one commodity into another, i.e. by the production functions."48 To the objections made by Hayek and Robbins against the practical possibility of working out such a solution, Lange answers by saying that the Central Planning Board will never attempt to solve the problem with the help of innumerable equations, but will find the right "terms on which alternatives are offered" by trial and error. It will start with a certain, probably historically given set of prices and "see to it that all managers of plants, industries, and resources do their accounting on the basis of the prices fixed by it and not tolerate any use of other accounting."49 On the basis of these prices, managers are held to calculate and to run their undertakings exactly in the same way as capitalist entrepreneurs.50 Prices not corresponding to relative scarcities would soon result in commodity surpluses and deficits and be adjusted until equilibrium prices are reached. "Thus, the accounting prices in a socialist economy can be determined by the same process of trial and error by which prices on a competitive market are determined."51 This applies also to the interest rate in the short run. In the long run, however, capital accumulation will have to be centrally planned and the interest rate correspondingly arbitrary. But this is not a disadvantage, in Lange's opinion, because of the fact that the Central Planning Board possesses a "much wider knowledge of what is going on in the whole economic system than any private entrepreneur can ever have."52 A similar solution is proposed by H. D. Dickinson. Pricing,

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in a socialist economy, is to start from the impulses given by the consumption goods sector to that producing capital goods. Consequently, consumers' demand, via the selling agencies' orders, will determine the economy's need for the "ultimate factors of production." Taking into account their available quantities in the short run, the central administration will, for each factor, "fix a price which, according to the demand schedule, will just ensure its full employment. . . . Ultimately, by a process of successive approximation, a true economic price for each factor will be established which can then be used for costing purposes wherever the factor is used."53 By this method, not only the prices of all production goods, but also rent, interest, and risk premiums—which of course serve only accounting purposescan be derived. Decisions on new capital formation, however, must fall within the competence of the "organs of public economy." CRITICAL OBJECTIONS

Is the problem of rational resource allocation under socialism solved by this solution? It invites several critical remarks which raise doubts against a promptly given affirmative answer. In the first place, a contradiction exists between economic planning presupposed also by the "Market Solution," being defined as "the making of major economic decisions . . . by the conscious control of a determinate authority,"5* and the requirement of consumers' sovereignty. Either production is governed by consumers' preferences, or by conscious central control; it cannot be loyal to both. This antinomy clearly appears when Dickinson, at the end of his book, proposes to include consumer goods in the price lists to be centrally fixed.55 The author, besides forgetting that he had earlier derived costs of production from presuming autonomous consumer goods prices, is thus forced, by the logic of his own arguments, to substitute comprehensive state planning for mere price fixing on the basis of consumers' sovereignty from which he had started. "Thus," one can read in the Introduction to his inquiry "unplanned collectivism, although logically thinkable, is unlikely to occur in practice."56 The dilemma between central planning and individual decision making also appears, secondly, when these economists

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speak of price fixing in general. It is not said in what intervals prices are to be readjusted. Lange once remarked that such adjustments would "constantly" be made. However, in the race between the continual changes of economic data and the adaptation of prices to them, the central authority could at best keep constant the distance between the two. But, since these changes are far from proceeding regularly, it is to be expected that price fixing would increasingly lag behind the events. Dickinson sometimes speaks of "falling" and "rising," then again of "reduced" and "raised" prices. But if prices are adjusted only occasionally in accordance with ex post surpluses and deficits, how will the resulting disequilibria be corrected? Will the commodities which are more scarce than indicated by their price in the meantime be rationed or will the last comers have to go without them even if, in the case of primary and intermediary goods, this may imply a temporary interruption of production? Socialists assert that the advantages of central price fixing would be considerable since the state agency would be able, from a "glass house," to follow the relevant economic data." But we have already seen that this heirloom from SaintSimonism is an illusion in the absence of rational value calculations. Thus, the immediate consequence of price disequilibria will be the emergence, among the responsible managers, of losers and winners. But since prices are no longer determined by anonymous market forces, but by men, who will be on the winning and who will be on the losing side will depend on good personal connections with high state officials rather than on managerial skill and effort. The only possibility of taking energetic measures against the vested interests and abuses thus generated would be complete state planning. Thirdly, the "terms on which alternatives are offered," a concept which essentially belongs to the engineer's competence, can by no means fulfill the same functions as do market prices. By substituting one for the other, Lange confused a technical with an economic problem. This becomes evident if we remember that the most precise production possibilities curve—which, at that, can be drawn for two goods only—taken by itself leaves open an infinite number of choices. The final choice can only be made on the basis of exchange values which alone are able to

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indicate the point at which one of the innumerable, technically determined combinations of resources optimally corresponds to market requirements. Hayek anticipated the answer to Lange's objections when he described the real problems involved in this procedure as follows: "It is impossible to decide rationally how much material and new machinery should be assigned to any one enterprise and at what price (in an accounting sense) it will be rational to do so, without also deciding at the same time whether and in which way the machinery and tools already in use should continue to be used or be disposed of. . . . In order to be able to do so it will be necessary to treat every machine, tool or building not just as one of a class of physically similar objects, but as an individual whose usefulness is determined by its particular wear and tear, its location and so on. . . . This means that in order to achieve that degree of economy in this respect which is secured by the competitive system, the calculations of the central planning authority would have to treat the existing body of instrumental goods as being constituted of almost as many different types of goods as there are individual units."58 This problem is still more complicated by the fact that the quantity of available resources is not determined, as both Lange and Dickinson have presumed. What is known, perhaps, is the total amount of coal, mineral, etc. reserves of which a country disposes; but the question still remains how much of it is to be mined in a given year and whether the exploitation of such natural resources is economic at all. Thus, a collectivist economic order must necessarily and admittedly be based on some major initial decisions taken, as Stalin had said, from the viewpoint of the national economy as a whole and with profitability considerations covering one or more decades—to put it bluntly, on a political, not an economic, judgment. Under collectivism, as we have seen, the planning authority determines both national demand and supply. Hence, there cannot exist any prices or "exchange ratios" other than those fixed by the government itself; and these prices are, consequently, unsuitable for controlling the efficiency of production. But we must now ask: since the "Market Solution" of socialism inevitably leads to comprehensive national planning, is it

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not conceivable to nationalize the means of production, yet leave all enterprises free to continue their business on a competitive market, with free prices, as under capitalism? This raises the fundamental question of whether we can retain individual economic leadership without private ownership of the means of production. In a liberal economic order, it is the profit and loss account of a firm which, on the basis of past performance, decides whether the capital at the entrepreneur's disposal should be expanded, contracted, or whether the firm should be shut down. It is therefore the extent to which the risk taking of the entrepreneur was economically justified that determines the continued exercise of his functions, or his removal from his responsibilities. But his willingness to take risks depends on his balancing possible losses against prospective gains. He alone—or the shareholders to whom he is responsible—must bear the full consequences of his actions and must suffer a reduction of his (their) assets if his calculations and his decisions based on them have ended in failure. The fact that the owner of capital has the choice between investing his funds in his own enterprise and offering them on the capital market enables him to compare his prospective gains (and possible losses) with the interest rates —which include premiums corresponding to the different degrees of risk—prevailing on that market. It thereby provides a wholesome check for too bold undertakings. Economically speaking, the price mechanism, if it is allowed to work properly on the capital market as well, directs scarce productive resources to those places where they are most rationally used with respect to consumers' preferences; but it becomes effective only if private ownership of the means of production is guaranteed. The problem of risk will continue to exist in a socialist economy based on competition and consumers' freedom of choice, and with it, the losses due to it. But now these losses are borne by the community as a whole, that is, the state organ representing it. Therefore, it is this agency which decides on the allocation of capital to the individual commercial and productive agencies. But what is the criterion according to which the legitimacy of a risk and, correspondingly, the profitability of an undertaking is to be judged? "The decision about the amount of capital to be given to an individual entrepreneur and the de-

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cision thereby involved concerning the size of an individual firm under a single control are in effect decisions about the most appropriate combination of resources. It will rest with the central authority to decide whether one plant located at one place should expand rather than another plant situated elsewhere. All this involves planning on the part of the central authority on much the same line as if it were actually running the enterprise."59 But who is now to be made responsible for possible mistakes? A socialist economy based on free competition will be characterized by recurring conflicts of competence, with managers and planning officials each blaming the other. "It will at best be a system of quasi-competition where the person really responsible will not be the entrepreneur, but the official who approves his decisions and where in consequence all the difficulties will arise in connection with freedom of initiative and the assessment of responsibility which are usually associated with bureaucracy."60 We can therefore conclude that the device of a competitive socialist system relieves us neither theoretically nor practically from the basic choice between the two kinds of economic order and their respective solutions of resource allocation. Indeed, the "principle of planning" constitutes the only alternative to the price mechanism. THE "THEORY OF PLANNING" ACCORDING TO SWEEZY

Decentralized decision making under socialism must hence be regarded, in P. Sweezy's opinion, only as a "model . . . designed to serve a definite and relatively restricted theoretical purpose."61 If realized, it would reproduce "some of the worst features of capitalism and fail to take advantage of the constructive possibilities of economic planning."62 What Sweezy has in mind here is the elimination of uncertainty and risk. To this end, the Central Planning Board must (1) lay down "certain general goals such as the building up of heavy industry, the rehousing of a specified portion of the population, and the development of hitherto backward regions;"63 (2) draw up an investment plan "translating the general goals .. . into quantitative terms; so many new factories, railroads, power plants, mines, apartment houses, schools, hospitals, and so forth" and

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establish, on this basis, "schedules of the different kinds of materials and labor which will be required;"84 (3) "estimate consumer demand for all products which compete for resources with the investment plan and draw up a second set of schedules showing the different kinds of materials and labor which will be required;"65 (4) by harmonizing both kinds of schedules and adapting them to current and prospective supplies, "work out a general plan for the development of the economy over the period in question."66 The Central Planning Board will issue concrete and binding directives to the managers with respect to plan fulfillment. Rational allocation of resources will still be possible, Sweezy asserts; he refers to Lange who "may be regarded as having finally removed any doubts about the capacity of socialism to utilize resources rationally."67 This is, then, the essence of what Sweezy calls the "planning principle" that is to guide the socialist economy. It is true that both Lange and Dickinson considered their conclusions on rational price formation under socialism to be valid also for an economy guided, ceteris paribus, not by the consumers', but by the central agency's preferences. But how can exact plan fulfillment be expected from the managers who, at the same time, are left free to compete on a socialist market for labor and intermediary materials? We have already seen that the existence of centrally fixed "as if" prices, even if they can eventually be approximated to true scarcity prices, fail, ex definitione, to lead to a balance of supply and demand. If, however, the director of a plant is unable to purchase all the factors of production which he needs at existing prices, either he cannot fulfill his part of the plan, or resources must be physically allocated to him in which case prices will lose their function as rational units of calculation. This was clearly stated by Lange himself: "Outside of the distribution of consumers' goods to the citizens, rationing has to be excluded as a method of equalizing supply and demand. If rationing is used for this purpose, the prices become arbitrary."68 Hence, Sweezy's "theory" only restates the fact that comprehensive planning necessarily rests on political decisions. On what criteria are those "certain general goals" to be laid down? Is it economically justifiable to build up heavy industry in a predominantly agrarian country, and if so, at what optimum

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rate of growth? Since the "harmonizing of schedules" implies the cutting down of incompatible production targets, which schedule is to enjoy priority: the government's investment plan or the estimated consumer demand? These and many other relevant questions are not even raised by this author. Furthermore, Sweezy adheres to the common socialist view that once the economic targets are given, the quantity and quality of the factors of production are automatically determined and can be represented by a system of commodity balances such as this: COMMODITY X Origin of Supply

Use

A. Inland Production

A. Inland Consumption

B. Imports C. Decrease of Stocks

1. — 2. 3. . B. Exports C. Increase of Stocks

TOTAL SUPPLY

TOTAL USE

Enough has been said on this subject to prove that this is not so. Costs cannot be assessed through the compilation of statistical data; they have to be minimized with the aid of economic calculations. Material balances can only be drawn up when the basic valuations have taken place; quantity alone never indicates the extent to which scarcity is being overcome. The "principle of planning," therefore, fails to solve the problem of rational resource allocation under socialism. SUMMARY AND CONCLUSIONS

We have seen that the existence of money prices is a necessary, but not a sufficient, condition for carrying out economic calculations. There must exist, in addition, a free market for consumption as well as for production goods. The freedom of

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initiative granted to individual entrepreneurs must be coupled with direct and immediate repercussions of the effects of their decisions on the private capital used in the operations, regardless of whether this takes the form of equity shares or is directly owned by the responsible manager. Only these additional requirements confer upon prices the ability to measure the value of both a given stock of commodities and one single unit. Calculations based on these prices are reliable guides for production decisions because, from the viewpoint of the individual director, input prices are independent of those of the final product. Moreover, both have a cogent character in that producers acting on anticipations not justified by the market are compelled within a relatively short period of time either to adjust their program to effective demand or to lose their status as entrepreneur. The theories of neither centralized planning nor of the "Market Solution" of socialism and Lange's distinction between market prices and the "terms on which alternatives are offered," have invalidated Mises' contention that the economic problem cannot be rationally solved under socialism. Since the central planning agency now determines both national supply and demand, autonomous price formation must necessarily be replaced by price fixing. The latter, if it is not to be entirely arbitrary, takes place according to rough estimates of average costs; in the absence of independent values marginal costs are no longer ascertainable. But this is precisely why prices can no longer provide information on the rational allocation and use of productive resources. This fact will play an important role in our considerations on the nature of international economic relations under socialism to which we now turn. The neglect of these problems by socialists was one of the main reasons that these relations received so little attention in the works of socialist writers.

1. 2.

NOTES TO PAGES 125-127 Viner, J., "International Relations Between State-Controlled National Economies." In Readings in the Theory of International Trade, London, Allen & Unwin, 1950, p. 439. Whereas the terms "collectivist" and "socialist" can and will be used interchangeably to denote comprehensive economic control exercised by govern-

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3.

4. 5.

6. 7. 8. 9. 10. 11. 12. 13.

14. 15. 16. 17. 18.

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ments, they differ with respect to the formal ownership of the means of production: in a socialist economy, these are publicly owned; but it is, as was demonstrated by Germany under Hitler, quite possible to run an economy on collectivist lines without legally abolishing private property of the means of production. What really matters is the fact that in both cases it is the government which plans national production and correspondingly determines the use to be made of capital goods and raw materials. "Insofar as the allocation of productive activity is brought under conscious control, the law of value loses its relevance and importance; its place is taken by the principle of planning. In the economics of socialist society the theory of planning should hold the same basic position as the theory of value in the economics of a capitalist society." Sweezy, P. M., The Theory of Capitalist Development, p. 57.

NOTES TO CHAPTER VI Eucken, W., Grundsätze der Wirtschaftspolitik. Ed. Eucken, E., and Hensel, K. P., Bern/Tübingen, Francke/Mohr, 1952, p. 211. "The fact that in the present order of things . . . economic problems are not solved by the conscious decision of anybody has the effect that most people are not conscious of their existence. Decisions whether and how much to produce are economic decisions in this sense. But the making of such decisions by a single individual is only part of the solution of the economic problem involved. The person making such a decision makes it on the basis of given prices. The fact that by this decision he influences these prices to a certain, probably very small, extent, will not influence his choice. The other part of the problem is solved by the functioning of the price system. But it is solved in a way which only a systematic study of the working of this system reveals" and, for its working, "it is not necessary . . . that anybody should understand it." Hayek, F. A. (ed.), Collectivist Economic PL·nning. Critical Studies on the Possibilities of Socialism. London, Routledge, 1935, pp. 7-8. Hayek, F. A. (ed.), Capitalism and the Historians. London, Routledge, 1954, p. 23. Collectivist Economic PL·nning, p. 12. Ibid., pp. 5-6. Ibid., pp. 16-17. Brutzkus, B., Economic PL·nning in Soviet Russia. London, Routledge, 1935, p. 12. Ibid., p. 13. Cf. also Neurath, O., Durch die Kriegswirtschaft zur Naturalwirtschaft. München, 1919, and Bauer, O., Der Weg zum Sozialismus. Wien, 1899. "For example, in applying his method to agriculture, he makes this sort of calculation: the production of 1,000 units of grain requires the following expenditure: 30 units of labor, 90 units of means of subsistence, 8.6 units of land, 0.2 units of transport, 25.6 units of buildings, 0.4 units of stock, 1.5 units of materials, 0.03 units of heating." Brutzkus, B., op. cit., p. 14. Ibid. Ibid., p. 16. Ibid., p. 17. Ibid., p. 19. "Thus, the fact that rope made in factories is, according to the labor account, less costly than that made by the home-workers, is no reason to conclude that rope factories must be enlarged; if the community suffers from a shortage of

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19. 20. 21. 22. 23. 24. 25.

26. 27.

28. 29. 30. 31.

32. 33.

34. 35. 36. 37.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER capital, then it is more likely that the rope factories will have to be liquidated after the existing machines are worn out and that the entire production of rope will have to be transferred to the home-workers. In actual fact our impoverished state has again and again acted in this way, and it has been right to do so." Ibid., p. 21. Cf. Maier, K. F., "Der Wirkungsgrad der Wirtschaftsordnung." In ORDO, Jahrbuch †ür die Ordnung von Wirtschaft und Gesettschaft. Vol. V, Düsseldorf-München, Küpper vorm. G. Bondi, 1953, pp. 51-61. Reprinted in Collectivist Economic PL·nning, Appendix, pp. 245-90. Ibid., p. 246. Ibid., p. 274. Ibid., p. 290. Maier, K. F., loc. cit., p. 52. "The determination of the coefficients economically most advantageous can only be done in an experimental way and not on a small scale, as could be done in a laboratory; but with experiments on a very large scale, because often the advantage of the variation has its origin precisely in a new and greater dimension of the undertaking. Experiments may be successful in the same sense that they may lead to a lower cost combination of factors; or they may be unsuccessful, in which case the particular organization may not be copied and repeated and others will be preferred which experimentally have given better results." Collectivist Economic PL·nning, p. 288, italics original. Ibid. It would be interesting to investigate further the effect that modern computers may have on efficient resource allocation under collectivism. They introduce, as H. S. Simpson of Columbia's Graduate School of Business has pointed out, the possibility of calculating the rate of change of change. But, the accelerating pace of social and economic change at the same time results in an urgency to act more speedily on management decisions. This necessity therefore demands a greatly enhanced overall flexibility of the economic system. But the major brake on progress in all societies is not technology, but human character. This question therefore boils down to the problem of what incentives are built into an economic order to encourage a managerial behavior corresponding to the newly created possibilities. Some aspects of this problem will be described in Part III. Robbins, L., The Great Depression. London, Macmillan, 1934, p. 151. Ibid. Mises, L. v., "Economic Calculations in the Socialist Commonwealth." Translated and reprinted in Collectivist Economic PL·nning, pp. 87-130. In fact, it fulfills three distinct functions: it determines the initial allocation of resources to their various productive uses, it controls production processes already under way, and it makes it possible to reduce all goods and services to a common unit of account. Collectivist Economic PL·nning, p. 101. However, since it belongs to the exclusive competence of the central administration to determine the total volume of consumption goods, the prices affect only the distribution of the planned stock of commodities among the citizens. Centralized planning is thus incompatible with consumers' sovereignty. Collectivist Economic PL·nning, p. 91. Ibid., p. 92. Ibid., p. 103. G. D. H. Cole admits this by writing: "In a planned socialist economy, there can be no objective structure of costs (represented by the current level of

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38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

51. 52. 53. 54. 55.

56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68.

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wages, rent, and interest). Costs can be imputed to any desired extent" according to the public policy of the State. Quoted from his book Economic PL·nning, New York, 1935, by Lange, O., On the Economic Theory of Socialism. Minneapolis, University of Minneapolis, 1952 (first published in 1938), p. 80. Halm, G., "Further Considerations on the Possibility of Adequate Calculation in a Socialist Community." In CoUectivist Economic PL·nning, p. 167. Ibid., p. 106. Ibid., p. 111. Ibid., p. 110. Such as H. D. Dickinson, A. P. Lerner, R. L. Hall. Lange, O., and Taylor, F. M., On the Economic Theory of Socialism. Minneapolis, University of Minneapolis, 1952 (first printed in 1938), pp. 72-73. Ibid., p. 61. Ibid., p. 59. Lange refers here to a term used by Wicksteed which indeed plays an important role in modern economic analysis under the name of "opportunity costs." Ibid., p. 60. Ibid., p. 61. Ibid., p. 81. "One rule must impose the choice of the combination of factors which minimizes the average cost of production." Ibid., p. 75. The other rule "determines the scale of output by stating that output has to be fixed so that marginal cost is equal to the price of the product." Ibid., p. 76. Ibid., p. 87. Ibid., p. 89. Dickinson, H. D., Economics of Socialism, pp. 99-100. Ibid., p. 14. "The prices at which consumption goods were offered for sale would be based on the prices of the goods entering into their production (cost of production) and would thus relate individual demand to the scarcity of the resources available for satisfying it." Ibid., p. 113. Ibid., p. 17. "A socialist economy would be able to put all the alternatives into its economic accounting . . . as a result it would also be able to convert its social overhead costs into prime costs." Lange, O., op. cit., p. 104. Hayek, F. A., "The Present State of the Debate." In CoUectivist Economic PL·nning, pp. 208-9. Ibid., pp. 236-37. Ibid., p. 237. Sweezy, P. M., Socialism. New York, McGraw-Hill, 1949, p. 233. Ibid. Ibid., p. 235. Ibid. Ibid. Ibid., p. 236. Ibid., p. 232. Lange, O., op. cit., p. 93, italics added.

CHAPTER VII

PLANNED FOREIGN TRADE AND ITS CONSEQUENCES FOR INTERNATIONAL ECONOMIC RELATIONS The foreign trade monopoly of a collectivist state must make decisions of the following nature: what kinds and quantities of goods and services are to be imported and exported? What are the prices at which these goods are to be bought and sold? What criterion is to be used to measure the profitability of these transactions? Evidently, if there exists no reliable method of ascertaining scarcity, these questions cannot be answered satisfactorily. We shall start this chapter by going back once again to the socialists treated in Part I. We shall now examine the place foreign trade holds in their doctrines and the international economic consequences of their ideas in more detail than could be done in Part I. The ground will thereby be prepared for the consideration of our problem from a general point of view. THE PLACE OF FOREIGN TRADE IN IDEAL COMMONWEALTHS

Plato Foreign trade is clearly recognized by Plato as an agent working for a general increase in productivity and welfare. Yet, international exchange is to be minimized or even abolished, at least as far as goods for use by individuals are concerned. It is left entirely to the authorities' discretion to decide which imports are "necessary" and which are not, no consideration being given to the citizens' wishes or traditional religious customs.1 Quite another matter is the importing of commodities that are required by the State for military purposes: here, the Lawwardens are free to purchase whatever is needed and pay for the acquired goods with exports. Since the State is "all productive," its authorities will have a sufficient range of commodities

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at their disposal with which to satisfy the claims of foreign exporters. The question of the real costs involved in such transactions, costs which are ultimately borne by the population, could not concern a man whose major preoccupation was to free human hearts from the lust of wealth. On the contrary, every measure restricting economic welfare was openly welcomed by him as a means of furthering his moral end. One could characterize Plato's leading maxim with the phrase: to have less of a thing is better than to have more of it. This principle, however, applies only to the individual; the State must retain absolute freedom to abundantly provide for its needs which serve to strengthen its internal and external position. Thomas More A seemingly different picture is given by Sir Thomas More in his Utopia which is the socialist prototype of a rationalized and standardized economy producing great surpluses. The problem of scarcity does not arise. Goods are no longer traded, but freely distributed to each according to his needs. International trade assumes the form of gifts offered by a happy community to the less fortunate peoples of the world. More leaves no doubt that this really Utopian result is due not to a prodigious productivity of the island, nor to some other supranatural factor, but exclusively to "a life ordered according to nature." What kind of order is this? One in which the demand side of the economic problem is considerably simplified. The program of production is strictly limited: it covers some basic foodstuffs, standardized clothes and buildings, and a few objects destined for "common recreation, games, and studies." In the language of modern economic theory, only those goods and services are produced in Utopia for which the elasticity of demand is very low. This is a common characteristic of all "essentials." In other words, the demand for these commodities reaches the saturation point relatively rapidly, beyond which the possession of them would be accompanied by disutility. And since in a statical economic system these goods are constantly reproduced in the same quantities and qualities, there is no impetus to accumulate hoards: everyone will indeed only take what he effectively needs.

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What happens, however, if the Utopians begin to desire articles which have not hitherto been produced? Or where will they be led by a sudden change in their frame of mind which will cause them to prefer more leisure time to the overabundance of not very useful products? Or, finally, what course will events take when Utopian traders discover that, in exchange for their surpluses, valuable goods can be obtained abroad which greatly increase their own and their fellow citizens' comfort of life? Clearly, in all these cases the economic problem would at once make itself felt. The unconsumed surplus of home goods would rapidly disappear and with it the Utopians' willingness to give it away. Productive resources would become scarce. But, the economic problem does not arise in Utopia for the simple reason that its inhabitants "do not think felicity to rest in all pleasure, but only in that pleasure that is good and honest." It is neither good nor honest, nor "according to nature," to desire more than one can have. And all one can have in Utopia are six hours of work, the abundant or even overabundant provision of one's basic needs, and standardized entertainment. No other choice has been left to the individual citizen by the wise king Utopus. Nevertheless, this king had foreseen the eventuality of an emerging scarcity: that of land. And he had also indicated the solution of this problem: war and annexation of "void" territories. Such procedures would be in accordance with the "law of nature" since a "natural" proportion between the size of the population and the territory to be occupied by it was assumed to exist. But what if Utopia itself came to suffer from a deficient population and a corresponding overabundance of land? Would other peoples equally be entitled, by invoking the "law of nature," to claim part of its territory? Obviously, this turn of events is excluded by the geographical location of Utopia and the impossibility of access to its lands by foreigners, a situation consciously brought about by its founder. The implications of this closedness would also be experienced by those citizens who, on their trips abroad, would seek goals other than those approved by the community. Thus, we can see that despite apparent dissimilarities, More's Utopia and Plato's Just State greatly resemble each other. Both are subjected to the rule of "virtue" and "reason' as embodied

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by the State. In both, therefore, the citizen must be content with what the State has accorded him. The only difference between the two is that authority in Utopia has already become facile et douce, whereas in Plato's commonwealth it harshly represses "the majority of desires." Even in Utopia, however, this authority would soon be felt by all those who, in their personal aspirations, failed to "follow the course of nature." Its closure against the outside world thus not only protects the ideal State from outward foes, but enables it to deal effectively with possible rebels within its frontiers. It is the indispensable condition in maintaining absolute power. Johann Gottlieb Fichte This was most clearly perceived by J. G. Fichte who, in the title of his small book, had already underlined the preeminent importance of this requirement. He described, with rigorous logic, all major aspects of a centrally planned economic order. By so doing, he went into greater detail than any "scientific socialist" was to do for more than a century after him. Again, the basis of the national plan is formed by a list of essential commodities decided upon by the State. Fichte, like most other socialist authors, presupposes a naturally given order of priority among the various commodities and services; it is also nature which prescribes a fixed relationship between agricultural and industrial production. Hence, for him, the economic problem remains unrevealed and state planning is considered identical with the calculation of merely quantitative relationships. The author realized, however, that the transition from an open to a closed economy would involve economic losses to the country. But, since these losses would affect only the welfare of individuals, whereas the state would emerge with greatly increased powers and strength, they were irrelevant in Fichte's point of view. Conversely, Fichte, with unusual perspicacity, is aware of the "perennial conflict between national planning and foreign trade";2 and he gives a consistent explanation for this fact. The proposed solution consists, as we know, of a "strictly closed commercial state," the only one, in the author's view, which is compatible with the Vernun†tsstaat. This is so because it safe-

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guards to the fullest degree the liberty exercised by the State in internal economic matters, especially as regards monetary and price policy. With stern consequence, he enumerates the five preliminary steps which make it possible for the government to systematically destroy dominium—the necessary precondition for the hermetic closure of state frontiers. How does Fichte envisage future international relations? Since foreign trade is to be eliminated as far as possible, the State cannot be indifferent to the size of its territory and the raw materials resources it controls. And indeed, its preoccupation with this problem, more precisely its aspirations to achieve productive independence and self-sufficiency, are regarded by Fichte as the Vernunftsstaat's legitimate policy: Again, it is nature which predestines certain parts of the globe to form political units. The author clearly recognizes that natural frontiers cannot be achieved without war; he recommends getting it over as quickly as possible or, even better, so strengthening the power of the State intent on closing its frontiers that defense becomes a hopeless affair for its less powerful neighbors. These territories can then be swallowed up "peacefully" and become the natural borderlands of the few remaining Superstates. Once these natural frontiers are achieved, however, it is alleged that all sources of international conflict will be removed and that eternal peace will reign. Here Fichte, who had up to now been so extraordinarily realistic, clearly becomes Utopian. He fails to see that by postulating a comprehensively planned internal order and a corresponding rupture of all economic links with the outside world, he really converts the economic problem into a political one. Productive resources are no longer freely bought and sold, but are allocated by a political authority; and this authority can count on them only to the extent that they are actually under its jurisdiction. But, however great the territory dominated by it, and however richly endowed with natural resources it might be, there will always be raw materials outside the frontiers of a given state that are desirable, unless it has brought the whole world under is domination. Hence, the practical limits to the claims and aspirations of powerful states are drawn not by "nature," but by the determined resistance of other, equally powerful, nations. International peace, and a very uneasy one

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at that, will therefore only be assured if all states acquire approximately the same strength and if the formation of an alliance between some of them will at once be countered by the establishment of an equally powerful counter-alliance. As soon as this balance of power is upset, aggressive wars become inevitable. Under these circumstances we can no longer speak of an international order. THE PRE-MARXIAN SOCIALISTS' ATTITUDE TO INTERNATIONAL ECONOMIC RELATIONS

Robert Owen The combination of ideology and economics is particularly noticeable in Owen's works. All basic aspects and problems of Utopia discussed in the preceding section are present. Even the question of natural frontiers is hinted at by Owen's remark that each community will "annex" sufficient land enabling it to live on its produce. Thus, this author, too, aims at closed, selfsufficient associations, notwithstanding the fact that he speaks of a "free" international intercourse. We have just seen the fundamental incompatibility of such an order with centralized planning. Saint-Simon and His Followers Saint-Simon and especially his successors were the first socialists who consciously concerned themselves with the problems of optimum resource allocation. At the same time, they recognized the existence of a fundamental difference between the economic and the political sphere. They perceived that, whereas the latter was characterized by the use of force, which, by clashing with rival forces, must eventually lead to armed conflicts and repression, the former required peace and the development of productive resources according to its own, proper laws. They concluded that politics must be prevented from interfering with the peaceful and beneficial economic forces closely allied to the progrès des lumières. But the great error of the Saint-Simonians is their failure to understand that the essence of the political sphere is power and

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arbitrariness and that it is from these characteristics that wars and international disorder originate. Instead, they consider politics as only that power which is handled by wrong, inefficient, and reactionary persons and classes. These are identified with those who, at present, are the governors of national states. The solution advocated by this school now becomes very simple: power must be transferred to the true representatives of collectivity, those who are best qualified for the task of organizing and administrating the affairs of society. By this procedure, it is thought, two problems would be solved by one stroke: the problem of efficient resource allocation and that of international peace and order. The removal from their command positions of those, it is argued, who no longer fulfill the requirements of history and "industry," will result in the disappearance of the national states themselves, products of a past era and the source of incessant conflicts. Conversely, the new elite will possess not only absolute knowledge, but will also be inspired by the highest ethical principles so that the economic affairs of the entire globe could safely be entrusted to them. Politics would be converted into the "science of production." Thus, the basic fact that gives rise to the economic problem —scarcity—continues to be ignored. What the Saint-Simonians really recommend is the politicalization of economics, not the opposite, as they thought. Furthermore, we have seen that socialism can only be introduced in each state separately, a process which strengthens, not weakens, the power of national governments. But national collectivism is impossible without the closure of state frontiers, and this in turn enhances the possibility of international conflicts. The Saint-Simonian doctrine therefore contains all the essential characteristics of an ideal commonwealth, but embraces the whole world. It is the misapprehension of the real nature of power and the unawareness of the economic problem that prevented these authors from perceiving the fundamental problem of international economic order under socialism. Pierre-Joseph Proudhon It was reserved to Proudhon to elaborate, with admirable clarity and eloquence, the basic qualitative difference that dis-

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tinguished the economic from the political sphere. The solution to the problem of social organization could not, for him, be found in taking power away from inappropriate persons and conferring it, greatly enlarged, upon men of "perfect" knowledge and wisdom. What was required was the separation of the two domains and both the horizontal and the vertical division of political power. But this could only be achieved by a society built de bas en haut, a state organization based on federalism, that is, on maximum individual and regional freedom. Proudhon's uncritical adoption of the labor theory of value obscured to him the basic fact of the scarcity of all productive resources. But he recognized that the forces of dominium (possessoire) and only these could create and maintain a peaceful international order. We can only conjecture what would have been Proudhon's choice had he been clearly faced with the alternative: "monopoly" of private property—which, under a regime of free competion is, for all that, less "detestable" and more "justified" than he initially thought—or the unrestricted power monopoly of the state, destroying dominium and bringing all human activities under the control of a single, political will. What is certain is the rigorous logic of this fundamental alternative: one can ignore, but not escape it. THE GENERAL PROBLEM OF INTERNATIONAL ECONOMIC RELATIONS UNDER SOCIALISM

We can now consider the problem of collectivist economic intercourse in a general way. Our own analyses as well as those of the socialists themselves have shown that the collectivist state represents a watertight economic system" (Mossé). It does not follow, however, that the state must necessarily suspend its economic relations with the outside world. Theoretically, it is quite conceivable that the planning authority not only continues, but even extends, as Cole had envisaged it, its foreign trade relations. We need, therefore, to examine those essential features of a socialist economy that are likely to influence the deciions of the monopoly of foreign trade.

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The Permanent Pressure on Internal Resources The central economic agency has, at the beginning of a planning period, certain amounts of productive resources at its disposal. Obviously, a first requirement of state planning is to fully employ these resources. This requirement is closely tied to a second one: to achieve maximum growth of production.3 But this raises the problem of the proportions that consumption and investment goods are to hold in national production. The planning authority will have a natural inclination—or in fact, an obligation imposed upon it by a radical theory of industrialization—to increase the share of investment goods in total output, since it is on the volume of the productive equipment possessed by the state that its economic growth rate depends. But this tendency clashes with the postulate of raising the population's standard of living. The actual solution adopted is the outcome of a political decision made by the government. By inquiring into the causes and motives of entrepreneurial behavior, the classics discovered the price mechanism which enabled economic science to arrive at generally valid conclusions and principles that characterized a free market economy. These principles are no longer allowed to solve the economic problem under collectivism; it therefore becomes even more imperative to search for certain regularities of outlook and behavior of those men who actually exercise the droit à la richesse in the name of national collectivities. But this way of approaching economic problems under collectivism is contrary to the socialist method. This method consists, as we have seen, of the dogma—it is impossible to call it otherwise—that it is not ordinary men, but Têtre collecti† itself, represented, for Lenin, by an advanced and infallible vanguard party, which is making the vital economic decisions according to the requirements of "science" or history. Consequently, these decisions cannot be anything but right and in the true interest of the community as a whole. "Scientific socialism," by insisting on the absolute primacy of a coherent body of doctrine over practical problems, thus takes over from the founders of ideal commonwealths the Utopian method of treating economic and social problems. To questions relating to these problems, not the economist, but the ideologist will supply the "correct" answer.

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But Engels had already recognized that the existence of classes is due to the fact, characterizing any economy based on division of labor, that a group of persons, liberated from directly productive work, is called upon to attend to the common affairs of society, most particularly to the disposal of the means of production.4 Thus, the only real difference which, in this respect, takes place with the advent of socialism is the replacement of one such group by another. This "new class," as M. Djilas5 referred to it, has developed, like any other social class, its proper outlook and interests. But it differs from its predecessors by the possession of a hitherto unknown concentration of power. It will certainly be its foremost concern to use this power for the consolidation of its own position. Since we are concerned, after all, with normal human beings, it cannot be expected that they will, as Saint-Simon had envisaged it, gratuitously direct the administration of public fortune. On the contrary, this class will, just as its predecessors did, secure to its members all those goods and services which add to the comfort of life. It can easily do so because it controls the entire flow of national production and because the distribution of this "cake" takes place on arbitrary lines. The raising of general living standards will be in its interests only insofar as this measure provides an additional incentive for the productive effort of the population, additional, that is, to the socialist law compelling every citizen to work. Conversely, the decision-makers have a strong and immediate interest in developing those branches of the economy that contribute to the production of capital goods: i.e. heavy industry. They thereby enlarge not only the "public fortune," but also their exclusive power to dispose of it. Moreover, a collectivist economy will always be in need of a relatively greater proportion of investment goods and raw materials than a free market economy in order to make up for the losses resulting from mistakes of planning and uneconomical use. But in addition, a well developed national heavy industry is a direct source of political power, since it is indispensable for an independent armaments program. The "new class" derives its privileged position from this very power and has every reason to devote as many available resources as possible to the production of primary and intermediary products.

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Yet, since for propagandistic as well as for economic and political reasons mass welfare cannot be altogether neglected, there will be, in a collectivist economy, not only full employment, but constant overemployment of productive resources, accompanied by a permanent shortage6 of labor, materials, and capital. But neither can the relative scarcities of the factors of production be measured exactly, nor is there a mechanism which would punish the decision-makers or at least compel them to correct their mistakes within a reasonable period of time. This overemployment of resources is felt by the individual managers7 as well as the state officials responsible for foreign trade planning. Whether they receive the necessary inputs in the quantity, quality, and at the time required, will depend much more on their skill and personal connections than on the physical allocations of the plan. Unforeseen imports will frequently be required to meet bottlenecks; at the same time, imports will tend to be cut down and brought into line with the limited amount of goods and services available for export. The Impossibility of Measuring the Profitability of Individual Foreign Trade Transactions This throws new light on the "primacy of imports over exports" praised as the great advantage of collectivist foreign trade. The excess of demand over supply spills over also into international economic relations, and the foreign trade monopoly is faced with the impossible task of procuring a maximum of imports for a minimum quantity of exports.8 But, the central agencies are unable to ascertain the net gain involved in any particular transaction. Here, as in all other branches of the economy, global estimates relating to the overall profitability of foreign trade must replace marginal calculations. "The question faced by the organs responsible for foreign trade thus reads: 'How much would it cost our national economy if we ourselves had to produce the commodities which we could purchase abroad by means of the foreign exchange earned by the sale of export goods?' These costs are to be compared with those incurred by the production of export goods; the result will yield the profit or loss from foreign trade."9 These calculations, however, cannot be based on an objective exchange rate

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maintaining a true price link at least for the internationally traded commodities. This fact, together with the arbitrariness of the internal costs themselves, will necessarily distort even these very rudimentary calculations. Trade Relations between Collectivist and Free Market Economies In the case of collectivist states trading with free market economies, scarcity prices are involved at least on one side of the arithmetic problem. The various solutions advanced by socialist authors to optimize trade relations10 boil down to an extension of the "trial and error" method also to cover international economic transactions. Whereas Lange had attempted to achieve true scarcity prices within the economy, Mossé hopes, by this method, to find a correct exchange rate. But just as the "Market Solution" and the consumers' sovereignty presupposed by it collided with the "principle of planning," there also exists an insurmountable conflict of conscious national economic control and the postulate to direct production according to the interplay of international supply and demand. Thus, Bettelheim, who aimed at arriving at internal prices reflecting international values, was aware of his proposal involving a certain subordination of the national economy to the requirements of world economy.11 This, however, he thought to be harmful only if one single collectivist country was confronted with a world consisting of free market economies. In such a case, plan disturbances caused by the instability of world market prices could only be avoided, he wrote, by resorting to the highest possible degree of autarky, that is, by assigning to the international trade the role of a "security valve."12 Moreover, as Mossé had rightly seen, to leave international transactions to the free discretion of individual managers is incompatible with the internal structure of a collectivist economy. This does not, however, prevent the collectivist state from taking advantage of its monopolistic position vis-à-vis its partners in a free market economy composed not of states, but of individual entrepreneurs. It is true, as E. Heuss pointed out, that "because of the high urgency of import goods there will be a very rigid import demand."13 But this disadvantage can often

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be compensated for by means of price discrimination both in buying and in selling goods. By this procedure, the state can considerably improve its terms of trade. In addition, it can swiftly take advantage of sudden economic disequilibria and adapt its foreign trade policy to the political requirements of its Ministry of Foreign Affairs with respect to each state. In fact, this versatility is in striking contrast to the internal clumsiness of every planned economic system since, to use J. Jewkes' phrase, "the plan itself is the enemy of readjustment."14 Trade Relations between Collectivist States What can be said about a future international order consisting exclusively of collectivist states—a situation which is obviously the goal of most socialist authors? Can the element of instability originating from world market prices be so reduced that international trade, instead of leading to economic disintegration, achieves an ever greater and more fruitful extension of the international division of labor? This is possible, socialist assert, because the volume and conditions of mutual exchange are specified prior to the establishment of national plans; these will not finally be drawn up until the different quantities and qualities of exports and imports have been internationally agreed upon so that they can be safely and reliably incorporated into the various national plans. But again, the emergence of the economic problem must upset these expectations. According to what criteria is the value of deliveries and counter-deliveries to be determined? If we turn to socialist writings, we are only told that brotherly love and solidarity will replace "mercantile" trade. Yet, if we remember the basic feature of a collectivist economy—the constant overemployment of all factors of production—and, furthermore, the aims and goals of the new class in each state, we can see that a collectivist economy, however rich it may be, has no resources to spare. These will only leave the country if an appropriate countervalue is obtained in exchange. This counterpart may be economic as well as political; but the political advantages, e.g. of spectacular gifts to developing countries, will only arise as long as rival (socialist and nonsocialist) states are

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competing for the sympathies of these countries. They are the outcome of power politics, not of proletarian solidarity. International gifts can therefore by no means be considered a permanent feature of socialist economic relations. To learn more about the nature of these relations, we shall follow W. Eucken's method and accompany an agent of a national foreign trade monopoly—assuming for simplicity's sake that it will always be the same person—through the different stages of his work. The morning he starts it, he will find on his desk numerous documents indicating the country's planned needs of raw materials, intermediary products, etc. on the one hand, and the kinds and quantities of goods which will probably be available for export on the other. Based on these documents and extensive additional consultations with the central planning agency, he will establish a list of goods and services to be imported ranked according to their priority,15 and an export list headed by those commodities which are least needed with respect to plan fulfillment. Prices will play a role only insofar as they do not conflict with the orders received from the highest planning officials. Armed with these lists and with instructions to obtain as many high priority goods in exchange for as few exports as possible, our agent will be sent out to meet a delegate from another socialist country who will produce similar lists and will be under the same obligations. Negotiations will begin. If prices once played a minor role in establishing basic lists, they now lose all importance since there is no rational exchange rate which could make national quotations internationally comparable. Conversely, our delegate will discover that his colleague at the green table wishes to purchase from his state very much the same kind of commodities as those contained on his own import lists, namely: vital raw materials and capital goods. On the other hand, he shows little inclination to accept as a payment for these valuable goods commodities which also in his country have lowest priority. After innumerable telephone calls to their respective capitals and tough bargaining over every item and counter-item (without, however, knowing their real values), they will eventually reach a compromise, probably covering only a small part of their original lists. It is obvious that this compromise is only formally called "economic."

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It is, in fact, a political agreement concluded between two sovereign states. Each international trade contract now becomes an act of high diplomacy and it ceases to be an intergovernmental issue only when it has been carried out to the satisfaction of both parties. But what if either the received qualities, quantities, or the date of delivery give rise to complaints? No international court exists which could effectively settle such matters of dispute. Our two foreign trade agents will now negotiate with other socialist countries' delegates over the commodities left on their lists until the whole world—or that part of it which is occupied by socialist states—will be covered by a network of bilateral trade agreements. These negotiations could not, practically, take place on a multilateral level since it is already difficult enough to determine the kinds and quantities of goods to be exchanged between only two countries. But this inevitability of bilateralism leads to a severe restriction in the volume of foreign trade because "it involves an effort to achieve a predetermined quantitative ratio of exports of country A to country B to the exports of country B to country A."18 It therefore "consists in the breaking up of a country's external market into a series of isolated segments."17 An optimal international division of labor thus becomes impossible. This system of political negotiations has further grave defects. The subject of these negotiations is formed by most vital economic matters and the degree to which ambitious national plan targets can be achieved depends considerably on their outcome. "Needs" will therefore certainly continue to play a major role in international economic relations—but only one special category of them is sure to find satisfaction. This includes neither the "needs" of the different populations, nor those which can be met by the spending of a given amount of money. It includes solely those needs that are backed by political power. Graf therefore compared the character of collectivist trade negotiations to the game of "rope pulling": "Whereas in the game it is either superior muscular strength, swift surprising grasping, or the utilization of small elevations of the ground which may decisively contribute to victory, it is, in 'rope pulling' at the table of bilateral economic negotiations between

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centrally directed economies, the economic and political power position of the participating states, but at times also the dexterity and cunning of their delegates."18 In the absence of a rational criterion of value, the negotiating delegates, even if they were ordered to do so, could not possibly find that point at which both partners could derive "equal" advantage from the agreement. In reality, interests are diametrically opposed. Every economic advantage secured by one country automatically means a political advantage, and hence a superior initial position in the next round of negotiations. It at the same time represents a loss to its trading partner resulting in a corresponding diminution of its power. If eventually an "order" is crystallized, this will be due to the emergence of one or more strong states having acquired the power to force whatever "contracts" they wish upon the smaller countries within their sphere of influence. They at the same time assume the role of international arbiter in the case of disputes between these. It is characteristic of collectivist foreign trade that the borderline between international economic cooperation and economic exploitation is thin and not clearly definable. The more powerful one collectivist state becomes with respect to other socialist countries, the more easily foreign trade can be used as an instrument of exploitation and subordination.19 Thus, one must envisage the future international scene as composed of a few, almighty superstates surrounded by their satellites and struggling for world domination. A stable "peace" will only be reached if one big sun succeeds in incorporating all other big and small states of the world into its own planetary system. Then, and only then, will the road become free for a "single world economy, regulated by the proletariat of all nations according to a common plan' (Lenin).20 Stalin understood this and did not hesitate to follow the corresponding road with utmost determination. SUMMARY AND CONCLUSIONS

The authors treated in the first two sections of this chapter were entirely unaware of the real nature of the economic problem. They equally ignored, with the exception of Proudhon, the political consequences resulting from a transformation of a

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liberal into a collectivist economic order. These consequences, however, decisively affect international economic relations under socialism. The mere existence of a foreign trade monopoly introduces an important element of power into the field of international economics. This element becomes the predominant characteristic of socialist foreign trade relations since the kind and amount of exports and imports cannot rationally be determined, account being taken of marginal costs involved in each separate transaction. The proposed substitutes to guide efficient foreign trade planning are unable to avoid the use of existing, arbitrarily fixed prices and exchange rates as the basis for comparing home costs with world market prices. Therefore, these methods to assess foreign trade profitability must remain global. Paradoxically, their accuracy is improved by basing these calculations on world market prices formed by the free interplay of supply and demand; but at the same time, a collectivist economy is forced to protect itself against the repercussions of international trade with free market economies even at the heavy price of autarky. Conversely, in commercial relations between collectivist states, the respective power positions of the different states play a decisive role. Each state aims at securing favorable terms of trade; hence, the interests of the collectivist trading partners, in the great majority of cases, do not complement, but conflict with each other so that the energies of national planning agencies will be much absorbed by strengthening their countries' power in view of the inevitable "rope pulling" with other socialist states. All these considerations lead to the following conclusions: "Central direction of the production process of national economies which participate in international trade will . . . always lead to a distortion of international trade which moves no longer in channels prescribed by the comparative advantage of the individual countries so that the total utility which could accrue to the world from an international division of labor is very considerably reduced."21 Under these circumstances, the problem of international economic order cannot be solved by socialism. The mutual relations between collectivist states are characterized by a high

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degree of instability which can only be eliminated by the rise of one nation to a hegemonial position and the subordination of all others to its dictates. Nothing general can be said on the actual volume of foreign trade: it can be greater, smaller, or the same as that between free market economies. But since economic dependence means political dependence, national planning boards will attempt to produce basic raw materials and intermediary products as far as possible within their own territory over which alone they have full control. This and the fact that trade relations are conducted on a bilateral basis give reason to expect a considerable reduction in the volume of international exchange under socialism. As against this tendency, however, "trade" can be forced upon small nations by their more powerful socialist brother nations. The principal characteristic common to all collectivist economies is the general shortage of commodities. As a consequence, a socialist state that is in a position to offer "attractive" goods is also able, providing it has the necessary autonomy, to attach both economic and political strings to the acquisition of these commodities. This politicalization of international economic relations is the logical outcome of socialism which had already led to the politicalization of the internal economies. State frontiers gain utmost economic importance in that they now hermetically separate the autonomously planned national economies from one another. At the same time, the unification of political with economic power and the resulting loss of an objective measure of value make it imperative for each state to rule over a territory as large as possible and to regard the raw materials occurring within its frontiers as belonging to its exclusive possession. The final aim of every collectivist state must be the achievement of economic independence. Fichte's conclusions, drawn in 1800, have lost nothing of their validity.

1. 2. 3.

NOTES TO CHAPTER VII This is quite consistent with the theory of the Just State, which says that the latter is itself the highest moral authority. Hence religion, as far as it is not embodied in the State, becomes indeed "unnecessary." Heilperin, M. A., Studies in Economic Nationalism. Geneva/Paris, Droz/ Minard, I960, p. 86. The goal of simply maximizing production has of course no meaning without a common and rational unit of value. Conversely, there is no difficulty in

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8. 9. 10. 11. 12. 13. 14.

15.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER stating that the construction of new buildings has increased by x%, the production of steel by y%—as long as these categories do not undergo any qualitative change. Engels, F., Antidühríng, pp. 303-4. Djilas, M., The New CL·ss. An Analysis of the Communist System. New York, Praeger, 1957, 214 p. Which become even more acute by the various bottlenecks resulting from deficient planning. It is possible today to advance a genuine theory of managerial behavior under socialism. Instead of prices and costs, the parameters are (1) the provisions of the plan and (2) the accompanying system of stimuli and punishments devised by the planning authority. The latter is of decisive importance in this respect, in contradistinction to the former, which will only be respected as long as the personal interest of the manager, as determined by the amount of extra premiums he expects to receive (respectively his fear of losing his job, perhaps even his life), coincides with the requirements of the plan. Cf. Balassa, B., The Hungarian Experience in Economic PL·nning. New Haven, Yale University Press, 1959, 285 p. Impossible because this represents one equation with two unknowns: the solution is therefore indeterminate. Graf, W., Der Aussenhandel zwischen marktwirtschaftlichen und zentralgeleiteten Volkswirt$chaften. Zurich & St. Gallen, Polygraphischer Verlag, 1951, p. 60. Cf. ibid., pp. 65 seq. Bettelheim, C , Les problèmes théoriques et pratiques de L· pL·nification. 1st ed., Paris, Presses Universitares de France, 1946, pp. 290-91. Ibid., 2nd ed., 1951, p. 345. Heuss, E., Wirtschaftssyteme und Internationaler Handel. Zurich & St. Gallen, Polygraphischer Verlag, 1955, p. 200. Jewkes, J., Ordeal of PL·nning. London, Macmillan, 1948, p. 175. An excellent illustration of the "efficient" functioning of a collectivist foreign trade system was provided in the early 1930's when the Soviet Union increased her exports of agricultural raw materials in spite of a sharp depression of world market prices for these products, and a serious shortage of these materials in the country itself. She did so because she urgently needed the planned amount of foreign exchange in order to buy the capital goods indispensable for the success of the first Five-Year-Plan. The prices of these imports, however, had declined much less than those of her exports so that by this deterioration of the terms of trade the real costs of Russian industrialization greatly increased. To Western observers speaking of "dumping" Soviet economists retorted that this was not dumping at all, only the consequences of their foreign trade system. This is, of course, quite true, and one is free to call "dumping" only a trade policy practiced by private monopolies, although this does not change the fact that the behavior of both kinds of monopolists have the same origin, i.e. their ability of determining prices. This policy is indeed the more harmful for the proper functioning of a free international economy if practiced by a state agency able to throw on the international markets any part of the national product without having to fear possible bankruptcy. This example also shows how little those responsible for shaping Soviet economic policy were, and had to be, concerned with internal living standards. Highest priority is accorded to those complementary products without which the plan cannot be fulfilled which, however, are unavailable in a given state, be it for technical or for natural reasons. These are followed by goods which can be produced at home, but only at considerably higher costs than in foreign countries. "Next will come a long series of all commodities where there

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exists a cost disparity in favor of the foreign country, but one which diminishes by extending this list. This last category of goods occupies a particularly large part in the intercourse among market economies." Conversely, "the central agency will restrict its purchases to the commodities ranked in the first two categories." Heuss, E., op. dt., p. 190. Ellis, H., "Bilateralism and the Future of International Trade." In: Readings in the Theory of International Trade, etc., p. 416. Ibid., p. 419. Graf, W., op. dt., p. 90. This is best illustrated by the following political joke, circulating in an Eastern European country: "The Soviet Union is delivering us clay. We are making bricks of it. With the bricks we construct factories. In the factories we produce machines. We sell the machines to the West, receiving steel in exchange. We are sending this steel to Russia. In exchange, we again receive clay." See p. 94. Lutz, F., "Geldpolitik und Wirtschaftsordnung." In ORDO, II (1949), p. 222.

CHAPTER VIII

LIBERAL VERSUS SOCIALIST ECONOMIC ORDER, A COMPARATIVE ANALYSIS PRELIMINARY REMARKS

Here we must reflect for a moment. Do not our conclusions with respect to socialist international economic relations strikingly coincide with those drawn up by Hil£erding with respect to the monopolistic stage of capitalism? Does not the growth of mighty industrial combines equally destroy the price mechanism based on competition and replace it by power, arbitrariness, and chance? Are we not faced here, to use Marxist language, with an irresistible evolution of the material conditions of production which necessarily leads to socialism? If we examine the problem of industrial concentration more closely, there are three main factors to be considered: (1) technical progress and improvements in the organization of production may, indeed, frequently encourage the growth of large enterprises; this growth is, however, (2) preeminently dependent on the economic requirements of the market; this aspect plays a particularly important role in view of the considerable investment and the corresponding high proportion of fixed costs which are involved in large-scale production. Furthermore, technical inventions usually bring about (3) an increase in the division of labor. Hence, where industrial agglomerations arise, a great number of small, specialized enterprises simultaneously spring up, nourishing the large factories with their supplies and extending their services to the finished products of these giants. This fact, together with the growing importance of tertiary production, may actually account for a diminution in the average size of firms.1 We are thus entitled to the assumption that there were strong political forces at work that contributed to the rise and consolidation of "Monopoly Capital" in the form of financial

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integration of control. Apart from outright government interventions such as subventions, price fixing, etc., four major factors have had a decisive influence on the rise of monopolies: corporation laws, tax policies, patent laws, and trade restrictions.2 It was correctly perceived by Hilferding that trade restrictions, under the guise of infant industry protection, played a particularly harmful role in this process. There is no reason to conclude, however, that these government policies are "inevitable." In fact, as soon as their dangerous implications became more generally recognized, a strong antitrust movement gained ground in public opinion which was theoretically elaborated and sustained by the neo-liberal school. As for the aggressiveness which characterized the foreign policies of the major industrial powers in the decades preceding World War I, it was mainly due, as Schumpeter also admitted and even stressed, not to the inherent forces of capitalism, but to the association of the bourgeoisie with the detainers of state power who used it according to their own specific political interests which were different, if not entirely contrary, to those of the former.3 Hence, we may conclude that "imperialism is not only no essential part of capitalism, but indeed a phenomenon alien and contrary to its economic system."4 One word may yet be said on the question of crises. If this problem is approached in a scientific way, one will not fail to discover that economic disequilibria are not restricted to a free market economy, but are due to the complicated structure of modern economy in general.5 Under capitalism, a cumulative contraction process is usually caused by the interest rate not reflecting the true scarcity of capital and a corresponding overinvestment. But we have already seen that forced capital accumulation is a typical feature also of centrally planned economies. Since no rational price mechanism guides the planning authority's decisions, bottlenecks and major disproportionalities will be even more frequent in a collectivist than in a liberal economy. But they will not result in a conspicuous reversal of the economic process—the economic function of which is the correction of a false allocation of resources—i.e. in unused capacities6 and unemployment. Productive resources will remain as scarce as they have ever been; the only effect of such

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imbalances will be either stagnation or an extremely slow rise of the general standards of living.7 BALANCE OF PAYMENTS ADJUSTMENT AND NATIONAL MONETARY POLICIES

Three Concepts of the Balance of Payments The balance of payments "is a record of all transactions, real and financial, which have taken place over a past period of one or more years between the country's residents and residents of other countries, the record being kept in the form of doubleentry bookkeeping with each credit entry balanced by an offsetting debit entry, and vice versa."8 For the responsible agencies of economic policy, the balance of payments serves essentially the same purpose as does an efficient accounting system for a business enterprise: it provides ex post information about the quantities, qualities, and prices of goods and services bought and sold, and about the lending and borrowing of capital. The totals of active and passive entries necessarily balance and the only problem involved in this accounting balance of payments is the self-evident fact that each country must cut its coat according to its cloth, i.e. limit its international expenditures according to its available means of payment. But this fact, which is as self-evident to the individual as it is to the regional authorities within a state, may conflict with what Machlup calls the programme balance of payments, that is, "a statement of sources and uses of foreign funds, expected or planned, over a future period of one or more years, based upon the nation's capital and consumption requirements, and on a programme of meeting an excess of requirements over resources by recourse to foreign finance expected or sought."9 Major emphasis is placed "not on what is effectively demanded, but on what is felt to be desirable with reference to some accepted standards."10 In other words, this concept characterizes the desire of governments, because of political considerations, to break through the economically determined limits just mentioned. With the progressing politicalization of economic life also in "capitalist" countries, this concept acquires increasing

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importance. It is therefore a collectivist concept and we shall soon return to it. In order to understand the real problem, a third concept must be introduced: the market balance of payments which "is a model of a given situation in the foreign exchange market, characterized by the effective demand and supply of foreign exchange at the given exchange rate and at alternative, hypothetical rates."11 The difference between this and all other markets is this: "supply and demand on this very special market are decisively determined by the circumstances which we call elements in economic circulation, i.e. the amount and speed of circulation of the money, the aggregate expenditure and income, level of prices and costs, briefly the plus or minus of the aggregate demand or aggregate supply, the regulation of which in the last analysis is in the hands of the authorities of a country—the Central Bank and the Minister of Finance—who open or close the taps releasing money and credit as the case may be."12 If it is thought, and for good reason, that it is desirable to stabilize the price on this market (that is, exchange rates), it may happen that for a shorter or longer period the demand for foreign currencies exceeds, at this price, their supply or vice versa. Then, we speak of balance of payments deficits or surpluses. Röpke compares the exchange market to a hinge that links the national monetary system, with its resulting price and cost structure, to the international one. "An 'adverse balance of payments' thus either shows—depending on the angle from which the facts are viewed—that the price, i.e. the rate of exchange, does not correspond to this international relationship of circulation elements and that the 'hinge' is therefore wrong, or else that this relationship is disturbed and therefore demands a change in that the domestic money and credits tap is turned off."13 We can see that the balance of payments problem is essentially a monetary one and recognize the decisive importance of an effective international currency system. International Payments Adjustment in a Liberal Economic Order Such a system was created, in the nineteenth century, by

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the gold standard. It consisted of an automatic balance of payments adjustment provided that those responsible for the national monetary policies conformed with its basic "rules of the game." National currencies were defined in terms of gold; whenever the demand for one currency tended to exceed its supply, the gap was filled by gold shipments. At the same time, a continued gold outflow from a country gave the signal to restrict the national volume of circulating media. The corresponding measure of increasing the discount rate was often sufficient to restore balance of payments equilibrium by setting into motion international short-term capital movements in favor of the deficit country. A gold inflow, on the other hand, induced the central bank to adopt an expansive monetary policy. The gold standard thus implied a close harmonization of national economic and monetary policies; it was a true international monetary system despite the absence of a world state, lending "the same qualities of homogeneity, stability, and convertibility to international payment transactions as characterized national payments."14 It therefore led automatically to a distribution of international liquidity which was in accordance with the participation of each state in international trade. Certain conditions, to be sure, had to be fulfilled for its proper functioning. "Just as the Gold Standard is founded on the idea of a meaningful mechanism, so is the economic order of free competition. And just as the system of a free market economy is based on the wise pessimism of Adam Smith who aimed at a workable economic system without demanding more of anyone than to follow his interest, so not too much is expected from central bank directors either: they must, in accordance with their interests, not command, but obey the Gold mechanism, just as the individual economic subject, under free competition, does not determine price movements, but only reacts to them. The principles of the Gold Standard are thus identical with those of a free economic order—the system of the Gold Standard simply results from the application of these general principles to monetary matters."15 The gold standard was thus the natural corollary of that international order prevailing in the nineteenth century, which had, lastly, also inspired Marx's internationalism. In this "secularized Res Publica Christiana"16 national frontiers had a

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limited political, but no economic, significance. It was an international order marked by a close network of private longterm agreements based on a general respect for international law. With the gradual disappearance of the common moral and economic convictions on which it was based, not only this ordre public international broke down, but with it eventually also the gold standard (1931).17 The International Impact of National Full Employment Policies While international economic stability had, before 1914, ranked highest among the economic policy goals of nations, this situation changed in the 1930s and especially after World War II. This development was principally due to the far-reaching influence exercised by John Maynard Keynes' book, The General Theory of Employment Interest and Money, on both "capitalist" and socialist economists. The author's preoccupation with the causes that led to the Great Depression provided the basis for his revolutionary conclusions. It was contended that in a developed economy, savings tended to exceed profitable investment opportunities and that, therefore, aggregate spending in a given period of time was smaller than total income. This was thought to lead to a contraction of national income in the following period. Similarly, the deflationary process would continue until aggregate national expenditures just equaled gross national product. At this point, a greater or lesser quantity of economic resources, especially of labor, would have become unemployed. Yet, the argument runs, precisely because it was a point of equilibrium, no market forces would be at work to remedy this precarious situation. If Keynes' challenge of the classical theory regarding the self-adjustment of the market had already won the sympathy of many socialists, the policy implications of this theory almost seemed to efface the division line that had hitherto opposed collectivist and free-market economists. An increased awareness of the undesirable economic, as well as political, consequences of complete centralized planning and a corresponding desire to maintain capitalism "as far as possible"18 united considerable efforts to work out and put into practice economic policies on Keynesian lines.

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What are the main aspects of this policy? Clearly, total demand for goods and services must be increased until that point of equilibrium is attained at which there is full employment of all factors of production. This can essentially be achieved in three ways: (1) by keeping the interest rate below its equilibrium level to encourage private investment; (2) by having the state step into the "deflationary gap" and undertake investments of its own; and (3) by redistributing income from the rich to the poor, thereby increasing the "marginal propensity to consume." These are indeed the policy prescriptions of the "new economics." The problem of international payments adjustment has received differing treatments by the economists advocating this program. Following Keynes, they leave no doubt that in the case of a conflict between economic goals, that of national full employment should receive absolute priority. It is regarded as legitimate to defend one's own country by tariffs or other restrictions against imported unemployment. It is thought equally justified to prevent the fruits of national full employment policies from partly escaping, in the form of increased imports, to a neighbor state where relatively lower prices prevail. But "if a world economic model is constructed under the assumption that all governments pursue a policy of full employment, then the classical theory of international trade again becomes relevant."19 In Keynes' words: It is the policy of an autonomous rate of interest, unimpeded by international preoccupations, and of a national investment program directed to an optimum level of domestic employment which is twice blessed in the sense that it helps ourselves and our neighbors at the same time. And it is the simultaneous pursuit of these policies by all countries together which is capable of restoring economic health and strength internationally, whether we measure it by the level of domestic employment or by the volume of international trade.20

A. Paulsen, the author of a German introductory text to Keynesian economics, continues: "No country needs to fear losses of employment through imports because these will not fail to be offset by exports, and a worldwide economic exchange will attain, to the advantage of all, the best use of productive possibilities."21 However, he at once adds: "But the question

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remains open whether the balances of payments also will be in equilibrium under these conditions."22 Does this statement not suggest that the classical theory of international trade, notwithstanding the author's earlier assertion, must be thoroughly revised to fit the new policy requirements in each state? Keynes himself leaves no doubt that he recommends "the opposite"23 to the measures of adjustment brought about by the gold standard.24 His emphasis on autonomous interest rates indeed constitutes an important step away from a unified international monetary system. When examining the three basic aspects of full employment policy more closely, it becomes obvious that these measures are highly indicated in a depression, i.e. in a situation in which idle resources in all branches of the economy exist.25 The real problem is thus not whether to apply these recommendations in an emergency but rather when to stop applying them. This involves a hypothetical judgment by the responsible policy-makers; and this judgment depends not only on their degree of faith in the restorative forces of the market once they are revived, but also on the outcome of a closely related issue: that of looking at matters in the short versus the long run. This problem of a correct judgment acquires outstanding importance in view of the fact that the artificial stimulation of effective demand may result in inflationary pressures long before complete full employment is achieved. This possibility and even probability is due to the emergence of bottlenecks during the period of upswing. It could be mitigated by imports, but, as we have seen, Keynesian economists are particularly suspicious of a "loss of employment" through imports during this phase. Sharing the basic convictions of their master, they will tend to continue deficit spending and cheap money policy even at the price of inflation. Keynes had not only foreseen a general price rise, resulting from his recommendations, but considered this rise to be inevitable because of the impossibility of adjusting nominal wages downward. In other words, prices had to rise faster than wages during an upswing in order to reduce real wages and thereby increase employment. This argument, however, becomes ineffective once the assumption of money illusion is no longer tenable. But even if it still holds good for the earlier phases of

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economic revival, union pressure, in view of the continuing increase in living costs, has often led to the tying of wages to a consumer price index which makes further reductions in real wages impossible. Yet, with recovery well under way, unions usually go farther than this: when demanding wage increases, it is not the overall rise of productivity of the economy, but their bargaining power which ultimately determines the wage level. If the authorities wish to maintain full employment at that level, the central bank must be willing to meet the additional financial requirements of the economy. It can thus be seen that a government pursuing full employment policies is menaced by two kinds of inflation: demand inflation and cost inflation. The danger of inflation is increased by the distortions of the national economy's productive structure resulting from these policies.28 It is no less aggravated by the inherent Keynesian dislike of saving, which is translated, by the welfare state, into decreased incentive for the man on the street to provide for his own future needs.27 Full employment policies and their monetary consequences cannot leave unaffected international economic relations in general, and international payments adjustment in particular. The reason for this is the emphasis Keynes and his followers place on the word "autonomous." It implies that to attain the desired goal, the government must not be impeded either by the external repercussions of its measures or by the price mechanism, particularly the price on the capital market. To the degree, therefore, to which the action of these mechanisms is restricted, an arbitrary constituent enters into each national economy. This constituent distinguishes it from other national economies even though the latter, too, are committed to full employment policies. And the resulting differences are accentuated by factors such as tax laws and social security charges. Even more important is the fact that trade union policy is not identical in each state. It may be more or less aggressive, pursued with more or less responsibility for the general needs of the national economy. In the same way, increases in the productivity of labor differ from country to country. Hence, the inflationary pressures originating from the labor market may vary greatly. The elements just described combine to create differing degrees of inflation in each state. But as soon as this is recognized,

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international payments adjustment at stable exchange rates can no longer be left to the free forces of the market without incurring the risk of chronic balance of payments surpluses and deficits. Under these conditions, a government is faced with two alternatives. It can, first, retain stable exchange rates and perhaps adjust the "hinge" to the state of its relative level of inflation. But this will only temporarily alleviate its international payments difficulties. If it continues to permit a degree of inflation which is at great variance with that abroad, imbalances will not fail to reappear, even if trade agreements have been concluded. Unless deficits are paid in gold or an officially accepted foreign currency, partner states necessarily become creditors of countries where inflation is most advanced and may be unwilling to prolong this involuntary state of affairs.28 The inflating governments, if they are unable to obtain long-term credits (which, however, would only postpone the necessary internal adjustments), but cling to stable exchange rates, are therefore forced to introduce restrictionary measures going far beyond tariff increases. Such measures are direct quantitative controls and exchange control.29 In this context we can only mention a few typical issues involved in these measures. Such issues are: quota problems, the effect of export and import restrictions on national income and prices, commodity and payments agreements, bilateral clearing, multiple rates and crossrates, exchange discrimination, and state trading. Originally introduced to meet balance of payments difficulties, these devices set into motion a vicious circle which leads to a progressive collectivization of the entire economy.30 Keynes himself was too familiar with international economic matters not to have understood this and its disintegrative implications for international economic cooperation. Here is his famous statement: Let goods be homespun whenever it is reasonably and conveniently possible, and above all let finance be primarily national. . . . A greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace rather than otherwise. 31

He also admitted that "national self-sufficiency and a planned

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domestic economy" logically belonged together.32 The author did not conceal his sympathies for mercantilism, despite his recognition that the mercantilists were under no illusions as to the nationalistic character of their policies and their tendency to promote war. It was national advantage and relative strength at which they were admittedly aiming.33

Yet, Keynes concluded: But intellectually, their realism is much preferable to the confused thinking of contemporary advocates of an international fixed gold standard and laissez-faire in international lending who believe that it is precisely these policies which will best promote peace.34

If, however, a government is still basically committed to a free market economy, it may choose the second alternative, that of abandoning stable exchange rates. F. A. Lutz summarizes the advantages of freely fluctuating exchange rates as follows: "Countries that have a particularly high degree of inflation (either because wages rise particularly rapidly or because inflation is generated at the demand side) do not need to lose reserves, they can simply let the rate of their currency drop. Those that have a balance of payments surplus do not need to defend themselves against an imported inflation, since their central bank is no longer under the obligation to buy foreign exchange to uphold the exchange rate; one could not reproach these countries for accumulating exchange reserves at the detriment of others, one would not demand from them constantly to give credits to foreign countries in spite of the fact that interest at home may be higher than that abroad; the exchange rate of their currency would simply rise. Each state may, at home, pursue the kind of monetary policy it wishes to pursue . . . without having again and again to impede international trade and capital movements by controls or to recur to deflation."85 It is impossible, in this context, to analyze the theory of flexible exchange rates. We agree with the author just quoted and many others that, in spite of its manifold shortcomings, this system provides the most adequate international solution under the conditions described in this paragraph—a solution, to be sure, which reflects the degree of international disintegra-

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tion due to economic nationalism. The fundamental and permanent cause of today's international payments problem is, in Gunnar Myrdal's words, "the unwillingness of the national welfare states to accept the infringements on their policies of economic stability and economic equality that an automatic trade and payments system would imply if it were to bring about changes in the national economies corresponding to changes in international economic relations."38 But it follows that the more internal economies are politicalized (i.e. converted into fields of experimentation for different economic and ideological convictions), the more political frontiers will become "lines to separate from one another the widely differing markets whose conditions of supply and demand are, however, uniform within each nation and collectively determined."37 The disintegrative effect of full employment policies on international economic order was perceived by liberals even before the Keynesian recommendations became the general source of inspiration for economic policy-makers. W. Röpke, F. A. Hayek, M. Friedman, and many others consequently warned against losing sight of the prerequisites of an international division of labor. The basic relationships involved in the economic cooperation among nations are well summarized by I. K. Chatterj ee: "There are three elements in the situation—the exercise of monetary sovereignty, fixed exchange rates, and freedom of the holders of domestic currency to buy foreign currency with domestic currency. In a changing world, a country can easily combine two and not three of them. The combination of monetary sovereignty with freedom of payments gives one a system of flexible exchange rates. When monetary sovereignty is associated with fixed exchange rates, the result is a loss of freedom of payments. When fixed exchange rates and freedom of payments are desired, monetary sovereignty has to be sacrificed,"38 i.e. subjected to the needs of external equilibrium. Only the third alternative forms the basis of a true liberal international economic order. The Collectivist Solution But, just as numerous economists advocating a free market economy refused, because of fear of inflation, to apply Keynes-

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ian remedies whenever a slight disturbance appeared in the economy, so did a number of socialists refuse to stop with Keynes at what may be called modified capitalism. These authors continue to aim at full-scale national planning. "For," one of them asks, "can the State really, by following the Keynesian prescription, maintain full employment without setting inflationary tendencies to work, unless it is in a position to control, broadly, what is to be produced and when, and what is to be charged for it, and also the broad distribution of purchasing power, as well as its global amount?"39 But centralized planning involves, as we have seen, a complete separation of national monetary systems. What does this really mean to international economic relations? Foreign exchange is no longer demanded and supplied on a free market between individuals, but pooled in the hands of the foreign trade monopoly. The concept of the market balance of payments thus loses its relevance in a socialist economy. The program balance of payments, as represented by lists of import "requirements" set up by governments to fit in with their national plans, becomes all the more important. The degree to which they can satisfy these needs in their order of priority depends on the total quantity of foreign exchange earned by exports—indirectly, therefore, on the extent to which one state's negotiators succeeded in improving its terms of trade at the expense of the other. It also depends on the size of gold40 and foreign exchange reserves and the possibility of taking up credits. All these factors are vital for national plan fulfillment. The relative power positions of the various states will therefore have the last word in determining the provisions of the bilateral trade agreements on which the volume of these magnitudes essentially depends. Because of the complete separation of national price levels and the impossibility of rational valuation, nothing exists which could be called a collectivist international monetary policy. Exchange rates are centrally fixed in the same way as all collectivist prices; any parity will do.41 In the same way, the problem of balance of payments equilibrium is reduced to a mere juxtaposition of quantities. Due to the uncertainties of foreign trade and internal production, unplanned surpluses or, more probably, deficits usually arise. In the first case, imports or for-

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eign exchange reserves may be increased; in the second, if credits cannot be obtained and gold is not available for export, either imports must be cut down or goods and services withdrawn from home consumption and sold abroad. This process of "balance of payments adjustment" has certainly the advantage of being swift and effective; but it is more effective if the socialist economy can sell its additional exports on the world market at foreseeable prices than if it has to dispose of them in another socialist country within the framework of bilateral trade agreements. At once the political element is reintroduced because the collectivist partner state may not be willing to acquire commodities that are not provided for by its national plan. It will certainly not let this favorable opportunity slip by without improving its terms of trade vis-à-vis the country experiencing international payments difficulties. The existence of a free world market thus continues to play an important role for a centrally planned economy; it can be compared to a magnetic field by which the collectivist state is alternately attracted and repelled. The monetary approach to the problems of collectivist international trade shows that there is nothing "absolute" in money, as many socialists are inclined to believe. Just as national currencies can effectively be approximated to form part of a world currency—if they are managed according to the rules of the gold standard—money is "nationalized" along with all other facets of the economy under collectivism, i.e. reduced to serving the will of the collectivist planners. There is thus no hope in searching for a monetary reform to remedy international economic disintegration since its basic cause is the very nature of the collectivist economic order itself and the policy of economic nationalism it necessarily implies. THE INTERNATIONAL PROBLEM OF RAW MATERIALS

The Liberal Solution Resting on the Divisibility of Ownership and Its Invalidation in Times of War Following L. v. Mises we can distinguish three kinds of ownership with respect to the means of production (including natural resources): the juristic ownership of the original proprie-

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tor, the economic ownership of the entrepreneur who combines the various factors of production by directly disposing of their uses, and the ownership of the services and products derived from these means. These three kinds of ownership have differing functions dependent upon the economic order being considered. In a small, agricultural economy situated outside exchange society, the land, ploughs, draught animals, etc., as well as their final products, are owned and disposed of by all members of the tribe or family, as represented by its head or chief. We can speak here of an exclusive ownership in the sense that all of its constituents serve the needs of the members of the community only. This exclusiveness disappears when we are faced with an economy based on an extensive division of labor and a corresponding market not only for the final products, but also for the factors of production, including the funds with which to set up factories, open mines, etc. The owners of capital, land, and labor receive their incomes on the basis of the productive contributions of their respective services, as valued by the market. This is the device by which the division of ownership becomes possible42 and which forms, generally speaking, the condition for rational price formation. The legal ownership of the means of production yields a reward only as long as it is used—or transferred in economic ownership to be used—to fulfill the requirements of the consumers. "Durable production goods can be shared according to the divisibility of the services they provide."43 The market prices of these services (i.e. interest earnings), by linking the last buyer's valuations to the quantity of capital available, make it imperative for the owners of the means of production to use their resources—including raw materials—in accordance with the effective demand of the consumers.44 In a society in which political frontiers have no economic significance, the nationality of buyers and sellers is irrelevant. The more that distant countries are drawn into multilateral commercial relations with each other by the price mechanism, the more the productive resources of the world are used in accordance with the comparative advantage of each region, and the more efficiently the welfare producing "machine," with which the international division of labor has often been com-

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pared, is allowed to work. In the liberal age there existed no international problem of raw materials: they were simply bought and sold like any other commodity and the gold standard saw to it that those able to pay for them had free "access" to cover their needs. The conflict between the international character of raw material needs and the possibility of exclusive national political control over their resources only appeared during World War I when the regular supply of certain raw materials became decisive for the governments' war efforts, and with it the policy of cutting off the enemy from their sources of raw materials. The capacity to use natural resources came more and more to be identified with their actual occurrence within a country's own national frontiers. This way of looking at the matter subsisted even after the termination of hostilities. Very few recognized that it rested on a confusion of the aims and methods of war economy with those prevailing in peacetime. Whereas "the critera of effectiveness of an economic policy in time of war relate entirely to the ability to sustain military power," those in time of peace "relate to the living standards of the people. . . . A power economy demands the highest possible degree of selfcontainment with respect to all essential raw materials and foodstuffs, as well as for important manufacturing operations. A standard of living economy demands specialization of production in accordance with comparative advantage and exchange with the widest possible outside area."45 Thus, whereas the divisibility of ownership is characteristic of a peacetime economy, it is replaced in times of war or preparations for war by exclusive ownership following national borderlines. To this "fundamental incompatibility of war economics and peace economics" (Staley) corresponds the clash between the system of free enterprise and the particular objectives introduced by power economy. The latter naturally tends to unite the entire economy under government control because only in this way can all efforts efficiently be directed to the central goal. International economic interdependence is regarded as synonymous with military vulnerability. The resulting obstruction against foreign trade, and this policy only, leads to a close and seemingly plausible connection between political sovereignty and raw materials sources, between the

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"poverty" of a country and its claim to the extension of its vital space. The Fichtean solution of this problem, a reshuffling of political territories, would only lead to new armed conflicts and corresponding war preparations. It is precisely "the dominance of the war economy" which "must be broken, and this can only be done if measures can be taken which remove the ever-present 'assumption of violence'."46 The real difficulty is, however, that once this dominance prevails in one single country which is powerful enough to threaten the security of its neighbors, they cannot help placing their own economies, too, on the rails leading to the strengthening of national military power. Aggressive economic nationalism is thus the effect as well as the cause of international political instability and the competitive raw materials race for national armaments. The Collectivist Solution With the abandonment of a rational price mechanism reflecting national and international scarcities, a collectivist economy forfeits the advantages to be derived from the division of the ownership of the means of production and of the raw materials sources. Instead, these are disposed of exclusively by governments. In fact, a collectivist economic order is, by its internal structure, identical with a war economy which, as we remember, served as a model to many collectivist authors. This implies that it is economically and politically vital for the socialist state to have adequate "access" to those raw materials sources which do not lie within its own territory. But these sources are now controlled by other sovereign states. As long as a free international economy exists, collectivist trade can be based on world market prices. However, these prices reflect the supply and demand conditions of only the free market economies; their applicability to the differing economic structures characterizing centrally planned economies is therefore limited. This circumstance is not altered by the fact that socialist international cooperation may already start with the common exploitation of natural resources in a specified country, agreed upon by two or more governments. Who is to provide the in-

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vestment funds, the necessary buildings, machinery, labor power, etc., and at what price? In what proportion is the yearly output of raw materials to be divided between the partner states? What goods can be obtained in exchange for the direct or processed export of these raw materials? All these issues and many more will retain their political character and be decided accordingly, whereas the real economic questions concerning the possible alternative uses to which each individual factor of production involved in the project could nationally or internationally be directed must remain unanswered because it would be absurd even to raise them. The exclusive ownership of raw material sources and other "essential" commodities will therefore form an integral part of the national sovereignty rights of a collectivist governmentrights which can effectively be used by a skillful alternation of foreign economic policy at times granting and at times withholding supplies. The problem is sharpened by the fact that the production of these materials requires large-scale investments which, however, are not allowed to be included adequately into prices by the labor theory of value. This circumstance more than once gave rise to enormous profits derived by a powerful socialist country from trade with less powerful brother nations. So there will be poor and rich countries and their "class status" will depend not so much on the respective levels of economic development or on the technical, moral, and intellectual skill of their inhabitants, as on the size of the territory under their sovereignty and the quantity and quality of raw materials under their control. At the same time, their efforts to achieve economic independence will cause governments to exploit all natural resources within their jurisdiction, even if this involves high economic sacrifices for their populations. Insofar as the less favored nations can purchase their raw materials requirements on the world market, they are able to mitigate the effects of their poverty by only giving up exports (or gold) representing the same value—as determined by the world market—as that of their imports. In a world consisting exclusively of socialist states, they must resign themselves to either a relatively low general standard of living47 or accept political along with eco-

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nomic dependence—which may eventually come down to the same result. THE INTERNATIONAL POPULATION PROBLEM

The successful struggle against epidemic diseases and the progress of technology during the nineteenth century made possible an unprecedented increase of the European population. The effects of the law of decreasing returns on which Malthus had based his pessimistic prophecy were superseded by those of an ever greater increase in productivity due to industrialization, a revolution in agricultural production methods, and an extensive international division of labor which resulted in a steady rise of living standards. Spontaneous large-scale migrations from the overpopulated areas to the new continents regulated by civil law only tended to bring about a worldwide equalization of labor productivity. Toward the end of the nineteenth century, governments began to introduce increasingly severe restrictions on immigration. These policies aimed at optimizing the size of their population with respect to the economic resources of their countries, account being taken of general racial and cultural aspects. Moreover, they were influenced by a growing trade union pressure brought about by fears of a depression of wages or even unemployment through the influx of cheap foreign labor.48 These restrictions reduced the possibility of relieving the densely settled areas of the world from the pressure of overpopulation by free migrations. Collectivists therefore proposed schemes for a planned international migratory movement with which we are already familiar. But what objective criteria are to be adopted to determine "the volume of labor available for transference and permanent settlement abroad?" Where are these people finally to be settled? These questions remain unanswered whereas the theories which give rise to them disclose a disregard for individual freedom and for firmly established political facts such as national and trade union policies concerning immigration. Socialist authors thus ignore the political conflicts involved in their proposals, or they must be prepared to accept force as a means of realizing them—an eventuality not altogether foreign to the collectivist tradition.

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Yet, a sure way out of the problem of overpopulation does exist and that is extensive international trade. If men are no longer permitted to move to places where productivity is highest, capital can still flow to their country, attracted by the high interest rate prevailing there and raising the efficiency of native labor. In addition, by participating in the international division of labor, these countries are able to exchange on the world market those goods in which their relative handicap is least for commodities produced in regions with comparatively more abundant productive equipment or superior fertility of the soil. Thus, free international economic cooperation is a fairly adequate substitute for immigration barriers in balancing the level of income and the standards of living in the world, and "this levelling up . . . is carried out not so much by taking from the rich and giving to the poor, as by making the production on the entire globe as rational as possible and by exploiting the total economic potential of the world to the maximum."49 Unfortunately, immigration restrictions were followed by an increasing degree of direct and indirect trade controls. Their basis, as we know, rests in the spread of economic nationalism under the impact of Keynesian doctrines. "How can national full employment, at wages which correspond to the high qualifications of our workers, be maintained," argue the trade union leaders of the industrialized countries, "when they have to face the competition of imports produced by 'sweated labor'?" "What sense can international trade have for us," ask the inhabitants of the more backward countries, "if our productive equipment is hopelessly inferior to that of the richer nations?" These questions are as demagogically suggestive as their implications are economically false.50 But this kind of argumentation, reinforced by the adverse effects of interventionist policies on the balance of payments, has been a powerful factor in the introduction of international trade restrictions.61 It was not realized that these measures convert an originally economic problem into a political one: "If the channels of world transactions are more and more blocked, if the daily changing friendships and enmities are opening and closing markets, if the entire intricate mechanism of the liberal world economy is rusting . . . if international movements of capital become the solemn exceptions, if . . . there are

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fewer and fewer countries in which one could become even a dustman without possessing the appropriate passport—then the question of raw materials and colonies is no longer a mere phantom: then there are satiated and proletarian peoples, and then there is for many countries a population problem in the sense that the relationship between the size of the population and the politically dominated area is more unfavorable than elsewhere."52 If such are the effects of government policies which are still based on a system of free enterprise, what will be the consequences of a comprehensively planned economic order on the international population problem? Since the quantity and quality of internationally exchanged goods and services correspond even less to the factor endowments of each country than in the "mixed" type of economy considered before, problems of overpopulation must become even more pressing. This assumption may be confirmed by official statistical data showing greatly varying average densities of settlement per square mile of national territories, which, just as in the case of raw materials, may give (and have given) rise to government claims to an extension of "vital space" at the expense of the less densely populated areas. Yet, it is highly improbable that these claims will be accompanied either by planned international migrations to alleviate the problem for the time being or even by complaints of one government against another for closing its frontiers to immigration. The reason for this surprising peacefulness is not difficult to perceive if we remember that labor is a factor of production—indeed the only one according to socialist doctrine— and that all factors of production are extremely scarce with respect to the permanent pressure of planned demand upon them. The socialist government has no difficulty in employing all available labor forces; it will, on the contrary, even tend to mobilize housewives and retired people to participate in production and it can do so because, as we have seen, there is no direct link between the productive contribution of the individual and his real rewards. The central planning agency is in no way compelled to adjust the planned proportion of consumption goods in the national product to an increased demand. It can simply absorb the additional purchasing power thus created by raising the prices of these goods. It it wishes to avoid a resulting dete-

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rioration of living standards—although it may then profit from an abnormal reaction of total labor supply—it can expand consumers' goods production, but to a lesser extent than that of capital equipment. In other words, since it is the government that decides on the volume of total savings and since it naturally tends to further the growth of the investment sector at the expense of light industry and agriculture, labor power must be regarded as the foremost source of national capital and hence of the political power of the new class.53 However densely settled a socialist country may be, it will thus continue to suffer from an apparent shortage of workers. The problem of overpopulation may serve as a useful argument for an aggressive foreign policy—it is disguised within the country by the kind of economic organization characteristic of collectivism. Overpopulation assumes, as all other disguised disequilibria do under socialism, the form of unnecessarily low living standards. But no one really knows whether and to what extent this relative poverty is due to the just-mentioned factor, or whether it is due to the general shortage of capital and raw materials, the "incapability" or "bourgeois mentality" of factory managers and planning department heads, or perhaps to the machinations of the "enemies of the people" within and without the frontiers of the socialist state. This obscurity can only be removed by replacing the collectivist system of watertight economies by a free and intercommunicating international economy. THE PROBLEM OF INTERNATIONAL CAPITAL MOVEMENTS

The various geographical areas of the world, dominated by national states, differ with respect not only to their population and raw material resources, but also to the amount of their past savings translated into capital accumulation. This results in different prices for the use of capital in different regions, reflecting its scarcity relative to the other factors of production. The interregional productivity levels can therefore be approximated to each other by letting capital flow freely to places where it earns the highest return. This is, in fact, the essence of the liberal solution. However, there are two fundamental problems connected with international capital movements. The first is that of risk

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which is present in all investment activity, but which is now aggravated by the fact that capital is usually tied down for a long period in a country under a different jurisdiction. The success of an investment project therefore depends not only on the investor's correct estimation of the national or international market situation at the time it bears its fruits, but also on the economic policies pursued by the government of the capital receiving country. If the latter insists on its autonomy and fails, e.g. to take efficient measures against inflation so that the introduction of direct trade restrictions and exchange control eventually become "inevitable," investment prospects in that country become unfavorable despite apparently promising returns. This point will play an important role in the next chapter. Secondly, international capital movements were often used by governments as instruments of political pressure and gave, in turn, rise to international tensions demanding government intervention.54 A regular international flow of capital therefore depends on the degree to which private economic activities are dissociated from political implications, and possible disputes arising out of them can be settled outside the field of high diplomacy. "The growth of international capital investment thus reflects the increasing integration of the world's economic organization. Indeed, the amount of these long-term boundarycrossing investment ties is in a certain sense a measure of . . . the extent to which the mechanism of production and distribution over the world is becoming unified in spite of political separatism."55 But the very essence of a collectivist economic order is the centralization and politicalization of national capital. It may be recalled that Keynes' principal demand was an autonomous interest rate. But this politicalization manifests itself even more in a centrally planned economy. On the one hand, the productivity of a factory and its ability of plan fulfillment is closely related to the quantity and quality of its capital equipment. Hence, there will be fierce competition for more capital allocations between both the different branches of the economy, represented by rival state agencies, and the factory managers.66 But on the other hand, the planning authority is unable to decide rationally where in the economy investment is most urgently required.

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No collectivist state will therefore consider itself to be in a position to spare capital for foreign investment, unless important political advantages can thereby be gained. This is the case, for example, when the capital of a leading socialist country participates in the exploitation of vital raw materials of a smaller one. This may, and in actual practice has, become a pretext for an increasing interference by the dominant state in the internal economic affairs of the weaker partner, under the pretext of "coordination and harmonization of national plans." Apart from such direct investment, credits can also assume the form of bilateral swing credits or even convertible currencies. But the more that the latter are "needed," the more noneconomic strings are likely to be attached to their lending. Thus, the best safeguard of a socialist country—especially if it is small and relatively poor—against exploitation is its absention from taking foreign credits from other socialist countries. It will pursue a corresponding policy that is subject, however, to a qualification already made in another context: that "aids" are not forced upon it by its more mighty neighbors. SUMMARY AND CONCLUSIONS

All major problems connected with the international movement of labor, capital, goods, and services on the one hand, and the offsetting monetary flows on the other, are solved in a liberal economic order by the working of "automatic" mechanisms, sensitively registering all past and thereby guiding all present economic actions and reactions. Their international effectiveness depends on a self-imposed limitation of the state's sovereignty, resting on the twofold conviction that (1) the different problems with which the two fields of dominium and imperium are faced demand different kinds of solutions and (2) there exists a close interdependence between the general political and social framework of a nation and its economic order. If the former is to be constructed on liberal principles, the latter necessarily rests on free enterprise. But only if this conviction is shared by a majority of states can a true international order and its corollary, an effective international monetary system, arise. This division of sovereignty between national governments and the anonymous forces of the market has been considerably

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jeopardized by national full employment policies and has led to a corresponding politicalization of the economy. This process is completed by full-scale national planning. Automatic mechanisms are and must be thrown overboard by the collectivist state since their essence, that they work independently of human will, is incompatible with the postulate of conscious economic control. The most important consequence of this fact is a total separation of national economies. In these economies, international economic relations are tolerated only insofar as they do not interfere with national planning. Because of this, only one thing seems to be absolutely certain for the representatives of the mutually negotiating socialist governments, and this is the exact opposite of the principle that had guided Plato: that to have more of a given commodity is better than to have less of it. Hence no international economic equilibrium deserving this name can be attained under this system.

1.

2. 3.

NOTES TO CHAPTER VIII For further details, cf. Röpke, W., "Klein- und Mittelbetrieb in der Volkswirtschaft." ORDO I (1948), pp. 155-74; Jewkes, J., "Are the Economies of Scale Unlimited?" In: Economic Consequences of the Size of Nations. Proceedings of a Conference Held by the International Economic Association in Lisbon, 1957. London, Macmillan, 1960; v. Lenel, O., "Wachstum der Wirtschaft und Wachstum der Unternehmungen." ORDO XV/XVI (1965), pp. 141-65. Cf. Machlup, F., The Political Economy of Monopoly; Business, Labor and Government Policies. Baltimore, Johns Hopkins Press, 1952, 544 p. The combination of private economic initiative with the requirements of Staatsräson was particularly marked in Germany after the unification of the Reich. Thus, A. R. L. Gurland wrote: "The joining of powerful social forces to the state apparatus doubtless constituted the internal political motive which led Bismarck from free trade to protectionism." Gurland, A. R. L., "Wirtschaft und Gesellschaft im Übergang zum Zeitalter der Industrie." Propyläen-Weltgeschichte, VIII, p. 326. The same author underlines another important aspect in this connection: the process of cartelization gave rise to a special class of organizational bureaucrats that developed their own, vested interests. These "full-time employees of organizations, almost all university graduates, very often lawyers who had not infrequently obtained their positions through the recommendations of the Korps . . . originated from a middle class that failed to keep pace with industrialization and that no longer quite believed in social advancement through entrepreneurial risk taking. As learned people and reserve officers, they considered the organizational hierarchy as a substitute for what remained inaccessible to them: easy wealth and rise into the privileged upper class. Not having any fortune of their own nor responsibility for business risks, they distrusted the 'mercenary spirit' of the entrepreneurs and managers who had to make their decisions on the basis of financial and not of 'national' or 'macroeconomic' considerations. . . . They were less interested in daily problems of profitability, consumer needs, and higher living standards

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4. 5.

6.

7.

8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

18.

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than in tariff protection, 'vital space,' and national prestige." Ibid., p. 335, italics added. Though Gurland refers here to Germany, similar observations could be made wherever cartelization gained momentum. But do these bureaucrats not show a striking resemblance to the "new class" in that they concentrate power in their hands without having to assume a corresponding responsibility? International disorder and the assumption of violence thus seem to appear where this kind of people succeeds in influencing both public opinion and the foreign policy of their respective states. Röpke, W., Internationale Ordnung. Erlenbach/Ziirich, E. Rentsch Verlag, 1945, p. 98. "It was under the auspices of the market economy, not of collectivism, that modern, highly differentiated society introduced itself into economic history. This led to the serious optical delusion that the disharmonies resulting from differentiation would be something proper to the market economy only." Röpke, W., Civitas Humana. Grundfragen der GeselL·chafts und Wirtschaftsreform. 3rd ed., Erlenbach/Zürich, E. Rentsch Verlag, 1949, pp. 343-44. Not infrequently, there do occur uncompleted projects. The enormous waste of economic resources—particularly scarce in a developing country—involved in overambitious industrialization programs has been illustrated by the complete failure of the Chinese "Great Leap." According to eyewitnesses, there are incompleted factory buildings all over the country, doomed to destruction by winds and rain. Expensive machinery is also perishing for lack of qualified use and attendance. Here, another "advantage" of a hermetically closed economic system becomes apparent. The population in socialist economies has no possibility of comparing its living standards with those beyond its national frontiers. It can only make intertemporal comparisons. Hence, there will be a widespread feeling, greatly encouraged by official propaganda, that the slightest increase in the provision with consumers' goods must be credited to the centrally planned economic system and is the result of the wise measures taken by the "benevolent" government. Machlup, F., "Three Concepts of the Balance of Payments and the So-Called Dollar Shortage." Economic Journal, March, 1950, pp. 46-47. Ibid., p. 46. Ibid. Ibid. Röpke, W., International Order and Economic Integration, p. 200, italics original. Ibid., p. 201. Ibid., p. 76. Lutz, F. A., "Goldwährung und Wirtschaftsordnung." Originally published in 1935, reprinted in Geld und Währung. Gesammelte Abhandlungen von F. A. Lutz. Tubingen, Mohr, 1962, p. 21, italics original. Röpke, W., op. cit., p. 74. "The Gold Standard of the years 1925-31 was fundamentally impossible because it was the point of intersection of two completely incompatible ideas that were separated by a century—the idea of a free economic order of the beginning 19th century and the idea of national planning of our time. The marriage entered into by these two ideas in the postwar Gold Standard was not a happy one. Each of the two partners impeded the other in fully displaying its intrinsic nature—no wonder the marriage ended in divorce after six years." Lutz, F. A., op. cit., p. 22. "Competition as far as possible—planning as far as necessary!" Grundsatzprogramm der Sozialdemokratischen Partei Deutschl¤nds (Basic Program of the

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19. 20. 21. 22. 23. 24.

25. 26. 27.

28.

29.

30. 31. 32. 33. 34. 35. 36. 37.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER Social Democratic Party of Germany). Bad Godesberg, 1959. Published by the Vorstand der Sozialdemokratischen Partei Deutschlands, Bonn, 11/59, p. 14. Paulsen, A., Neue Wirtschaftslehre. Einführung in die Wirtschafttheoríe von John Maynard Keynes und die Wirtschaftspolitik der Vollbeschäftigung. Berlin and Frankfurt, Verlag Franz Vahlen, 1958, p. 325. Keynes, J. M., The General Theory of Employment Interest and Money. New York, Harcourt, Brace, 1936, p. 349. Paulsen, A., op. cit., p. 325. Ibid. Keynes, J. M., op. cit., p. 349. "The establishment of a link between the quantity of money and gold makes it possible for the central bank to increase money only in accordance with the inflow of gold. It must restrict an increase of money if it approaches its reserve limit. The gold basis thus forces a scarcity of the quantity of money in the entire system and leads in the long run again and again to a harmonization of the natural and the market rate of interest." Lutz, F. A., op. cit., p. 9, italics original. To discuss the question whether and to what extent a redistribution of income, through progressive taxation, is recommendable in this and all other phases of the business cycle would exceed the scope of this study. Particularly from a failure to distinguish between frictional and structural unemployment. Due to this discouragement of savings and the retention of the interest rate below its equilibrium, that is, that level which reflects the relative scarcity of capital, full employment policies are menaced by the danger of over-investment, which, as we have seen, is the most fundamental cause of crises. Involuntary credit giving occurs also under the gold exchange standard if a major reserve currency country is faced with a chronic balance of payments deficit. In this case it necessarily becomes the debtor of surplus countries even though capital in these countries may be relatively more scarce than in the deficit country. The United States' balance of payments deficit over the last years has given rise to such a situation. Proposals to remedy it range from the creation of a world central bank (R. Triffin) to a return to the gold standard with or without an increase in the price of gold. "The whole complex of national policies . . . introduces rigidities—from an international point of view—that limit the possibilities of adjustment to ensure balance of payments equilibrium without short-term controls over international trade and payments." Myrdal, G., An International Economy. Problems and Prospects. 1st edition, New York, Harper, 1956, p. 48. For a detailed analysis of this process, cf. Röpke, W., "Repressed Inflation." Kykfos, Vol. I, 1947. Quoted from Yale Review, summer, 1933, in Hazlitt, H., The Failure of the "New Economics." An Analysis of the Keynesian Fallacies. Princeton, Van Nostrand, 1959, p. 338. Ibid. Keynes, J. M., The General Theory of Employment Interest and Money, p. 348, italics original. Ibid. Lutz, F. A., "Das Problem der internationalen Währungsordnung." In ORDO, Vol. X ( 1958), pp. 142-43. Myrdal, G., op. cit., p. 48. Röpke, W., International Order and Economic Integration, p. 96.

LIBERAL VERSUS SOCIALIST ECONOMIC ORDER 38. 39. 40.

41.

42.

43. 44.

45. 46. 47. 48.

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Chatterjee, I. K., Economic Development, Payments Deficit and Payment Restriction. Geneva, Droz, 1963, p. 34. Cole, G. D. H., "The Socialists and the Keynesians." Quoted from Socialist Economics. London, Gollancz, 1950, in Ebenstein, W., op. cit., p. 793. Cole answers the question: "I do not think it can" (ibid.). When socialism conquers the world, the use assigned by Lenin to gold will be very much the same as that in More's Utopia. ' Meanwhile, we must save the gold in the R.S.F.S. . . . , sell it at the highest price, buy goods with it at the lowest price. When living among wolves, howl like wolves." The Importance of Gold (1921). Selected Works, Vol. IX, pp. 299-300. "It is a question of definition whether one refers to exchange rates at all, since these have become mere magnitudes of calculation for the central planning commission and can be arbitrarily determined and just as arbitrarily changed by it." Graf, W., op. cit., p. 79. "To drink coffee, I do not need to own a coffee plantation in Brazil, an ocean steamer, and a coffee roasting plant, though aÛ these means of production must be used to bring a cup of coffee to my table. Sufficient that others own these means of production and employ them for me. In the society which divides labor, no one is the exclusive owner of the means of production either of the material things or of the personal element, capacity of work. All means of production render services to everyone who buys or selh on the market." Mises, L. v., Socialism. An Economic and Sociological Analysis. London, J. Cape, 1936, p. 41, italics added. Ibid., p. 40. "If we are disinclined here to speak of ownership as shared between consumers and owners of the means of production, we should have to regard consumers as the true owners . . . and describe those who are considered as the owners in the legal sense as administrators of other people's property." Ibid., pp. 4142. Mises refers to the following verses of Horace: Si proprium est quod quis libra mercatus et aere est/quaedam, si credit consultis, mancipat usus/ qui te pascit ager, tuus est; et viücus Orbì/ cum segetes occat tibi mox frumenta daturas/ te dominum sentit, das nummos: accipis uvam/ pullos ova, cadum temeti. Epistol II, 1958-63. Staley, E., Raw MateríaL· in Peace and War. New York, Council of Foreign Relations, 1937, p. 20. Ibid., p. 36. Fichte's parable—cf. p. 19—could serve as a useful ideological palliative. The principle that strong and wealthy labor movements must help labor in the more backward areas to rise "has been proclaimed a thousand times. It is a favorite subject of resolutions of international congresses, where the practical and immediate is never liked and general principles are the rage. Yet in practice, the trade unions of the countries with the highest standard of living, such as the United States, New Zealand, Australia, South Africa (in certain industries), etc., have always been conspicuous for their coolness in matters of international solidarity. International solidarity is something always eagerly invoked by the weak. Hardly more than perfunctory lip-service is generally paid to it by the strong and by the well-to-do. . . . The gulf between the abstract and the concrete, the ideal and the practical, is wide indeed." Borkenau, F., Socialism National or International. London, Routledge, 1942, p. 12. The idea that immigration increases unemployment "is based on the error . . . that the total sum of productive work to be mastered is of a fixed preestablished size, a cake, so to speak, from which no one can cut a bigger piece without another's faring badly. After all, . . . the absolute limit of ¾e total volume of work to be done is determined by the sum of our wants; in practice, therefore, it lies in the infinite. . . . The problem of unemployment relates consequently

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49. 50. 51.

52. 53. 54. 55. 56.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER not to the entire volume, but to the correct composition of production; the problem is one of equilibrium, not of absolute total volume." Ròpke, W., International Order and Economic Integration, p. 143. Therefore, the economic structure of the immigration country as well as the type of immigration are of relevance and it is well conceivable that immigration, by alleviating bottlenecks in certain fields of occupation, may create complementary jobs for hitherto unemployed home labor. Ibid., p. 146. Their fallacy is exposed in every textbook on international economics. It is due to a failure to grasp the substance of the theory of comparative costs. That these restrictions highly encourage monopolistic practices and are therefore pressed for by interest groups is no invalidation of our contention that economic nationalism resulting from basically collectivist policies is at the root of this development. The close connection between these two phenomena will be treated in the next chapter. Röpke, W., op. cit., p. 139. Hence, emigration is not only forcefully repressed by socialist governments, it is indeed often regarded as high treason to be punished by long years of imprisonment, if not by death. For a detailed analysis, cf. Agad, J., Der politìsche Faktor in den internationalen privaten Kapitalbewegungen. Geneva, Descombes, 1961, 216 p. Staley, E., War and the Private Investor. A Study in the Relations of International Politics and International Private Investment. New York, Garden City, Doubleday, Doran & Co., 1935, p. 15. Whose success in this respect will soon appear in the form of higher bonuses.

CHAPTER IX

ECONOMIC DEVELOPMENT AND THE PROBLEM OF INTERNATIONAL ECONOMIC ORDER In Chapter VIII, the major aspects of international economic order were treated in a general way. But can our judgment in favor of the liberal economic order and its policy implications be maintained in a world consisting of regions with widely differing degrees of economic development? Is it not conceivable that the collectivist approach, despite its numerous grave disadvantages, is more conducive to economic growth than a free market system? THE PROBLEM

To answer these questions, we must first be aware of the fundamental problem of economic "underdevelopment." This problem lies beyond the veil of statistical data relating to national per-capita income or to the percentage of the population employed in agriculture. One must go back to "all the elements that affect a nation's capacity to produce goods and services; its natural resource base; the quantity and quality of its labor force, the amount and kinds of capital available to its industry and agriculture; and to the institutions, attitudes, and habits that determine the effectiveness with which all these economic resources are used."1 The first underdeveloped country was Great Britain. It could be called this from the moment its inhabitants initiated the process of capital accumulation and systematically applied scientific discoveries to production. The particular kind of European culture and the stage of religious and intellectual emancipation which it had reached made it possible to create "institutions, attitudes, and habits" favorable to the process of industrialization. This process had its negative sides, if we remember the price which had to be paid for capital formation

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within one single country. But the misery of the working population which Engels had so stirringly described in his Die Lage der arbeitenden Klasse in England (1848) gave way, during the later decades of the nineteenth century, to a rising participation of labor in the general increase of productivity, translated into rising real wages. And productivity could even more rapidly be improved by specialization of production in accordance with international comparative advantage. When other European countries followed England on her way to industrialization and there emerged—in North America, Australia, and New Zealand—new, vast "underdeveloped" areas, the process of capital accumulation became less painful. A stock of capital seeking profitable investment opportunities already existed (and there was nothing to prevent it from being exported ); the effectiveness of the international division of labor was increasing, moreover, due to a greater diversification of supply and demand that was made possible by industrial production, the effectiveness of the international division of labor was increasing. Thus, the economic starting point of development can be seen in the existence of primitive and inefficient production techniques which are usually applied by a predominantly agrarian population, complemented by a growing awareness of the possibility of improving these techniques by rationalization and participation in international trade. But economic development is not a mere question of capital accumulation; it is a process showing a close interdependence with the social and cultural development of a country. Its success therefore depends on the population's preparedness not only to passively accept the deep-going changes of their traditional way of life associated with the introduction of new production methods, but also to actively participate in the movement for modernization and eventually to assume the economic and political responsibilities created by, and safeguarding the continuance of, development. As has already been pointed out, European cultural and social patterns had reached a point at which the emerging new elites, keen on innovation, could rely on a general willingness to respond to their call, even though it had first to be awakened. And, since the overseas settlers belonged to the same cultural orbit, the social and human prob-

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lems found a solution that was parallel with those posed by economic development. At the same time, international economic relations were greatly facilitated by the open society which prevailed in the liberal age. In the underdeveloped countries of today, the economic starting point is the same as that which the more advanced nations were concerned with one and a half centuries ago. The essential difference, however, lies in the fact that a relatively small group of Asian, African, and Latin American leaders, pressing for industrialization is faced with populations still deeply embedded in their accustomed ways of life; their way of acting and thinking is under the spell of cultures fundamentally different from that which formed the basis of the original movement for economic advance. The problem, therefore, is not only that of modernizing the economy, but, far more important, that of transforming society to prepare the human ground for development. That this is a very lengthy process and stands in striking contrast to the technical possibilities of economic growth is the crux of the problem. The economic side of this problem can be summarized thus. These countries are characterized by a large agricultural overpopulation in which marginal productivity may fall to zero. Consequently the same quantity of food and raw materials may be produced with less labor, the surplus population being available for employment in the newly created industrial centers. A net gain in productivity is thus expected to accrue. But the problem goes deeper than that. To build up factories, expand mining, etc., a minimum amount of both overhead facilities and capital equipment is necessary. Hence, the few available resources must be devoted to the production of investment goods while the workers engaged in this production must "wait," i.e. content themselves with a low income until the stream of consumption goods eventually begins to flow. It, therefore, appears at first sight that it is the industrial workers who, by their abstention from consuming the "equivalent" of what they produce, finance economic progress. Yet, how is it to be assured that these laborers, who were drawn from the agricultural districts, will continue to receive the food which they had previously consumed? In other words: how can the farmers still engaged in cultivating the soil be prevented from

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retaining that part of their produce which need no longer be shared with those who have left their native village? The answer is simple: the farmers cannot be induced to sell their "surpluses" in the town markets unless they are offered useful manufactured goods in exchange. But it is exactly these that are lacking since the tools have yet to be created with which to produce them. There is little hope of persuading those peasants, who must get used to the very idea of producing for a market, to part with goods which they themselves badly need in exchange for some unknown commodities to be received in a distant future. Unless the necessary supplies are either forcibly taken from them or borrowed abroad, economic development is doomed to a halt even before it could effectively be started. The two just-mentioned methods constitute, indeed, the only real alternatives to economic stagnation in the underdeveloped countries. If a country wishes to benefit from foreign capital in the same way as did, in earlier decades, the United States and Australia, it must observe the rules of a liberal international economic order, that is, aim at a maximum international division of labor based on the freedom and stability of international legal andfinancialrelations. To the extent to which it allows government intervention to interfere with the capital and commodity flows set into motion by the autonomous market mechanisms, the country insulates itself from the world market. The amount of private capital that will still be forthcoming will, to this extent, depend less on relative interest rates than on a wider or narrower range of political considerations. Chatterjee regards the basic issue between the collectivist and the liberal approach as "the conflict which lies between economic development through maximum participation in foreign trade, and development which makes foreign trade a residual, a by-product of home investment plans. The maximization of the degree of participation in foreign trade means that the country concerned produces those commodities which it can produce at a lower comparative cost and exchanges a part of what it produces for those goods for which its comparative advantage is smaller. The minimization of the importance of foreign trade implies that the country is attempting to produce

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anything that it is physically able to produce, regardless of cost, and importing those items which it is not able to produce."2 THE SOCIALIST APPROACH

Marxist theory of economic development focuses on the capitalist production process. We remember that it is thought to be the historical role of capitalism to accumulate and revolutionize the means of production until the time is "ripe" for society to move to a higher economic order. The claim that economic development is to take place under a socialist economic order could thus be regarded as contrary to Marxist doctrine. It was Lenin who laid down the policy directives to be followed by an already socialistic though still underdeveloped country. The founder of the world's first socialist state assigned to the Communist Party and to the central authorities of the Soviet Union the same role that was formerly assumed by the capitalists: to accumulate capital. The basic feature of this policy is known: forced cencentration of resources in heavy industry, financed by a severe depression of general living standards. The question of agricultural supplies was "solved" first by the officially sanctioned pillage of the peasants by the "armed workers" during the period of War Communism and, after the interval of the period of New Economic Policy, by forced collectivization, subjecting agricultural production to the central control of the state. Most leaders of the Third World today, though openly opting for the socialist method of industrialization, shrink from recurring to such flagrant measures. There are two important factors which enable them seemingly to combine their collectivist predilections with the advantages of an open society. "Monopoly Capital" and State Planning There, after all, does exist a Marxist—or rather neo-Marxist —theory of economic development, which, as we remember, was advanced by R. Hilferding: The export of capital has, particularly in the form of industrial and finance capital, greatly accelerated the upheaval of social conditions and the drawing of the earth into the orbit of capitalism. Capitalistic de-

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velopment did not take place autonomously in each country; together with capital, the capitalistic conditions of production and exploitation were also imported and always at their most advanced stage. In the same way that today a newly arising industry does not develop from handicraft techniques to modern giant establishments, but is founded initially as a capitalistic enterprise, capitalism itself is being imported in its latest stage into a new country; it therefore exerts its revolutionizing effect with much greater force and in a much shorter time than was required, for example, by the capitalistic development of Holland or England.3

Since the most advanced stage is that of "Monopoly Capital," and since the joint stock company assumes in it the cardinal role of financing the process of industrialization,4 the policy implications from this theory are now self-evident. To start economic development from the bottom by gradually improving agricultural production techniques, by raising the general cultural level of the population, and by waiting for the spontaneous establishment of small, local industries is clearly not in accordance with the requirements of "historical development." The only efficient way of catching up with the most advanced countries as rapidly as possible is seen to lead one through a peculiar kind of economic order, characterized by a combination of "Monopoly Capital" and socialist state control. The "capitalist" side of this order is described by Chatterjee: "What has taken hold of the minds . . . of the members of the restrictionist school, is the Schumpeterian thesis of beneficial effects on economic growth of monopolies. These monopolies can often be brought into being, buttressed, and bolstered by restrictions on trade and payments . . . in addition, these restrictions mean that within the country itself potential competitors in a given industry cannot get the necessary foreign exchange for building up additional productive capacity. . . . Furthermore, exchange control discourages the entry of foreign capital and thereby dissuades foreign capitalists from setting up establishments in competition with domestic firms."5 The advantage of monopolies is seen in their role as "shock absorbers" whereas the abnormally high profits are justified, following neo-Marxist doctrine, because they give rise to new capital formation. But whenever these profits, in the state authorities' judgment, cease to serve the desired purpose, a welcome pretext to nationalize these undertakings offers itself.

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The socialist side of this development conception is represented by the central governments planning the structural transformation of the national economy, centered around the construction of certain key industries. Admittedly, the price mechanism is of little avail to guide the authorities' decisions as to what kind of plants are to be built, where, and with how important capacities. But, experts assert, there exists a "second principle" of profitability, which arises from the fact that large movements of resources within the economy will have effects which are disproportionately different from marginal movements. In consequence, the planner must satisfy himself not only that further marginal movements would serve no useful purpose, but also that there is nothing to be gained by large movements of resources, amounting to a considerable alteration in the structure of the economy.8

The economic implications of such a procedure are not concealed by the same group of experts: If one is working in terms of large structural readjustments, both cost and productivity are difficult to measure, and one is left to rely much more on qualitative judgments which can be checked only by the event itself.7

Thus, Mises' theory on the impossibility of rational resource allocation in a centrally planned economy holds good also for a developing country. Only, it is here even more relevant because all factors of production—usually with the exception of laborare extremely scarce and the price to be paid for faulty investments falls as a correspondingly heavy burden on an already poor population. The collectivist policy of forcibly breaking through the vicious circle of poverty and stagnation is accompanied by an internal economic policy of low interest rates and relatively high wages, leading to a distortion of real scarcity relations.8 It is self-evident that the state-sponsored part of economic development demands a highly protectionist trade policy. That these ambitious plans can, if at all,9 be achieved only by open or repressed inflation (the modern, more disguised forms of robbing the poor, as F. Machlup once characterized this procedure ) is an accepted part of the collectivist theory of econom-

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ic development.10 All these symptoms of economic nationalism will not fail to lead to a progressive closure of the national economy, with all of its familiar consequences. The gap between the government's plan targets and the means at its disposal now becomes visible in the form of an acute shortage of foreign exchange, making increasingly severe quantitative trade restrictions and exchange control "necessary." This gap has received the magic name of "structural balance of payments disequilibrium" and is nothing other than Machlup's deficit in the "program balance of payments." The underlying foreign trade theory is that advanced by F. List: while it is admitted that considerable benefits can be derived from the international division of labor according to comparative advantage, this does not apply, it is thought, to the initial stages of a developing country. The primitive economy is first to be prepared for the rough winds blowing from the world market. The government must, in this transitional period, assure "balanced growth" and a favorable development of the terms of trade. The fundamental weakness of this theory is the fact that to the degree to which the internal economy is cut off from the world market by national planning, the objective criterion for determining comparative advantage is lost. Even if the government atfirsthonestly intended an eventual opening of the economy, the moment judged appropriate will probably never arrive since the planned structural changes that are not in accordance with comparative advantage always need more, not less, protection, lest the misallocation and even the waste of resources be revealed by international competition. The creation of powerful interests by the infant industry tariff was already clearly pointed out by Hilferding. The more the economy is cut off from the rest of the world, the stronger these interests against international competition will become. The Politicalization of International Capital Movements This policy has, however, "also destroyed the prerequisites . . . on which the financing of the economic development of these countries through the voluntary engagement of Western capital depends. . . . There thus seems to remain only one way

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out: if the source of capital movements based on the free market cannot even with the best intentions be made to flow into our countries, then the well of political capital provision must be tapped; what refuses freely to stream must, under the pressure of diplomatic conferences, propaganda, and more or less concealed threats, be pumped to the surface even at the risk of its evaporating and oozing away in that same heat of passions which had already dried up the source."11 Here, we touch the second aspect of the neo-Marxist theory of economic development. It is represented by the endeavor to "free" international capital movements from the element of exploitation which they allegedly have contained in the past. Large international capital movements which had developed entire continents in the past are, in socialist terminology, only the transfer of value destined to produce surplus value abroad. This definition has much greater appeal to the minds of power conscious African and Asian leaders than do individual freedom, scarcity prices, and interest rates. It is, therefore, not surprising that development planners have been, to say the least, indifferent with respect to the effects of their nationalistic policies on private international capital flows. Their absence was frequently presented as a fatal, unalterable reality and, moreover, as additional proof of how little "capitalists" really cared for the suffering masses of the newly developing continents. At the same time, however, new sources of capital appeared which ideological as well as political argumentations had opened up. Following an old Marxist thesis it was announced that every international transaction concluded between the citizens of differently developed communities was a disguised act of exploitation of the poorer by the richer partner. The closer international economic relations became between these two kinds of nations, the more scope presented itself for exploitation, a process which was crowned by the taking over of political power by colonial states. The latter were now, according to this theory, in a position to derive the full benefit from capitalistic development within their countries12 and, in addition, to feed this development with cheap raw material supplies "taken away" from their overseas territories which were, by such practices, doomed to eternal poverty and backwardness. Hence, it was nothing but a rightful claim on the part of the newly de-

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veloping independent countries to receive back part or all of what had been extorted from them. However, the real picture is far more complex: it also contains impressive achievements by the former colonial powers for the development of their ancient protectorates. Yet, these powers, failing to subject the accusations against them to an honest and objective analysis, frequently seemed to accept these incriminations and act accordingly. This fact and the fear of the new countries' being drawn over into the "socialist camp" account for the continued preparedness of the advanced countries to grant them large governmental credits and gifts. But this "political capital formation" has a number of peculiarities. In the first place, voluntary saving is replaced by forced saving in the form of additional taxes to be paid by the citizens of the advanced industrial states. These sums are disposed of without a scrupulous investigation into the economic profitability of the projects in which they are to be invested; such an inquiry and corresponding control of the progress achieved would be regarded as an inadmissible interference with the sovereignty of the receiving country.13 Secondly, there is no guarantee that this intergovernmental aid will, in its end effect, result in a lasting rise of productivity in the developing country. The fact that it partly or even wholly fills the ever-widening gap of the program balance of payments may only mean that the funds are used to neutralize the mistakes and deficiencies of government planning.14 B. R. Shenoy gives a typical illustration of this: "While the Indian planners spoke about investments, inflation and government expenditures have swelled the demand for consumption goods of all kinds."15 This led to a flight or hoarding of private capital and to the smuggling of gold to which a considerable part of foreign grants was devoted. Thus, "the problem of such foreign aid lies in the fact that the expansion of inland capital formation due to it remains far below its actual volume."16 Interest and amortization payments therefore become an "unbearable burden for the population if debts are contracted to serve wasteful purposes. The predominant way of thinking of the Indian planners seems to consist of taking up additional borrowings to finance old liabilities."17 "Do the Western countries help the individual citizens in

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the underdeveloped countries or do they help the various prosocialist governments in order to enable them to act with all the more power against free entrepreneurship?" asks the Venezulan economist N. Zuloaga and adds: "In my country today private capital owned both by residents and foreigners is fleeing abroad. It does so because it fears socialism . . . and interventionism. At the same time, our government is offered considerable aid by foreign governments and international organizations."18 Thus, the collectivization and therefore politicalization of economic development leads necessarily also to the politicalization of international capital movements. These intergovernmental grants either lead to political dependence (as was already pointed out in the section on international capital movements), or they must be given without economically sound strings attached to them. Hence, to the extent that political capital is obtainable abroad, a collectivist economic policy, with its disregard of relative scarcities and marginal productivity, can be pursued without imposing on the population the same hardships that the Soviet Union had imposed in the 1920's and 1930's. The "only" price to be paid by the citizens is a stagnant and eventually much slower rise of their living standards19 than would be possible under a free market system. THE LIBERAL APPROACH

The first target of liberal criticism of the collectivist conception of economic development is the kind of economic order the latter entails. Enough has been said on its major weaknesses so that no repetition is required. Liberals wish to see government planning and monopoly replaced by a free market economy, resting on internal and external competition.20 Against the collectivist objective of keeping up a stable, effective demand corresponding to full employment of labor and resources—which is only possible by being sheltered from external disequilibrating effects—they set the goal of increasing productivity and elasticity to adjust to changing market conditions, even if this involved "friction, losses, and disturbances of equilibrium."21 Liberals therefore favor a political and economic order also

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for the developing countries in which the activities of the state are limited to the provision of infrastructure,22 the efficient raising of the educational level of the population, and the setting up of an institutional framework that is favorable to the mobilization of private initiative and capital formation.23 Investment funds are to be attracted to the home economy from both internal and external sources.24 Hence, it is an important function of government policy to create and maintain a political and economic climate of stability and confidence. Abstention from inflationary policies is the foremost requirement, especially also with regard to the social injustice they involve. Liberal authors underline the importance of an absence of direct trade and payments controls: they are therefore referred to as the "convertibility school." This school emphasizes the arbitrariness, uncertainty, and clumsiness of centralized decisions which, under a regime of exchange control, determine the use to be made of a country's foreign exchange. These characteristics and the all-around protective effects of a "nationalization of payments" (Röpke) have very unfavorable effects on economic growth. Furthermore, the obligation to sell foreign exchange earnings at a fixed rate below that corresponding to the real market situation discourages the efforts of exporters to do business abroad and directs them to the more profitable home market. Against the collectivist argument that exchange control provides a valuable instrument of social policy in that it facilitates the import of basic consumption goods at the expense of luxuries, the liberals maintain that an unequal distribution of income will persist as long as human services, especially managerial and technical skills, are scarce and need a material incentive to come forth. Thus, the real problem is not rewarding these services according to their quality and scarcity, but the danger of dissociating personal income from performance which often occurs in a market form dominated by monopolies, not to speak of a comprehensively planned economy. In addition, if the demand for luxuries can no longer be satisfied by imports, the corresponding purchasing power, unless it is taxed away, will reappear on the home market, thereby directing internal resources into the production of such goods. This involves higher real costs than if the corresponding imports had not been forbidden. All these consequences can

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only be prevented by increasingly comprehensive state planning. It is no contradiction, but rather a completion of the liberal position, if the government is also expected to lay down general rules and conditions to be observed by foreign investors, rules which are designed to limit or to eliminate their possibility of building up power positions. What is important is that these regulations remain a constant and foreseeable factor in the calculations of capital owners and that they interfere as little as possible with the economic requirements of the country.25 Liberals also emphasize the fundamental importance of increasing the productivity of agriculture, where climate and soil conditions permit such a policy, as against a premature statesponsored industrialization. It is recognized that the requirements for this program are (1) an efficient agrarian reform, breaking the power of an unproductive feudal aristocracy, and (2) diffusion of more productive methods of cultivation and of better tools among the peasants. At the same time, those branches of primary production are to be encouraged which offer the best prospects for exports. Manufacturing should start, as far as possible, from existing forms of production. "The process of development thus initiated, with its increase in mass incomes, should naturally result in the rise of individual industries which, since they cater to specific local needs, can do without crutches."26 But this program, so liberals stress, can only be fruitful if the more advanced countries—themselves—"open their markets to the goods produced in the developing areas at adequate and stable conditions."27 Their egoistic and shortsighted protectionism provides water to the mills of the restrictionist school. Moreover, what is gained by the small group employed by or owning the protected industries in say the United States must be paid not only by all American consumers in the form of higher internal prices, but by every individual taxpayer in the form of millions given away by their government as political capital. Finally, the convertibility school stresses the necessity of all foreign aid being accompanied by an effort of the receiving country itself. This aid is to be concentrated on certain development projects that are in harmony with the geographical and economic requirements of the country. No money must be

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given away à fond perdu in the name of a false charity.28 At the same time, however, "development policy must be freed from the East-West conflict and is to be regarded as the really central task of the world for the next fifty years."29 SUMMARY AND CONCLUSIONS

Due to the cumulative nature of controls30 the particular economic organization of an underdeveloped country at any one time has no decisive importance. What does matter is the outlook of the responsible authorities, i.e. their faith in restrictions or in convertibility as the most appropriate method of economic development. The latter assures freedom of choice of consumption which, besides being a democratic postulate, may be regarded as an important incentive for production. It can be termed a "policy of honesty" in that emphasis is placed on real costs, real prices, and real incomes, and that growth does not depend on deceiving income receivers by only nominally raising wages. It also promotes greater efficiency and flexibility of the economy, allowing the dynamic element to work itself out without restraint. Finally, it is closely tied to the general cultural advance of the population by giving it the necessary time to adjust itself to the new social patterns and live up to the requirements of a free society. Conversely, the restrictionist approach permits a consciously planned rate of growth and visible results of economic advance through the concentration of productive resources on large industrial projects. "It is . . . due to greater predictability of results of investments in industry and lesser predictability of agriculture that industry receives more emphasis than agriculture."31 If the results of industrial investments are to be measured, e.g. by the number of plants constructed in a given year or even by any quantitative output figure, then this statement may hold true. As soon as we introduce value considerations, however, it can be assumed that in most cases the devotion of resources to improve agricultural cultivation methods is more productive (though less visible) than their concentration in industry. By subjecting consumption to production, there is nothing

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to prevent planners from creating sufficient effective demand to clear the market. But this is possible only at the price of inflation and restrictive trade policies. Chatterjee observes that "there are enough imponderables in the economy which cause one to prefer a bird in the hand to two in the bush—more certain, but less efficient growth of the planned economy, to the more efficient but less certain growth of the market economy."32 This attitude is most plausible to those to whom "the urge for development is irresistible" and who have "no desire to wait any more,"33 irrespective of what this may imply for the sociocultural and political prospects of their countries. It must thus be admitted that, from the standpoint of one country, having solely the economic side of development in mind, one cannot give an unequivocal answer as to the most appropriate method of growth to be chosen. But when we approach the same question from the angle of world welfare, it can no longer be doubted that it is the liberal approach which is superior to the collectivist. "If the convertibility school is concerned with the maximization of world income, the restrictionist school occupies itself with the maximization of national income. It poses the question whether from the standpoint of a given nation a larger share of a smaller world income would not be bigger than the smaller share of a larger world income."34 But, the gains achieved by the restrictionist school would only be of a temporary character. The collectivist path to economic development presupposes a continued willingness of the advanced countries to fill the gaps in the program balance of payments and to make up for at least part of the misallocation of resources resulting from this kind of policy. But even if "political capital" can be obtained (which depends to no small degree on the collectivist inclinations of Western governments), there is the inescapable fact that the importance of efficiency considerations increases in the long run so that without an increasing rate of capital imports a breakdown will in all probability become inevitable. Furthermore, the possible economic advantages to be derived from trade and exchange controls dimmish as more and more countries adopt the same measures. The final picture would be the replacement of an international economic order by the game of rope pulling, the consequences of which have

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become all too familiar to us. And, as considerations of Staatsräson gain ground over the mere exchange of commodities at market prices, the result may be economic warfare, following its own special laws: "its tactics are aimed at the strategic objective of undermining the economic foundations of the opponent, of obstructing his economic consolidation and development and of hitting thereby indirectly his military power.'"35

1. 2. 3. 4. 5. 6. 7. 8.

9.

10.

NOTES TO CHAPTER IX Ellsworth, P. T., The International Economy. New York & London, Macmillan, 1964, pp. 483-84. Chatterjee, I. K., op. cit., p. 14. Hilferding, R., op. cit., pp. 406-7. See pp. 52-53. Chatterjee, I. K., op. cit., pp. 182-83. United Nations, Measures for the Economic Development of Under-Developed Countries. Report by a Group of Experts. New York, May 1951, paragraph 149. Ibid., paragraph 194. Cf. also the discussion of Barone's model on pp. 133-35. High wages thus result in a "contrived scarcity" (P. T. Bauer) of labor, leading to a higher capital intensity than economically justified in these countries. This effect is, moreover, in contradiction to the goals of full employment which is naturally subscribed to by all collectivist governments. Once again, the Chinese Great Leap may serve as an illustration. It suffered frustration not only because of the withdrawal of Soviet advisors, technicians, and development aid, but mainly because of "human bottlenecks." Whereas centralized planning is often justified by the absence of private initiative and the low cultural level of the masses, no attention is given to the problem where the state is to take from the army of experts and skilled workers indispensable for the setting up and fulfillment of national plans of industrialization. If the government refuses to wait until the general social and cultural level has reached a stage at which a responsible middle class may become the agent of economic development—a process which can be accelerated by a patient and well devised policy of education and the demonstration of new methods adapted to the special conditions of the individual countries—its only alternative is to adopt force. But even this policy finds its limits in the physical and psychological reactions of the population, as was proved by the Chinese experiment. The premature concentration of capital in large industrial enterprises equipped with the latest machinery, but with insufficiently qualified personnel, is therefore a major factor accounting for the waste of scarce productive resources by collectivist governments, not to mention the inefficiency and corruptibility of an all too hastily created bureaucracy. Cf. also Chatterjee, I. K., op. cit., pp. 21-22: "If full utilization of capacity at any point of time is considered to be a condition of economic growth and if at the same time it is to be assured that monopolistic profits should be reaped, there is no escape from a policy which permits demand to run ahead of supply (supply at any time being full capacity output), nor is there any getting away from the consequences of such a policy: inflation at home and closure of the economy. It can he seen that each of the elements involved in the restrictionist position—an increase in the degree of monopoly, emphasis on employment, pro-

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11. 12.

13.

14.

15. 16. 17. 18. 19.

20.

21.

22.

215

pensity to inflate, emergence of disequilibrium in the balance of payments, rise of trade and payments restrictions—is partial by itself, but mutually complementary. Taken together, these elements represent a way of development'' Italics added. Röpke, W., "Unentwickelte Lander," ORDO, V (1953), p. 105. I.e. without its "inherent contradictions" which were simply "transferred" to the colonial areas. The fact that Rosa Luxemburg's theory was shown to be scientifically untenable by both socialist and liberal economists was no reason not to appeal to it. And in fact, the psychological crop to be derived from it is considerable. A typical example was Nasser's attitude toward Western agencies negotiating the financing of the Assuan project. The first condition the World Bank attached to a loan was an Egyptian guarantee that it was in fact used exclusively for the construction of the barrage. Secondly, Egypt was to take the obligation to prevent inflation resulting from the inflow of these large sums. Both demands were rejected by the Egyptian government because of their "colonialistic" character and their "interference" with the internal affairs of the country. "The historical irony . . . lies in the fact that thereby the program is executed by the West to a critical degree in the spirit of the same national planning which in the national economic policy of the individual underdeveloped countries creates a national-autarkic socialism and therefore becomes a major obstacle for the success of a policy of economic development." Röpke, W., loc cit., p. 69. Shenoy, B. R., "Der richtige Weg zu Indiens Fortschritt." In Hunold, A. (ed.), Entwicklungsländer, Wahn und Wirklichkeit. Erlenbach/Stuttgart, E. Rentsch Verlag, 1961, p. 151. Ibid., p. 152. Ibid., pp. 153-54. Ibid., pp. 226-27. This statement is not invalidated by the fact that governments may produce impressive statistical evidence on economic growth. It is not the quantity of output of heavy industry that matters, but its economic usefulness, i.e. a comparison between its costs of production and the corresponding world market prices. "One thing is certain: the more the country participates in international trade, the more it finds that those items of national production establish themselves as exports which can compete price-wise and quality-wise with foreign products and those items of national consumption which do not meet competition from domestic products show themselves up as imports." Chatterjee, I. K., op. cit., p. 17. Röpke, W., International Order and Economic Integration, p. 182. He continues: "The actual problem we are faced with here is a dynamic one and will be the graver, the more sudden and frequent are the changes in competitive conditions and the more vigorous the resistance offered against adaptation within the individual national economies." Many authors are prepared to admit intergovernmental aid for this purpose. That this provision requires a careful and extensive planning has been shown by K. Hesse who devoted a study to the analysis of the contribution of private firms to economic development during the colonial age. He extensively discusses the first Ten-Year-Plan for the development of the Congo under Belgian domination as well as the instructive examples provided by the Gezira scheme and the Managil project in the Sudan. "It is in the continuation of the performance during the last decades, not in the rupture with it, that a solution of the new task [i.e. the development of independent states, E. T.] is to be found," writes the author after having subjected the bright as well as the dark sides of the intervention of private firms to a scrupulous analysis. Cf. Hesse, K.,

216

23.

24.

25.

26. 27. 28.

29. 30.

31. 32. 33. 34. 35.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER Entwicklungsländer und Entwicklungshilfen an der Wende des Kolonialzeitalters. Berlin, Duncker & Humblot, 1962, p. 337. Hesse refers to the Gezira scheme when he writes: "Here as in many other big development projects of the past one did not stop at making use of 'cheap colonial labor power,' but labor was combined with machinery. Maybe that thereby not unimportant sections of the population had to remain outside the production process; on the other hand, higher output at less cost could more rapidly be achieved which in turn resulted in increased tax receipts of the administration, leading to higher expenditures of general development and social services. To find in this respect the right measure, not to renounce, on the one hand, technical progress as a means of economic development, always to create, on the other, new jobs for manual workers, technical and commercial staff as well as for government officials—all this can be regarded as one of the most essential tasks of future development policy which can learn many things from past experience." Ibid., pp. 347-48. M. Heilperin e.g. attaches decisive importance to internal capital formation and to a corresponding climate of economic stability based on private initiative. He indeed sees in private capital formation at home a necessary precondition for an adequate inflow of foreign capital. Cf. Entwicklungsländer, Wahn und Wirklichkett, p. 224. "It should now be clear that competition, rise of productivity, monetary discipline, equilibrium of the balance of payments and convertibility of currencies form part of another network where one can take all or none of them and these apparently dissimilar elements can be pieced together to indicate another line of development." Chatterjee, I. K., op. cit., p. 22. Röpke, W., "Unentwickelte Lander," he. cit., p. 84. Van Sickle, J., "Alte und neue Theorien des wirtschaftlichen Wachstums." Entwicklungsländer, Wahn und Wirklichkeit, p. 120. "Conscience is a matter for the individual, not for national governments." Quoted from J. Jewkes in Röpke, W., foe. cit., p. 70. Cf. also Hesse, K., op. cit., p. 359. A. Rüstow proposed the creation of a "Club of the Respectable and the Trustworthy" to be constituted by those developing countries which are determined loyally to honor their obligations toward foreign investors. If the rules of this Club were strictly applied, its members would find it much easier to obtain foreign capital and, at that, at much more favorable conditions. Cf. Entwicklungsländer, Wahn und Wirklichkeit, pp. 217-18. It is interesting to note that such a "Club" has in fact been constituted by the countries who signed the Investment Code of the International Bank for Reconstruction and Development. Scheel, W. W., Verfahren und Formen der Zusammenarbeit mit den Entwicklungsìändern. Bonn, 1961, quoted by Hesse, K., op. cit., pp. 17-18. "In practice the signal that the time has come for comprehensive planning is usually provided by the emergence of shortages. Because of the demands being made upon the economy, some resource or other becomes acutely scarce, e.g. labor or food, or foreign exchange, and the symptoms of inflation appear. This scarce resource may then have to be rationed, and this cannot be done satisfactorily without knowing how important it is in every part of the economy." Measures for the Economic Development of Under-Devehped Countries, paragraph 204. It is assumed by the authors of this report that this knowledge can be gained only by comprehensive planning! Chatterjee, I. K., op. cit., p. 158. Ibid. Ibid. Ibid., italics added. Linder, W., in Neue Zürcher Zeitung, No. 5323, December 9, 1964.

CHAPTER X

THE FUNDAMENTAL PROBLEM OF WORLD PLANNING; CONCLUSION TO PART II As a conclusion to Part II, the fundamental problem of world planning is examined. Our exposition is based on the threefold answer that has been given by socialists to the cardinal question: who is to make the economic decisions for the peoples of the world? It is recalled that the following bodies were envisaged to fulfill this function: (1) international organizations; (2) the authorities of an international federation; and (3) an internationally oriented vanguard party. THE INTERNATIONALIST APPROACH: A CRITICAL EXAMINATION

Chapter IV expounded that line of socialist thought which saw the League of Nations and its affiliated organizations as the nucleus of future world planning. But the different theories and proposals put forward were rather confused. We have seen that the raw materials problem and its "just" solution received special attention. It was argued that raw materials are to be "considered as the common property of the whole world."1 But what is the practical significance of such a statement? Who is to supply the necessary capital for the opening of mines, the provision of transport material, etc.? According to what criterion are the different "needs" for these commodities to be ascertained? Clearly, we are in the midst of the collectivist economic chaos. The granting of certain raw materials to one group or nation will automatically result in other groups or nations receiving less of them. In any case, each individual unit will "need" more than even the wisest and most kindly disposed international organization can ever meet. International solidarity will therefore give way to international dissatisfaction and antagonism. Then again, there is talk about "regular and ample markets"

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and "just prices." What are just prices? If they are to be "fair to producers," they usually result in restricting demand; if the consumers' point of view is to prevail, producers may no longer be able to meet their costs and will curtail production. Thus, the best a giant conference in which all interest groups are represented2 could perchance achieve would be to fix raw materials prices at their equilibrium level: but this is exactly what a free market does on its own. In all other cases artificial scarcities or surpluses are bound to arise, calling for the massive, but arbitrary intervention of the international authority. The same is true for international investment planning. If it is to take place according to "needs," all one can say with certainty is this: resources will be drawn away from the advanced areas in order to raise productivity in the economically underdeveloped parts of the world. This means, in the most favorable of cases, a renunciation of economic growth in the richer countries from whose citizens, however, the same productive effort is expected to be maintained. But, since "workers as a whole have a right to the accumulations of property and knowledge from the past,"3 there would be "hardly a worker in the 'advanced' countries whose real income would not be severely diminished"4 in order to enable his poorer brethren to catch up with his living standard. We have seen in Chapter IX that the backwardness and poverty of vast territories is not only, and not even mainly, a technical problem, but essentially an educational and cultural one. The sacrifice incurred by the more productive workers would therefore bear no relation to the results achieved in the backward areas. "Mankind as a whole is still desperately poor: the abolition of inequality on a world scale, even if it involves no diminution of world production, would do little to raise the average. But one may well ask whether the workers of the advanced countries would stand it."5 It is, under these conditions, extremely improbable that total output would remain stable, not to speak of its sustaining its previous rate of growth. On the contrary, it has convincingly been shown by Hayek6 that a certain degree of economic inequality, among individuals as well as among nations, is a powerful and indispensable factor for the expansion of wealth.7 Hence, the time during which the advanced peoples would have

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to "wait" would cover several generations if not centuries. Robbins therefore rightly asks: "Is not such a system, unless controlled by the most rigid dictatorial methods, continually in danger of dissolution into antagonistic regional units?"8 The inability of the authors of the "internationalist approach" to understand value and the functioning of market mechanisms is also revealed by their monetary theories. Again we find the idea that a currency system should be so constructed that its units may be used by planners as the "universal, reliable, stable, and unchanging measures of length and weight."9 Or it is implied that the gold standard can give stable value to money only if national monetary authorities deliberately disregard its rules, i.e. pursue a policy of economic nationalism! Finally, Lawley points to the Milhaud plan as a magic formula which makes money altogether unnecessary. But of course, Milhaud's clearing system only seemingly avoids the fundamental problem of international monetary adjustment. If his bons d'achat are not to be convertible, we have ordinary bilateralism which works also without this device. If, on the other hand, a country is allowed to use its earned bons for the settlement of its debts in a third country, then the various national bons must either be officially defined in terms of each other, or their price must be left free. In other words, we have a system of stable or fluctuating exchange rates. If, now, some countries continuously buy more from the outside world than they are able to sell to it—because, by definition, these transactions are not allowed to upset their economic equilibrium —the price of their bons d'achat will either depreciate with respect to those of other countries or, beyond a certain point, the creditor countries will be unwilling to accumulate more of these bons which will be comparable to a "soft" currency. Two possibilities are open to these debtor countries: they can bring their house in order by reestablishing a direct link between their national economic policies and the requirements of international equilibrium, or they can abandon convertibility and resort to trade controls and bilateralism. The official devaluation of their bons is no lasting solution if it is not combined with one set of the just-mentioned measures. Thus, there exists no loophole by which one could escape the fundamental choice between a multilateral economic order

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on the one hand, resting on the principle of communicating vessels, i.e. free enterprise and coordinating mechanisms based on the private ownership of the means of production, and a system of hermetically closed economic units on the other, between which economic intercourse is subjected to political control. This dilemma could only be circumvented by bringing the whole world under a unified central control. But this would mean the replacement of international order by international domination; the world authority would still be faced with those fundamental economic problems which have formed the main subject of this study. But let us return to the "internationalist approach." Besides those already referred to, it has another basic weakness which, in fact, dooms the whole literature on this subject to a theoretical exercise in socialist economics. Since world planning implies the handing over of economic decision-making from the competence of national to that of international bodies, it cannot possibly be achieved as long as the majority of national states is still founded on a liberal economic order, that is, as long as this decision-making is invested in the individual citizen and does not, therefore, belong to the public sphere. Governments can alienate sovereign rights only to the extent to which they really possess them. This was clearly recognized by the authors under review who consistently postulated the collectivization of national economies as a sine qua non for world planning. THE "EXPLOSIVE EFFECT OF COLLECTIVISM"

Thus, the first step toward a future international socialist community was conceived as the coexistence of collectivist states planning their mutual trade and granting each other "political prices" (Bettelheim). The superiority of the final goal seemed to be so convincing that no tears were shed as to the disintegrating effect which these discriminatory trade policies—and the institution of collectivism itself—were bound to have on the hitherto existing international order. The latter was, anyway, along with capitalism itself, doomed to destruction. The final goal itself has been described, with minor variations, by all socialists alike. Most authors considered an inter-

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national federation freely entered into by socialist states as the intermediary stage preceding the eventual fusion of the latter into a unified world system. Does this theory represent a way out of that state of group anarchism which we have found to be typical for a world composed of collectivist states? Our analysis has shown that this is impossible, at least as far as force is excluded as a factor to attain the desired goal. This is so because of the "explosive effect of collectivism" (Röpke): "On whatever geographical scale the free market economy is being replaced by collectivism and dirigisme, the fusion of economic process and government sovereignty will always set a political and economic barrier between these spheres of command and the rest of the world. This maximum degree of concentration toward the interior will always be at the expense of disintegration towards the exterior, in the precise sense that payments and market community (convertibility and multilateralism) is destroyed which made the once-existing genuine world economy, in spite of everything, appear as a mere geographical extension of the integration which prevailed within the national economies. The sphere in which the compulsory control of the economic process takes place must be identical with the sovereign political unit where authority enforces its economic plan. So much the deeper yawns the cleft which separates this order-cell from the other political monads. In short: since within the sovereign sphere of command, only a single plan and not the competition of different regional plans can be tolerated, the placing of the economy under official control means an extreme 'concentration of power'—accompanied by the break-up of the next highest communities."10 This explosive effect becomes already apparent at the lowest scale: "If, within a nation, a collectivist body is organized on a regional level, it must disrupt the national body."11 In the same way, collectivism is incompatible with federalism and regional or communal self-administration, "since in the case of collectivism from below the lower political bodies (cantons, provinces, states) destroy the central authority and in the case of collectivism from above, the central authority stifles its members."12 Röpke calls the paradox of national socialism the sharp contrast which exists between "the internationalistic ideology from

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which socialism has taken its beginning" and "the practice of collectivist foreign economic policy which with compelling rigor must try to keep away from the national planned economy all disturbing effects from outside which escape its grasp and to preserve it in its centrally determined compactness."13 To it corresponds the paradox of international socialism: since "economic planning, which, by its very nature, implies a radical political direction of the economy, always presupposes a state in which the threads of the planning and directive force meet, it can only extend as far as the sovereign political power extends."14 Thus, economic integration along collectivist lines means, as we have seen, the handing over of the control over national resources (le droit à la richesse), hitherto exercised by national governments, to a supranational collectivist state. Some members of the different national "new classes" will perhaps rise to power positions in the central organs of the enlarged state; but the great majority of them will be degraded to mere order ~receivers and transmitters from above, just as the hitherto sovereign country will sink to a mere province whose economic welfare will depend exclusively upon the judgments of a distant government, centralized to the utmost. The task of this government will be to equalize living standards and to plan the economic process according to the requirements of "international social justice." We have already seen the disastrous consequences of this policy. It can therefore be concluded that for once, the interests of the governing circles and the citizens of each country15 will be identical in firmly resisting the abandonment of national economic power to a collectivist superstate. The wider the difference between the levels of economic development attained by the various "integrating" countries, the stronger will be their resistance against fusion. Hence, the demand for the creation of a collectivist world state on federal lines must be regarded as Utopian. WHO WHOM?

Orthodox Marxists will at once concede that nothing can indeed be expected either from international organizations (with "bourgeois" majorities), or from "nationalistic," even

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though collectivist, governments. The one elementary force which will be the decisive factor in accomplishing the task set to it by history is the international working class, united and led to the final goal by its "conscious expression," the Communist Party. In the days prior to World War I, there in fact seemed to exist a unified international proletariat, symbolized by the Second International. Its leaders periodically met to discuss and elaborate a uniform line of policy for "Social Democracy." And one of the burning problems was the national question, that is, the role of sovereign states and the fate of national minorities in a future socialist order. Three possible ways were open to a socialist policy of nationalities and all three were embodied in a different "theory." There was, first, the Polish position, represented by Rosa Luxemburg, which reduced states and nationalities alike to cultural and language units and wished to hand over both economic and political power (the latter was asserted to lose its significance under socialism!) directly to a world agency.16 Secondly, the Austrian O. Bauer came out for the effective realization of the right of self-determination in that he was prepared to grant cultural as well as economic-political autonomy to whatever people or local group desired to form an independent state. Finally, Lenin, faithful to Marxist doctrine, considered national states, such as they actually existed, as the historically given and therefore "necessary" political units, the fundament on which the proletariat was to build its power. But as soon as this last-mentioned development is admitted —and this is, as will be recalled, the essence of Marxism—one can no longer speak of "Social Democracy" as representing the world proletariat. Instead, there are national parties representing national working classes. "Socialist internationalism" only exists to the extent that the leaders of these national movements succeed in reaching agreement on a unified international policy. This is exactly what was attempted within the Second International; the fundamental antinomy between the national interests of socialist parties and the international solidarity of all workers did not appear until shortly before the outbreak of World War I. The German Socialists' voting for the war credits in the Reichstag brought an end to the illusion of international

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socialism in the sense of an overriding community of interests shared by the world's working classes. The establishment in Russia of "the first stable Socialist Republic in the World" marked the decisive turn in the development of socialism from wishful thinking to political reality. This Republic was not created by the unanimous vote or even a majority of the Russian population, nor, at that, by the Russian proletariat itself. It was introduced by the Vanguard Party claiming to speak for this proletariat even though the latter had not yet awakened "to conscious life and struggle" (Lenin). To bring this about was one of the very tasks of this party. It drew its justification from historical materialism. With this political event, "the international obligations of the working class of Russia" were "coming to the forefront with particular force."17 They found their embodiment in the Communist International set up in Moscow in 1919. Its aim was the overthrow of capitalism all over the world and its replacement by the dictatorship of the proletariat.18 Such are the principles on which the actions of this body were to be based: The experience of the victorious dictatorship of the proletariat in Russia has clearly shown even to those who are unable to think . . . that absolute centralization and the strictest discipline of the proletariat are one of the fundamental conditions for victory over the bourgeoisie.19

And: the Communist Party "alone is capable of leading the proletariat in the most ruthless, decisive, and final struggle against all the forces of capitalism."20 But, since each state has its own, separate communist organization, the question arises: which of these parties is to lead the movement, which is to be at the top of the centralized pyramid and is to issue, therefrom, its directives to "the proletariat"? Or, to put it differently: who is to command and who is to obey? Lenin stresses the decisive importance of "the correctness of the political leadership exercised by this vanguard . . . the correctness of its political strategy and tactics" and thereby decides this question. Which leadership could be more "correct" and experienced than the one which had already fought out a victorious revolution and had established the first Socialist Republic? Thus, it is clear: it is the Russian proletariat, or rather the

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Russian Communist Party, which is to assume the unquestioned leadership of the world proletariat. International socialism is revived again, but no longer on the basis of equality among the different national parties, as manifested in democratic votes. The Third International was "uncompromisingly hostile to the social-chauvinist traitors and to the vacillators of the 'Centre'."21 What was to replace democratic equality was the principle of subordination to the absolute leadership of a national Communist Party.22 But since the same party had identified itself with the Soviet Russian government, it became increasingly difficult to distinguish between those policies which were to promote the international class struggle and those which were to serve the specific national interests of the U.S.S.R. After World War II, the development of socialism as a political reality entered into a new phase. It was characterized by the establishment of communist regimes in numerous Eastern European and later also Asian countries. Consequently, "the question of the relationships between socialist countries, between workers parties, between democratic movements . . . has imposed itself with all its force."23 This problem could, for political as well as psychological reasons, no longer be solved in the ruthless manner in which Stalin had attended to the question of national minorities within the Soviet Union itself. In this new situation, Leninist doctrine provided only two rather vague statements which were to guide the relations between the Soviet Union and the newly created socialist states: on the one hand, "the real interest of a people cannot be . . . , under socialism, in contradiction to the interest of the other peoples";24 on the other, there was to be a "close military and economic alliance" between them, made imperative by the common enemy: capitalism. The way in which these formulas were applied in practice was disclosed in a pamphlet from the pen of M. Djilas (then still a prominent leader of the Yugoslav Communist Party), published as an official document of the Yugoslav government after Stalin's break with this country in 1948. Djilas wrote: It goes without saying that Lenin could not foresee, in all its details, the concrete forms which would be assumed by the relationships between Socialist States. . . . Still less could he foresee that the first country where the proletariat would seize power would also be the one which

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wanted to impose on the new socialist States relationships based on inequality. . . . How, for example, could Lenin have imagined that the U.S.S.R., through the expedient of mixed societies and numerous other means, would extort super-profits from Rumania, Bulgaria, Hungary, etc., and would exploit weak and retarded socialist countries, noisily referring to all this as "assistance?"25

The Soviet leaders, Djilas continues, refuse to admit differences in the way to build socialism in each country. Instead, the government of the U.S.S.R. has passed from the position of internationalism to that of nationalism. It was the first to introduce into the relationships between socialist States the principles of capitalistic trade (the dollar as a basis of exchanges among socialist States, and as a principle: sell your worst merchandise as dearly as possible, and buy, what is best, as cheaply as possible), a principle which inevitably, by the very force of economic laws, results in the realization of super-profits and in the exploitation of those who are weak and little advanced by those who are strong and advanced. Such economic relationships serve also as a model for political relationships; in socialist States, those regimes must be supported which, for the sake of 'international,' "higher' ideals, agree to the inequality of rights and to the exploitation of their country. In this way, docile and vassal governments and countries are created instead of free and equal socialist countries. . . . The methods of imperialist exploitation did not fail to engender imperialistic political methods which are well known to us (calumny, espionage, border provocations, assassination, and arrests of innocent persons who did not approve of such a "policy" and of such methods: the control of all State activities of the socialist countries by the intelligence service of the U.S.S.R., the creation of secret factions in the various communist parties in order to control the line which they follow, the assemblies which they hold, and their leaders; black propaganda aimed at the conditions and difficulties of the various countries and going so far as threatening occupation, the utilization of the international struggle for peace to intimidate the various socialist countries and workers parties . . .). It is on this basis that the hypocritical relationships between the communists of the U.S.S.R. and the communists of the other parties and even between communists within a same party were formed.26

CONCLUSIONS

This passage, quoted from a then leading Marxist ideologist speaking for a small socialist country, both proves and illustrates what has been said in the last paragraph and, in fact, what necessarily follows from this whole analysis. These consequences do not arise from a particular "maliciousness," to use Marxist

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terminology, of the leaders of a dominating power; they assert themselves because the principle of subordination, politically as well as economically, is the necessary concomitant of the collectivist system. In the meantime, socialist reality has entered a fourth phase with the rise of Continental China to a second dominant power. Two "solar systems" are emerging within the socialist camp. But at the same time, some smaller socialist states make use of this new constellation by increasing their freedom of action. They can do so by "autonomously" extending their economic (and political) relations with capitalist countries. The final outcome of these developments as well as of the great contest between the two fundamental conceptions of economic and political order must as yet be awaited.

NOTES TO CHAPTER X 1. 2. 3. 4. 5. 6. 7.

8. 9. 10. 11. 12. 13. 14. 15.

Seep. 73. See p. 74. See p. 77. Robbins, L., Economic PL·nning and International Order. London, Macmillan, 1937, p. 214. Ibid. Hayek, F. A., "Grundtatsachen des Fortschritts." ORDO, IX (1957), pp. 19-42. "If today some nations can rise in a few decades to a standard of material comfort which the West needed hundreds, even thousands of years to attain, is it not evident that their way, far from being made more difficult, was facilitated by the fact that the West was not compelled to share its material successes with the rest; that it was not retained, but able to progress far ahead? The countries of the West are not only wealthier because they have advanced technical knowledge, but they also have greater advanced technical knowledge because they are wealthier. And the gratuitous gift of knowledge, for which the leaders paid dearly, enables the successors to reach the same level with far fewer sacrifices." Ibid., pp. 32-33. Robbins, L., op. cit., p. 218. See p. 78. Röpke, W., International Order and Economic Integration, p. 98, italics original. Ibid. Ibid., p. 99. Ibid., p. 100. Ibid., p. 105. This applies even to the most backward countries, which, according to socialist doctrine, would only gain by a fusion. No nationalist development planner, as we have seen, would agree of his own accord to renounce an autonomous economic policy and to place "world welfare" above national welfare.

228 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER In its essence, Rosa Luxemburg's doctrine is thus identical with that of the Saint-Simonian school. Lenin, V. I., The Tasks of the Proletariat in Our Revolution (1917). In Selected Works, Vol. X, p. 3. Cf. Lenin, V. I., The Third International and Its PL·ce in History (1919). Ibid., p. 31. Lenin, V. I., One of the Fundamental Conditions for the Success of the Bolsheviks. Ibid., pp. 60-61. Lenin, V. I., Theses of the Fundamental Tasks of the Second Congress of the Communist International (1920). Ibid., p. 165. Lenin, V. I., The Third International and Its PL·ce in History. Ibid., p. 13. This resulted in a split, in most countries, between socialists ("communists") who were prepared to accept this absolute leadership from Moscow and those who were not ("constitutional socialists"). Djilas, M., Lénine et Us rapports entre états socialistes. Le Livre Yougoslave, 1949, p. 10. Ibid., p. 24. Ibid., p. 18. Ibid., pp. 74-76.

PART III THE TEST BY PRACTICAL EXPERIENCE

INTRODUCTION

In this concluding part we will examine the reality of collectivist international economic intercourse. It would, of course, far exceed the scope of this study to deal exhaustively with the by now very numerous instances of (more or less) centrally planned economies conducting foreign trade relations. Thus, we shall set aside the international economic consequences of western war and postwar planning as well as the day-to-day problems faced by underdeveloped countries that are organized along socialist lines. Also enough literature exists on the nature of German external economic relations during the period of National Socialism—although no more illuminative example can be found for studying the intimate connection between collectivism and bilateralism. We shall focus our attention on the diverse aspects of economic cooperation among those countries which claim to have realized, within their borders, a truly socialist (that is, Marxist/Leninist) economic order and thereby to have laid the foundation for universal peace, brotherhood, and proletarian internationalism. It is recalled that Stalin spoke rejoicingly of the emergence of two parallel world markets as the most significant postwar result. Since, up to 1917, there had only been one international economic order—that based on individual enterprise—Stalin's statement clearly implies that the "two separate world markets" are governed by different and obviously not intercommunicating principles. What, then, is the basis on which are founded the economic relationships between the socialist countries east of the Elbe? What criteria determine the activities of their organized expression, the Council of Mutual Economic Aid (abbreviated by its initials C.M.E.A. or referred to as "Comecon") ?

CHAPTER XI

THE "SOCIALIST WORLD MARKET' As has been shown in the course of this study, no system of international economic cooperation can be fully grasped without a thorough understanding of the workings of its constituting parts, that is, of each internal national economy. We, therefore, begin with a brief outline of Soviet planning methods; methods which were also adopted by the Eastern European countries soon after the Communist parties there arrived at power following the victories of the Red Army in 1945. After a short historical digression on the development of mutual international economic intercourse between the C.M.E.A. countries, we will analyze the fundamental problems connected with this intercourse. In doing so, we will endeavor to draw on as many Eastern European sources as possible. Finally, a word will be said on the effects of the examined problems and policies on EastWest trade. THE SOVIET SYSTEM OF ECONOMIC PLANNING: A SHORT SURVEY

The following aspects characterize the foundations of Russia's planned economy, as Lenin had envisaged them: (1) utmost centralization of economic decision making; (2) loyal and accurate implementation of this plan by the masses, which is to be achieved by their awakening to "socialist consciousness"; (3) the proper use of accounting and control in everyday economic operations. These three aspects, in fact, conceal the fundamental and hitherto unsolved problems of Soviet-type economies. The first

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major difficulty is the organization of a well-oiled, nationwide machinery that receives, elaborates, and passes on orders and controls their proper execution at the various subordinate levels. Secondly, the question arises of how to induce individuals, especially enterprise managers, to comply with plan prescriptions (the problem of incentives). Finally, one is faced with the basic issue regarding the rationality of the entire economic process. The Main Aspects of Centralized Decision Making and the Problem of Constructing an Efficient Administrative Hierarchy The often-repeated cardinal goal of Soviet planning is the rapid development of the U.S.S.R.'s economy based on the consciously planned growth of her productive forces.1 The Leninist maxim of building up large-scale industry was, as Stalin saw it, not a sufficient measure for achieving this purpose: The core of industrialization, its very basis, consists of the development of heavy industry (fuel, metal, etc.), and of the expansion, as a last resort, of the output of the means of production of our own engineering.2

The priority accorded to the development of heavy industry has repeatedly been reaffirmed as the dominant feature of Soviet economic policy.3 It reveals a second important aspect of socialist planning: the drive for autarky.4 Its implication is clear: the country's economic life is to be separated from that of the rest of the world; industrialization is to be achieved by the efforts and privations of the "toiling masses" alone. Furthermore, the promised ultimate end of this industrialization, the rise of living standards, is to be attained only after the completion of long and therefore costly roundabout processes of production. Hence, these methods require considerably more investments than if an outright increase in the output of consumer goods was the goal. However, such methods directly contribute to the consolidation and expansion of the power of that body which claims to speak on behalf of the proletariat: the Communist Party. This body has assumed the exclusive right to dispose of the nation's riches, that is, of those commodities which are not consumed in any given period. It is only natural that its representatives have a strong predilection for steadily raising the share of investment goods in national income, most particu-

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larly of those products which are deemed indispensable for the "defense capacity of the U.S.S.R." Nevertheless, it is an ever recurring theme of propaganda that under socialism, "the complete concordance of social requirements with the interests of the individual toilers and collectives constitutes the most important propelling force of our economic and social development."5 Thus, Soviet-type decision making at the top, based on Lenin's principle of "democratic centralism," is a relatively simple affair. It represents, to say it again, a single system built on the basis of the strictest subordination of lower units to the direction and control of superior agencies, the decisions of which are binding.6

It is one will, that of the supreme leader of the Communist Party, or perhaps, in more recent times, a majority within its highest ranks, that decides autonomously on the major lines of national resource use. It is this will which determines the basic structure of the Soviet economy. Once the basic goals are thus formulated, the corresponding instructions are passed on to Gosplan (the U.S.S.R.'s central planning office). This agency then works out a comprehensive and consistent plan for the national economy, covering usually seven years.7 But here some of the real problems become apparent. At this juncture, they are of a twofold character. Soon after 1917, the leading Party and state officials could not but realize that to plan and control all of their country's economic activities was a venture which far exceeded the capacity of their restricted number. Some of their powers, therefore, had to be delegated to subordinate agencies. One of the basic and still unsolved problems is the determination of the proper degree to which economic power is to be divided and of the kind of hierarchical structure which best corresponds to it. "It was through continued modifications in economic organization, mostly described by Western authors as a fluctuation between centralization and decentralization, that the correct organizational form was to be detected."8 The centralized character of economic decision making was, of course, not to be impaired by these experiments; yet, difficulties have kept arising from the subordinate agencies'

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attempts to expand their competence at the expense of the center. Earlier, the Soviet planning and control apparatus embraced a varying number of industrial ministries situated in Moscow. These ministries exercised their functions through local branch offices (glavki). In 1957, they were replaced by regional economic councils (sovnarkhoz); henceforward, industrial units were administered by these local authorities independently of their specific fields of activity. Through this reorganization, Khrushchev proposed to combat the unfavorable effects of "departmentalism"—only to replace it by a new, no less harmful phenomenon: "local patriotism." The second main set of problems is connected with the transcription of the general economic directives, as issued by the highest Party and state organs, into concrete plan targets on every level of fulfillment. The method used is that of physical planning. On the basis of past statistical information, input norms ("transformation coefficients") are calculated which provide the data for the establishment of material balances.9 Since the system of equations underlying these quantitative balances cannot be solved simultaneously, planning begins with the compilation of balances for materials considered especially important ("funded" or "centrally planned" goods), and only gradually extends to all inputs and outputs. As these calculations are underway, enterprises are expected to communicate their latest achievements. Theoretically, these figures, properly elaborated by the intermediary agencies, must reach the central planning office in time for it to take account of them in the final version of the plan. In practice, however, this stream of information becomes obstructed at different levels of the organizational hierarchy so that, at the decisive point in time, Gosplan disposes only of incomplete statistical data. This fact, along with the very method of drawing up material balances, results in disequilibria between supplies and requirements and in the problem of "secondary effects."10 Under these circumstances, even the most conscientious planners could not possibly avoid grave inconsistencies. The actual procedures adopted, most frequently consisting of the transference of supplies from the consumption to the investment goods sector, tend, in their arbitrariness, to increase these imbalances. Consequently, the

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"planning principle" alone is unable to fulfill even the task of quantitative allocation and distribution of materials. It is for this reason that money prices continue to play a major role. This important problem will presently be treated in greater detail. But still other difficulties arise from the Soviet planning system. Deficient coordination of partial plans is one of them: The Gosplan department that establishes the plan for the most important items for sovnarkhoz and the enterprise is not at all interested in either prime costs or profitability. Ask the head expert of the department in which firm this or that production can be executed more cheaply. He has no idea of it. Another department, which is not much concerned with money values, draws up the gross production plan. A third section, departing from the principle that prime costs are to be lowered continually and labor productivity is to be raised, plans the targets concerning prime costs, the number of staff to be employed, and the wage fund. Stocks of materials and intermediary products are planned by numerous other departments. But there is no Gosplan department responsible for the coordination of these plan tasks.11

Frequent plan changes give additional reasons for complaint: Constant changes of plans (since the beginning of the year the planning organs made more than 250 changes affecting the Moscow industry relative to the volume of production, the items to be produced, and the supply of commodities) disarrange the normal work of enterprises.12

At the same time, managers and local economic councils are suffering from an excessive rigidity of plans; they do not possess the right of altering central prescriptions according to suddenly arising economic requirements. This difficulty becomes all the more serious if it is remembered that plans are prepared for a period of seven years and that the targets are laid down months or even years before the plan is put into operation. The Foundations of Soviet Managerial Behavior We have reached the second nodal point at which, in a centrally planned economy, the orders issued from above are received by the lowest units of the pyramid. Establishments are organized, in the U.S.S.R. on a so-called independent basis: their output (quantity, quality, and assortment) as well as their

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inputs are prescribed by the plan; but the corresponding delivery contracts are concluded among the firms themselves at centrally fixed prices. Payments are made exclusively through bank accounts held with the local branch of the state bank which sees to it that they meet the requirements of the plan.13 Each enterprise keeps its own bookkeeping accounts; the difference between its prime costs and sales prices appears as its planned profits (or planned loss) to be paid to (or covered by) the state budget. The Soviet government, keen on rapid industrial growth, was not slow to perceive that in order to stimulate individual effort, it had to introduce a highly differentiated system of wages and premiums. Besides a basic, but usually insufficient salary, the administrative personnel of an enterprise receive bonuses in varying proportions to the fulfillment and overfulfìllment of the input, output, and profitability plans, the main stress being laid on the fulfillment of quantitative production targets. This system of extra rewards provides the decisive parameter for managerial behavior. Its significance grows in positive correlation to the deficiencies and even contradictions of the central plan. What are the practical implications? Since the premium rises progressively with the rate of overfulfillment, thefirmis interested in low plan targets. It will continually tend to balance the gains to be derived from all too favorable production results against the risk of the superior authorities' raising, based on this performance, its plan targets for the next period. As regards its input demands, the enterprise, concerned with assuring its plan fulfillment, tends to ask for more investment and intermediary material allowances than it actually needs. In doing so, it must take into account, on the one hand, Gosplan's opposite policy of cutting down input requirements and, on the other, the fact that it will be hard enough to procure the needed commodities even though their allocation to the firm has been centrally approved. Managerial behavior in this respect cannot be fully understood without a fundamental notion of Soviet price policy. According to official theory, "commodity production" (in the Marxist sense) is retained only in the consumer goods sector. It was held "that in the sphere of socialist state property the law of value no longer operated. And since, in essence, we believed

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that the prices of production goods were subject to no laws at a l l . . . , a considerable percentage of them did not even express prime costs—they were subsidized prices."14 Thus, input prices were (and are) far from reflecting relative scarcities; they therefore play a very subordinate role in the enterprises' activities. As the author just quoted observes: "the material incentives connected with the firm's performance frequently encouraged enterprise activities which were opposed to the interests of the national economy."15 Since, e.g., production goals are often prescribed in quantitative terms, more premiums can be earned by simply increasing the weight of the goods produced. The consequent scarcity of important materials throughout the economy and the centrally devised system of bonuses which causes enterprises to be interested only to a very limited extent in plan fulfillment with respect to profitability, quality, and the stipulated date of delivery, time and again interrupt the smooth functioning of the planned machinery. In their attempt to counteract these unfavorable effects, enterprises accumulate hidden reserves and attempt to control production phases preceding their own. This phenomenon also prevails in the Eastern European countries. "The situation is such," writes the official Hungarian newspaper, that due to the peculiarities of our price system and the system of stimulation, the advantages accruing to the national economy from specialization show up as losses for the production enterprises and vice-versa; plant autarky leads, in the enterprise accounts, to a lowering of prime costs. According to common sense, however, it should be impossible to compete, as regards costs, with a specialized plant. As things are, it is not surprising that our enterprises pursue autarky and manufacture everything themselves, down to the screw.16

The same autarkic tendencies were observable, prior to 1957, in the different ministries which all endeavored, as far as possible, to extract their own fuel and process their own basic materials. Khrushchev's reforms were unable to alter this basic trend in Soviet-type economies, since trade dependence continues to be a risky affair under conditions referred to in Western literature as a sellers' market. As long as the deficiencies of central planning methods prevail and the managers' "socialist consciousness" falls short of the desired standard, the officials of

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economic councils, themselves endeavoring to maximize their bonuses, cannot be expected to act otherwise with respect to their regions than did their predecessors with respect to their branches. The Problem of Economic Rationality "Can this be called state planning? This is nothing but chaos, it is the cheating of the Party and the state!"17 This angry exclamation was made in Moscow at the 22nd Party Congress in 1961. Something was felt to be fundamentally wrong. What was it? And who was responsible? Stalin's economic policy was characterized by the absence of any theoretical model elaborated for a centrally planned economy. It was an attempt "to solve theoretical problems by administrative decrees."18 Nor was economic research encouraged or even permitted since this would have necessarily led to a critical examination of the specific economic structure created by the almighty dictator. However, with the growing complexity of the Soviet economy and the social changes entailed in this development, and as the practical implications of central planning became more evident, it was realized that mere accounting on the enterprise level was not sufficient for ensuring the rationality of economic conduct. Economists increasingly came to perceive the vital necessity, also for a socialist economy, of a rational price system. The ensuing debate centered around the problem of what was to be the proper basis from which to calculate planned profit and hence to form prices: should it represent a certain percentage of total prime costs including the input price of materials purchased by the firm? In such a system, generally adopted in the Eastern European countries, "of two products of equal value [always in the Marxist sense, E.T.], that commodity appears to command a higher price which contains more materials, i.e. which, in its earlier production phases, has passed through more enterprises. The resulting divergence of price relations from value relations is economically senseless."19 As against this method of price determination, orthodox Marxists come out for planned profits to be computed onto the value

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added by each enterprise (i.e. wages and amortization). And a third group of authors favors the inclusion, into the "price basis," of some sort of interest.20 Some advocate the introduction of world market prices, and still others recommend models based on input-output calculations and mathematical programming to arrive at a price system that is optimal from the planner's point of view. Attention is also given to the problem of flexibility versus stability of prices. An Eastern European author writes: economic and technical changes at home and abroad make it necessary "that prices follow as closely as possible those objective conditions which they are to reflect, i.e. that prices be of maximum elasticity. But this is only one side of the medal. There are weighty arguments also for stability.... It is easier to understand and evaluate the information contained in prices, it is easier to plan, to assign tasks, and to control their execution."21 Prices that are too elastic introduce an element of insecurity into the planned system; a medium position must therefore be found: "we aim at stability as long as this is meaningful, and we are flexible if this is necessary for rational decisions."22 Most of these proposals aim at abolishing the hitherto existing dual price system, that is, at establishing, through uniform prices for all sectors of the economy, a direct profitability link between the production of investment and the production of consumption goods. Yet, it is affirmed that even a carefully chosen price basis and a corresponding price system cannot operate satisfactorily unless it conforms to the planning, controlling, etc. system, in short to all the other elements of our economic mechanism.23

It can be seen that these price discussions must find their limit where they touch the foundations of the Soviet economic system (systemkonstituierender Bereich2*), characterized as it is by the unrestricted domination of the economy by the Communist Party. Nor is the political principle of the priority accorded to the development of heavy industry to be subjected to any criticism (zielkonstituierender Bereich25), although "the Soviet leadership seems to have recognized that the one-sided preference of heavy industry has become, at the present stage of Soviet economic development, an impediment to a high

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growth rate of the general economy which continues to be one of its goals."26 Hence, economic research must be restricted to the problem of increasing the efficiency of that relatively subordinate sphere of activity (instrumentaler Bereich27) which is concerned with the execution of the central plan. However, it lies in the nature of things that economists are led, by their investigations, beyond the problem of improving certain efficiency indices: Even ideally constructed indices give nothing by themselves. It is not indices that matter, but the system of linking enterprises with the national economy, the planning methods, the evaluation of and reward for the performance of productive collectives.28

Whereas J. Libermann wishes to combine the strengthening of central planning with "decentralized" enterprise activity, some Polish economists, headed by O. Lange, advocate price fixing by the state on the basis of marginal costs (i.e. of the variable production costs of the least efficient producer). There is even a group demanding "that all commodity prices should be determined on the market by the interplay of supply and demand which would ensure their proportionality with production costs."29 But how would such a system be compatible with central planning and the particular preferences of the Communist Party? Clearly, the Eastern European economists are faced with an insoluble dilemma. As to the practical results of the price discussion, L. Maizenberg summarizes them as follows: We have not yet agreed on a method of determining the socially necessary outlays on the production of goods.30

NATIONAL PLANNING, INTERNATIONAL SOLIDARITY AND THE COUNCIL OF MUTUAL ECONOMIC AID

To what extent does Stalin's statement31 on the nature of the socialist world market correspond with the domestic economic characteristics created by himself and his followers? In this section, we confine ourselves to describing briefly the evolution of foreign trade relations between Comecon countries and to recording some general observations made by Eastern European authors concerning this evolution. In the next sec-

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tion, the specific problems connected with the international economic intercourse of centrally planned economies will be discussed. The Initial Years Characterized by an Autarkic Industrial Development within Each Country After the Russian victories in Eastern Europe in 1945, the Communist parties in this area prepared the ground for taking over full power at the appropriate moment. By the late 1940's, they were firmly established in the government of each "people's democracy," and it seemed only natural to their leaders to look to the first socialist power of the world for guidance and help in building up a socialist economy in their own countries.32 This meant a policy of forced industrialization with the emphasis placed on the development of heavy industry.33 Yet, the small, predominantly agrarian countries failed to dispose of the vast natural resources on which the Soviet government could rely. This policy, which aimed at the rapid development of nearly all branches of production in all countries, without considering their comparative advantage or any other criterion of economic rationality, left little scope for extensive international exchange. Moreover, the inherent rigidities of domestic planning soon appearing also in these countries, accompanied by a general shortage of the same, essential commodities all over the "socialist camp," increased the party officials' preference for home resources. By the adoption of Soviet rules of industrialization, the Eastern European economies were closely tied to that of the U.S.S.R. which became both their principal supplier of raw materials and their chief "customer." "The Soviet objective of more energy and more machinery seems to have been little more than the amassing of goods needed for reinvestment and defense. If there was further rationalization of duplicating this pattern, it was doubtless that eventual exports of these products to the U.S.S.R. would contribute to its cycle of accumulation. Shipments of primary materials were less in demand because the Soviet endowments of minerals (other than fuel), and of manpower for their extraction, were considered adequate, and

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because no food imports were required by the Soviet consumption plans."34 The serious disproportionalities resulting from this policy had disastrous consequences on the internal economies of each country affected; consequences which, a few years later, were depicted in most vivid colors by the Communist spokesmen themselves. Must, therefore, the foundation of the Council of Mutual Economic Aid in 1949 not be regarded as the expression of the Communist party's determination to place the international economic intercourse of their countries on foundations more akin to proletarian internationalism? When looking at the first communique with its stress on national sovereignty and equality, one is tempted to answer this question in the affirmative. The impartial observer, familiar with the general facts and trends of economic cooperation on both sides of the Iron Curtain, however, will be surprised to read, in the same declaration, about "the dictatorship of the Marshall Plan" and its alleged disrespect of national sovereignty and national economic interests. Could it not be that Moscow, concerned about the success of the Organization of European Economic Cooperation and the attraction that this body might exercise on the Eastern European countries, was creating new institutional ties by which to attach these states more closely to its own orbit? Considering the international tensions prevailing at that time, I. Ágoston concluded "that the creation of the Council of Mutual Economic Aid was motivated more by political than by economic reasons."35 As to the emphasis on sovereignty, "the Soviet government did not then see this formula as a potential obstacle to group action. In its relations with Comecon governments it was de facto as much at the head of a centralist administration as de jure within its own frontiers. Inside the U.S.S.R., the exercise of Union-Republican sovereignty in any restrictive or preemptive sense was held to be impossible."36 Until 1954, intra-bloc economic relations remained substantially unchanged. Each country was anxious to fulfill its "trade" obligations vis-à-vis the Soviet Union;37 but such bilateral treaties as existed between the people's democracies themselves were only partially executed. Under an economic system where all governments were in bad need of the same materials and products and where trade dependence could

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make things only worse, it was considered safest to stick to one's own resources—no matter how high the costs for such a policy might be in terms of general welfare. "The theoretical justification of national autarky in the socialist economic system was based on the idea that the combination of the Marxian theory of labor value with the fundamental law of socialism: proportional and planned development which necessarily implies industrialization, was only possible within the framework of a 8 closed economy.""38 Attempts at Closer Cooperation within Comecon by Plan Coordination After Stalin's death, numerous facts and problems hitherto ignored made their pressing appearance. The internal economic situation39 in each people's democracy had deteriorated to a point where the Communist parties saw themselves compelled to abandon, for a short interval to be sure, the forced development of heavy industry. The economic senselessness of national autarky became evident to everyone: it was to be replaced by a policy aiming at the autarky of the whole C.M.E.A. group. What form was this new socialist international division of labor to assume? Obviously, it was to be strictly planned. But a choice had to be made between the two fundamental alternatives: either the whole area was henceforward to be governed by one single plan, or economic sovereignty was to be retained and national plans correspondingly "harmonized" by mutual negotiations within Comecon. The second alternative was adopted, the method of "multilateral plan coordination," described by R. Noetel as follows: "Multilateral cooperation within this group means unanimous decisions of the member states directly interested in all matters of coordination concerning production and foreign trade plans for one year, five years, or fifteen years, i.e. the consideration of each country's plans, their possibilities of specialization and large-scale production, their natural resources and, in principle, their production costs. It means the subsequent incorporation of these unanimous decisions into the national plans of the same duration with respect to production and commerce

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and, finally, it means commercial agreements concluded between governments and commercial arrangements on the enterprise level within a framework always restricted to pairs of member states."*0 From 1956 onward, it was decided, as a reaction to the successful establishment of the Common Market, to strengthen the Council of Mutual Economic Aid by the creation of numerous specialized subagencies. These subagencies sometimes succeeded in reducing waste by distributing productive tasks according to excessive capacities already in existence, or by recommending specialization in certain types of products, thereby furthering large-scale production. However, whenever these recommendations entailed deep-going modifications in the economic structure of member countries (an effect which became unavoidable in view of the very similar internal economic setups inherited from the Stalin era), they lost much of their appeal. This is not surprising since these changes involved either (1) new investments, the funds for which a planning office could only raise by withdrawing them from other uses estimated at least as important from the national point of view, (2) the conversion of enterprises to new production programs (a measure fiercely resisted by the managers), or (3) the outright scrapping of plants, the erection of which had cost heavy sacrifices to the national economy. In addition, national plans can more easily be coordinated in theory than in practice. The following passage, quoted again from the official Hungarian party newspaper, gives an idea of the actual difficulties involved: We have just elaborated our development plan for 20 years for metallurgical industry. Since the consumer industries failed to communicate to us any information regarding their future requirements, we were obliged to base ourselves, when preparing the 20-year plan, on the earlier consumption trends of the industries of transformation as well as on the data of world statistics. It is self-evident that this procedure contains numerous sources of error. It would be urgent to undertake a systematic study of the national economy's requirements in view of the fact that investments in metallurgical industry and the evolution of this branch are, for a long period, determining the production possibilities of the mechanical industry.41

It is clear that these defects must have serious consequences

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when it comes to the fulfillment of international agreements based on these long-term plans. "If the other member countries have, in their turn, drawn up their plans with error margins of similar dimensions—and chances are high that this be the case —the practical value of the international coordination of these plans, as considered from their fulfillment side, must be negligible."42 Furthermore, despite the progress made in the appreciation of international trade, there was no intention of casting overboard the "fundamental economic law of socialism." Thus, the Eastern European Communist parties, assembled in Moscow in 1958, issued a communique43 demanding the rapid development of production of all raw and basic industrial materials in all member countries, without regard to costs. Similarly, the Basic Principles of Comecon, published in 1962, states that international plan coordination must combine the socialization of production with the complex (diversified) development of each member country in order to assure in it the most rational utilization of economic and natural resources, including labor reserves.44

Special stress is being laid on the separate development, in each country, of the mechanical, and more recently also of the chemical, industries. Hence, inter-product specialization between Comecon members has made relatively little progress; international cooperation is usually restricted to the exchange of complementary commodities within the same branch and raw materials not (or not sufficiently) available on a country's own territory.45 The U.S.S.R.'s own attitude was, for once, little suited to serve as a model for the smaller C.M.E.A. states' economic policy. "The Soviet Union would commit its exports under planned trade, but reserved to itself the production of a full profile of outputs. The attitude that Comecon was something essentially for the other parties was tacitly reflected in the press."46 At the same time, however, it continued to hold its key position in the smaller Eastern European countries' foreign trade. "When one refers to the cooperation perspectives within C.M.E.A. in the fields of petroleum, cotton, and others, one continues, as a matter of fact, to speak of cooperation taking place

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mainly between the Soviet Union as supplier and the other 4 countries as buyers.""47 Soviet Proposals for a Central Comecon Planning Agency In 1962, Nikita Khrushchev implied in an article a possible reversal of Soviet autarkic policy: International specialization is advantageous not only to small countries, but also to such large states as the Soviet Union. . . . The Soviet Union is even prepared to reduce its output of some kinds of manufactures if it proves more expedient to produce them in other C.M.E.A. countries.48

This concession to socialist international division of labor was, however, linked with the proposal that the Council of Mutual Economic Aid should establish "a unified planning organ, empowered to compile common plans and to decide organizational matters."49 The same subject was also discussed by International Affairs (Moscow) exactly at the time when the Khrushchev article was published: The economic laws inherent in Socialism rule out any development of the Socialist countries as a mosaic, as tight, separate national entities. Already, the resources at the disposal of the Socialist countries must be used in the most rational way, a fact which underlies the coordination of their long-term national economic plans, itself an important step toward the consolidation of the world Socialist system of economy into a single whole. . . . As their respective economic levels even off and the economic barriers between them are erased, increasing importance will attach to the rational planned distribution of means and resources in the common interest.50

And the author concludes that, from 1970 onward, there will be a much greater tendency to draw up a single national-economic plan for the whole system.51

Underlying these reform plans was the argument that the immobility of national productive resources can be overcome only by withdrawing them from the economic sovereignty of the member states and placing them under a "higher" form of "international" ownership. Ágoston comments: "According to the Soviet conception, the common plan signifies at the same

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time a federation among states. In such an event, the fate of the people's democracies could well resemble what the federal states or economic regions are at present in the U.S.S.R. and there would no longer be question of international collaboration or integration. The entire problem would become the internal affair of a supranational state."52 Despite official propaganda assertions, however, national and bloc interests do not converge. As an Hungarian author expressed it: The main problem consists of the fact that national interests and the economic conceptions of each country fail automatically to coincide with the interests of the rest. In fact, due to differences in the levels of development inherited from capitalism, the contradiction between national and common interests almost necessarily appears.53

Here we touch upon the crucial point of a dispute which was conducted "between those who sought maximum efficiency within the group, thus largely concentrating output on existing producers, and those—notably Rumania—who would postpone that aim until all members had reached roughly similar levels of industrialization."54 The theory advanced by an East German author to the effect that "active industrialization," i.e. the development of heavy industry, was to be reserved to countries disposing of the necessary economic prerequisites for such a policy, whereas the others should raise labor productivity through the expansion of agriculture ("passive industrialization"), was rejected by the latter group as un-Marxist. But the "gradual removal of historical differences in the economic development levels of socialist countries," one of the C.M.E.A. aims laid down in the Basic Principles, cannot be efficiently and rapidly achieved unless the relatively richer countries place capital at the disposal of their less advanced brother-nations. Yet, as we have already seen, no socialist country has any resources to spare, and no affirmation of proletarian internationalism can make up for or alter this fundamental feature. Hence, the less developed nations in the socialist bloc must basically rely on their own resources, a practice openly approved by the Basic Principles. This circumstance certainly does not hasten the equalization of development levels. It is these countries which, for good reasons, offer the most severe

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resistance against any attempt to cut short this vicious circle by supranational planning. Thus, a Rumanian economic journal replied to a Moscow professor having suggested a detailed study of the location of the new big industrial projects in the lower Danube region, bearing in mind the interests of the whole of the world socialist economy as well as the most efficient development of the entire territorial production complex of the lower Danube55 as follows: Is it necessary again to remind the author that two-thirds of the territory to which he refers is an integral part of the territory of the Rumanian People's Republic, an independent and sovereign socialist state? On this territory nobody has anything to study, neither in detail, nor in lesser detail, without authorization from the Rumanian government, for both the efficient use of resources and the location of objectives, as well as any other problems, big or small, are of the exclusive competence of the Rumanian government and people. The Rumanian regions in the "district" of the lower Danube are developing within the framework of, and according to, the interests of Rumania's national economy and this is the sole way in which their resources may serve the interests of strengthening socialism as a world system, interests to which schemes of the kind we are now discussing cannot but cause serious prejudice. . . . The more projects of this kind are made in the name of deepening economic cooperation between member countries of the Council of Mutual Economic Assistance, the less public opinion will understand the relation between these proposals and the basic principles on which C.M.E.A. is founded.56 The same journal takes a stand against the "possibility and utility of the seasonal and permanent migration of the population between various socialist countries"57 by asserting that This notion of the international "migration" of the population is incompatible with socialism.58 To conclude, the Rumanian and other Eastern European countries' successful defense of their national and economic sovereignty led to a tacit abandonment of Khrushchev's proposals for a Comecon planning agency in 1963, a victory which can only be understood within the context of the sharpening SinoSoviet dispute. The return to the coordination of long-term economic plans as "the basic method of operation of the C.M.E.A.," however, meant the continuance of resource immobility and of

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the set of unsolved problems relative to international specialization within the socialist camp. The "Dialectical" Contradiction between the International Character of Socialist Production and the National Ownership of the Means of Production The struggle between Eastern European nationalism and what may be called Soviet internationalism became a fundamental reality of "socialist cooperation," a reality which neither the organs of Comecon, nor even the spokesmen of the different Communist parties themselves, could pass over any longer in silence. Though the underlying problems are viewed, as is to be expected, from the tenets of dialectical materialism, it is not without interest to quote some recent passages on this subject. "The socialist economy" writes a leading Soviet expert on Comecon affairs, is the result of the interaction of two progressive tendencies: in the first place the tendency of strengthening its national economy, its independence and sovereignty, and secondly the tendency toward an increasing rapproachment of the socialist countries, toward their cooperation of production and toward a mutual exchange of their experiences59 in the building of socialism. . . . However, overestimation of one side of this twofold process and underestimation of the other creates serious difficulties for the development of cooperation between socialist countries.60 An Hungarian author comments: In the present phase of development of the socialist world economy, increasingly extensive international economic relations are conducted by historically conditioned national economies which are characterized by a separate ownership of the means of production and by socialist economic planning; they determine, independently and according to their own estimates, the use to be made of the natural and economic resources in their ownership as well as of the results of their economic efforts. . . . The separateness of ownership and the national economic objectives founded on national sovereignty do not coincide in all cases with the objective requirements of planned cooperation arising from their mutual economic dependence and from their interlaced plans of reproduction.61 And T. Kiss, the author of an Hungarian textbook on the Council of Mutual Economic Aid, speaks of a ("nonantagonistic" to be sure)

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contradiction between the internationalization of production and the state character of economic pL·nning.62

How is this contradiction to be resolved? Most authors can offer nothing more precise than the statement that state planners must strike a "fair" balance between their own national interests and a C.M.E.A. optimum based on the development requirements of the whole bloc. But this dialectic interaction between nationalism and internationalism received a rather wide interpretation at the Rumanian Party Congress in July, 1965. E. Bodnaras pointed out that the socialist order warrants the most suitable conditions for the all-around development of the nation, the display of its creative power and capacities, the socialist state being the main guarantor of this development. The nation as an historical formation is far from being out-dated; it is only in socialism that it finds the preconditions to fully assert and maintain itself, the precondition to make use of its entire capacity. The independence and sovereignty of the nation and of the socialist state are thus objectively founded postulates.63

And N. Ceausescu, the First Secretary of the Rumanian Communist Party, added: The ways and means by which each party solves its tasks cannot be the subject of discussions. It is the exclusive right of each party to elaborate independently its political line as well as the forms and methods of its activity and to determine the objectives by creatively applying the general truths to the concrete conditions of its country, and contributing in this way to the enrichment of the stock of common revolutionary ideas and of the common revolutionary experiences.64

It thus becomes clear that behind the "nonantagonistic contradiction" between socialist nationalism and internationalism lurks the basic antinomy between national autarky and international central planning. The stand which each author—or, at that, each country—takes in this vital matter is revealed by the emphasis given to one or the other side of the "twofold process." As to those who still seem sincerely to believe in the "balanced" approach, one of their representatives summarizes the actual difficulties involved as follows: In practice, the creation of productive structures which are of opti-

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mal efficiency with respect to the community can only be achieved if the relative advantages and disadvantages arising from such structural modifications can be satisfactorily balanced or compensated for each participant. .. . We must, above all, mention the problem that the organizational state (the cooperational mechanism of the socialist world economy and even its backbone, the C.M.E.A.) is not sufficiently developed to measure exactly in value terms (efficiency) the actual effects of the satisfaction of the different requirements from the viewpoint of the member countries as a whole. Without this, however, it is impossible to ascertain either the real extent of relative advantages and disadvantages arising from cooperation, or their equalization, nor can the absolute amount of secondary results be calculated and duly distributed. . . . This circumstance not only restricts the conscious implementation of the requirements of planned and proportional development in the economic intercourse of socialist countries, but also prevents the recognition of the objective character of these requirements.85

The author is touching here the cardinal problems of socialist international economic cooperation which will now be examined in more detail. T H E BASIC PROBLEMS OF SOCIALIST INTERNATIONAL ECONOMIC INTERCOURSE

"While C.M.E.A. was busy with production specialization, it has failed to elaborate the concrete principles of socialist international division of labor."68 It is thus openly admitted that the allocation of productive tasks to member countries by Comecon, notwithstanding the fact that it was based on "multilateral agreement," took place essentially according to arbitrary lines. Admittedly, even within a national economy, planners do not "see clearly"67 when prescribing goals and allocation resources. All the problems and difficulties described in the first section of this chapter make themselves felt even more pressingly in international economic relations. What then are the pertinent problems? They refer to three major issues relevant to foreign trade operations. In the first place, we must again deal with organizational matters, now concerning the domestic foreign trade apparatus of each country. Secondly, the central theme of value and efficiency will occupy us again. Thirdly, the problems connected with international payments will be analyzed.

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The Effects of the Foreign Trade "Mechanism" Operating in Each C.M.E.A. Country The Hungarian situation, not very different from that prevailing in the other C.M.E.A. countries, is characterized by A. Rába in his article on "Export and Economic Mechanism"88 as follows: "The problem . . . consists of the fact that production and realization are economically separated. . . . No economic contact comes into being between the producing enterprise and the foreign customer and this is not only because of the intervention of the foreign trade company, but also because of the interference of the whole system of central instructions. This system is not built on material incentives channeling the performances of both the foreign trade and the producing enterprise . . . into a favorable direction.. .. "In our country . . . , the producing enterprise's goal of activity does not point toward realization and the satisfaction of needs, but toward production itself, more exactly .. . toward the fulfillment of the directives which prescribe bindingly and minutely the quantity to be produced. But not only is the volume of production (and in many cases also the assortment and quality ) fixed for the enterprise; the rhythm of production and commodity prices are also centrally determined. . . . The commodity listed in the export plan goes to the foreign trade enterprise. Just as the producing enterprise is obliged to produce the goods prescribed by the plan, so the foreign trade enterprise is under obligation to accept them. The producing enterprise is thus not basically concerned with selling problems: its assignment is production, the selling being done by the foreign trade enterprise. "This concatenation of directives and prescriptions strongly limits the enterprises' scope of action. Its consequences are detrimental from numerous points of view: a) The industrial enterprise aims at drawing up and having accepted a production program which, given its production capacities, it can fulfill with minimum effort. It therefore refuses to disclose all its reserves to the planning authorities and endeavors to achieve 'security,' all the more so since the fulfillment of its plans depends on

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numerous factors (allocation of materials, the amount of foreign exchange available for imports, deliveries from cooperating partners, quality of purchased inputs) which are outside its control. As a result of these uncertainties—and since our entire economic system neither encourages nor even enables enterprises to take risks— the enterprises' plan suggestions as regards quantity, assortment, etc., fall behind the optimum and fail sufficiently to reflect market demand as communicated to them by the foreign trade companies. The final plan targets are the result of a compromise between the loose' (in the above sense) enterprise plan suggestions and the 'stretching' demands of the central planning authorities. b) Industrial enterprises 'fight' for obtaining more input allocations than absolutely necessary. . . . This tendency probably—and it has been proved in many cases—leads to the uneconomic use of scarce productive resources. c) Whereas an enterprise producing export goods is sheltered by the greater or lesser security conferred on it by the 'sellers' market' prevailing at home, the foreign trade enterprise has to face the uncertainties of the 'buyers' market' abroad. The foreign trade enterprise . . . itself plans cautiously since, on the one hand, it is at the mercy of the producing enterprise and since, on the other, it attempts to protect itself from the risks connected with market fluctuations and because it reckons with the 'stretching' demands of the central planning authorities. d) As a result of these circumstances, planned production for foreign trade is generally unable to take into due consideration the qualitative, technical, etc., requirements of the various markets. The risk of losing a market fails to affect—apart from exceptional cases—the producing enterprises. And as regards the foreign trade enterprises, they are exclusively concerned with the fulfillment of their own plan indices and are therefore frequently indifferent to the real conditions of production. e) Finally, it must be mentioned that our system of economic direction breaks down export activities into short

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periods covering one year. . . . This rigid subdivision interrupts the continuance of economic activity. Enterprises are obliged to adjust their delivery contracts to the one-year plans. Input orders must be given in advance of the plan (even if orders from the foreign customer have not come in yet) because later on the plants run the risk of no longer receiving their raw materials in time. Furthermore, these one-year arrangements . . . also restrict market and technical research, activities the results of which become effective . . . only in the long run." All these detrimental effects, Rába continues, are aggravated by the separation of internal prices from those prevailing outside the national economy. "The producer delivers an article made for export to the foreign trade enterprise at essentially the same (fixed) price which he would have received from a home user. But since export production generally requires more effort at the same prices, the producing enterprise often feels exports to be burdensome. .. . The foreign sales price is independent of the home price received by the producer: the system of price equalization causes the latter to be indifferent to the effects of the obtainable foreign exchange price. This provides also one of the elements which contribute to the 'sheltering' of the producer from the demand conditions and value judgments prevailing on the foreign market."69 The price equalization account is credited for all net gains in foreign transactions and is conversely charged for net losses, foreign prices being converted at the official exchange rate. Usually, the account shows a deficit which is financed by the state budget. The extent to which foreign trade has been subsidized by the state (and hence lastly by the consumers) is illustrated by the following figures for East Germany:. 770

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Price Equalization Account—Annual Deficits (billions of Ost Mark) 1950 1951 1952 1953 1954 1955 1956

0.960 1.521 1.428 2.029 3.548 3.822 3.918

A further difficulty lies in the slow functioning of the foreign trade apparatus itself. New ideas and proposals referring to changed market requirements must be submitted for approval to no less than three government agencies: the competent commission of the foreign trade monopoly; the national planning bureau; and the Ministry of Finance. By the time the document is returned, duly signed and approved, the market has probably changed and calls for new adjustments. Reform proposals, therefore, necessarily focus on the problem of how to integrate organically the nation's foreign trade activities within the framework of the general plan. They are almost inevitably reduced to the demand for a greater independence of both the producing and the foreign trade enterprises. Some interesting innovations were recently introduced in Czechoslovakia: their goal is a closer and branch-wide cooperation between the two. The system of premiums is changed so as to interest the producing enterprises in foreign trade results.The latter are even to participate, in proportion to their performance, in the foreign exchange earnings (not converted into national currency!) of their products. At a later stage of this reform it is intended to establish a direct connection between foreign and home prices.71 The results of these measures are as yet to be felt. In some other Eastern European countries, certain producing enterprises possess the "right of autonomous exportation," but only with respect to the capitalist market. The "independent" delivery contracts concluded by them are subject to the approval of the foreign trade monopoly and no foreign exchange funds are placed at their disposal.

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The Need for an Objective Measure of Profitability for International Economic Transactions We now come to the crucial issue of socialist international economic cooperation: the problem concerning the economic rationality of foreign trade transactions. "International economic relations between socialist states mainly materialize in the form of an exchange of commodities."72 What commodities are to be exchanged? What lines of production are to be "given" for specialization to what countries? Obviously, these questions cannot rationally be decided in the absence of an objective measure for home costs, a measure which, as we have seen, is lacking in the Eastern European economies. As things are, the following method is still used for the determination of exports and imports: "The national 'material balances' exhibit a surplus of one product and a deficit of another, and these become respectively the export availability and the import requirement."73 Until very recently, these surpluses and deficits were readjusted according to an "efficiency index" relating foreign exchange receipts to the foreign exchange price of imported inputs incorporated in a reviewed commodity. This procedure naturally encouraged the export of goods containing as few imported raw materials and as much home labor as possible, thereby leading to a substantial waste of scarce domestic labor and other resources. Yet, it also occurred that, when the state felt itself to be in urgent need of foreign exchange, just any available commodity was exported, no matter how "efficient" this transaction was. It could thus happen, Hungarian authors relate,74 that some of these commodities were sold abroad for less than had been spent on their import contents! Almost every issue of economic journals and periodicals that have been published in the Comecon countries during the last few years contains the ever more pressing demand for a price system correctly reflecting home costs. The various and often contradictory proposals advanced for this purpose as well as the ideological taboos connected with this problem have already been presented. The persistent deficiences of the price system have led a growing number of economists to elaborate efficiency indices intended to serve as a secondary tool for the assessment of eco-

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nomic rationality. It is impossible to describe here even the major index constructions proposed or to discuss the problems involved in them.75 It must suffice to quote, for the sake of illustration, some Polish figures indicating the home costs in zloties (the Polish monetary unit) necessary to produce 1 ruble's worth of foreign exchange with regard to the following commodities:76 Hard coal Brown coal Tinplate Electrolytic zinc Carbide Calcined soda Coke

2 1 3.5 3.5 12.5 14.0 5.8

Coal derivatives Cement Cotton and silk fabric Woolen fabrics Sugar Molasses Tinned ham

6.1 21.0 50.0 11.0 11.9 4.4 1.5

Average efficiency value of all items analyzed: 4.0 Average excluding hard coal: 7.1 Official exchange rate: 1 zloty=l ruble. The efficiency index used for the calculation of these values is expressed by the following formula: p

where

"wp ¯ a 2

W p =domestic costs in zloties, in a given phase of production aj a2

= t h e zloty-value of all inputs which have been used in production and which command a world market value =same as a l5 but at their foreign exchange value

P ^ =world market price of the commodity. The wide variations of the above figures ranging from 50 for cotton and silk fabric to 1 for brown coal, show that the commodities traded by Poland have very different "foreign trade efficiences." It is not difficult to perceive, moreover, that these indices can only demonstrate which exports (or imports) are more

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rational than others. They provide no information as to a country's foreign trade optimum. But these constructions have further serious defects. It is impossible to avoid calculating with home costs (W p in the above formula). But "costs generally do not express the value of products." Hence, "it is entirely correct to deduct from expenses the total amount of planned profits accumulated in each product in very different proportions77 and to reconvert the expenses for imported materials into foreign exchange in order to arrive at real prime costs. However, when making the calculations in practice, it is very easy to forget that even the real prime costs reflect only part of the export products' value."78 Another Hungarian author therefore observes: The calculations of indices is extremely complex and the indices are static; their elaboration requires a relatively long time and it thus frequently occurs that the newly elaborated economic indices have already become obsolete. In addition, these calculations fail to embrace all export commodities and are covering only a small percentage of imports.79

Yet, even the limited information conveyed by these indices fails to be translated into practice: During the last years, no considerable improvement has occurred in the efficiency of either our exports or of the structure of our import-replacing products; the results with respect to the utilization of the advantages accruing to us from both our participation in the socialist international division of labor and our economic intercourse with capitalist countries have remained unsatisfactory.80

This is so because the observance of the results of efficiency calculations, however limited their use may be, would clearly interfere with the discretionary power of the highest state authorities in the same way as an improved price system would do. This interference is all the more rejected by the party organs because it lies in the nature of these procedures that they tend to be progressively applied to the vital questions of the national economy as a whole. For example, the first authors to have proposed efficiency calculations in the Eastern bloc could not begin their article without the observation that the efficiency of production as a method is subordinate to the class struggle for the victory of socialism; thus, the economic requirements regarding

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the safeguarding of national independence, the predominance of the socialist forms of production, the consolidation of political power and, finally, the raising of the social and cultural level, have to be made to prevail at the expense of efficiency.81

Yet, in the very same article, the authors raise the ominous question: what place is the national economy to occupy in the international division of labor? and make it unmistakably clear that the autarkic policy hitherto pursued had catastrophic results for the entire economy. Some years later, T. Liska suggests going back to "the really given, on principle unchangeable, data at the time of planning"82 and, based on these realities, "to calculate, with the help of linear programming, the main [macroeconomic, E.T.] proportions themselves which at present are approximated by estimates."83 And he reaches the weighty conclusion: The increase of the investment share and the additional accumulation achieved thereby can only be justified by a more rapid increase in the living standard, attained within a foreseeable time. . . . With an adequate price system, even the enterprises and branches of the producers' goods industry can show the degree to which they have contributed to the consumptive fund.84

However, for the time being, it is still the Communist Party and it alone which determines the major proportions of the national economy. Its decisions are not founded on any objective measure of scarcity, on consumers' preferences, or on international requirements. But since every Party has somewhat different ideas on how best to develop its national economy and since there exist no common principles of socialist pricing, the various national price lists are inadequate for the comparison of international values. Under these circumstances, it is impossible to conceive of a unified monetary system governing the Comecon area. It is impossible even to establish a rational link between the different national currencies by means of a realistic exchange rate: In our foreign trade system, there is at present no direct connection between the exchange rate, price relations, and the development of international economic relations. . . . Numerous economists in the socialist countries hold the view that under socialism, the exchange rate is inde-

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pendent not only of the balance of payments, but also of the relative price levels prevailing in the different countries and on the world market.85

According to this conception, the determination of the exchange rate is no economic activity, and it is therefore economically irrelevant at which level the state fixes it.86

As a result of this theory, it is impossible to answer one of the most important questions regarding the extension of international division of labor, viz. what production or what foreign trade commodity structures are promoting the saving of social labor and the rise of productivity in the various countries.87

In the last few years, increasing attention has been devoted, in the C.M.E.A. countries, to the problems connected with the determination of a calculative exchange rate. Exchange rates can theoretically be determined in accordance with (1) gold parities; (2) purchasing power parity; and (3) the amount of foreign exchange earned by a unit of traded commodities. As regards the first alternative, all Eastern European countries have, indeed, defined their currencies in terms of gold. However, "the fact that all currencies of the Eastern bloc simply lack the preconditions for convertibility into dollars or another hard currency precludes any direct link with gold . . . and hence the fixing of a realistic gold parity."88 Etschmann speaks in this respect of a pure farce, devised to give an apparently solid foundation to communist monetary policies in the eyes of foreigners as well as those of the unexperienced citizen. All Western and most Eastern authors agree that these rates are strongly overvalued and therefore without any use for assessing foreign trade profitability. Referring to the second alternative, K. Pécsi writes: Since the exchange rate is dependent on the price system, it is necessary, in order to give it economic content and allow it to express price relations correctly, to approximate the price systems and mechanisms of socialist countries, to abolish, in essence, the dual price system, etc.89

But he adds: In the absence of these necessary prerequisites, it is as yet impossible to establish a uniform exchange rate able to serve the purposes of eco-

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nomic analysis, to supply a criterion for investment cooperation and, for the products of joint enterprises, to examine foreign trade efficiency and to provide the basis for international clearing.90

Noetel sees, it is true, in the ruble devaluation of January 1, 1961, "the application of the principle of comparing the purchasing power of producers' prices in the Soviet Union expressed by the purchasing power of world market prices."91 But, he continues: "This change . . . has of course no direct influence on the decisions relative to any export or import transaction."92 There thus remains only the third alternative for arriving at a more realistic exchange rate. The great majority of economists agrees to the necessity of departing from the Forint93 costs of "producing" (by way of exports) the various foreign currencies. There is also agreement on the principle that the exchange rate must be at least as high as to enable inland prices for imports to cover the inland costs of the offsetting exports. . . . Opinions differ as to . . . whether (1) the basis of the exchange rate is to be the average ratio of foreign exchange earnings or whether (2) it is to be determined at the upper limits of the expenses incurred for foreign exchange production.94

The author quoted favors an exchange rate to be fixed according to the "expenses incurred in the production of the least efficient tenth or fifth of the exports necessary to keep the balance of payments in equilibrium."95 He admits, however, "that it would be very difficult, on the basis of our present statistics, to ascertain the average exchange rate of these export ranges according to the various foreign currencies."96 And one of his colleagues observes: One cannot identify the G-index [i.e. Forint/Dollar, E.T.] of the least efficient export product with the marginal exchange rate unless the present volume and composition of our exports could be regarded as optimal. Yet no one having sufficient insight into the present situation of our foreign trade could earnestly affirm this.97

Thus, no efficiency indices, however perfectly constructed, can avoid calculating with existing domestic prices and costs. Yet, it is impossible to make these prices and costs reflect relative scarcities unless a thoroughgoing economic reform is introduced; a reform which would be tantamount to the abolition

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of central planning itself. But any scientific research advancing too far in this direction cannot even be tolerated by the Communist parties in power. Hence, the arguments of Eastern European economists must turn round in a vicious circle: the deeper the latter come to understand the interdependence of economic phenomena, the more their theoretical debates will be conducted in an academic vacuum. Price Formation on the Socialist World Market: Theories and Reality Eastern European economists have, for some time, been concerned with elaborating the foundations for a unified international socialist price system. They have necessarily encountered the very same problems just analyzed. However, these discussions shed a new light on the inseparability of economic from political matters characteristic of the Comecon countries. Khrushchev's appeal "to find economic instruments to stimulate the interests of socialist countries in increasing cooperation and specialization in developing mutually advantageous trade"98 was answered by a Bulgarian proposal suggesting manhours as the basis for independent socialist prices. But, according to an East German estimate made in 1958, the index of industrial labor productivity in the Eastern European countries shows the following variations, with Czechoslovakia as base:99 Bulgaria Hungary Albania Poland

57 57 58 84

Rumania G.D.R. Czechoslovakia U.S.S.R.

99 90 100 120

Such a price system would therefore clearly disfavor exports that require a high investment share. Hence, it was rejected by the more developed C.M.E.A. partners: The use of national labor outlays as trade prices between C.M.E.A. members as a principle would make mutual advantage in the exchange of goods more difficult and would hinder the achievement of a rational international division of labor. . . . Factors influencing price relationships must also find expression in the autonomous price structure, so that such

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prices express the economic conditions of all the economies cooperating in the C.M.E.A.100

And Tálas hits the nail on the head, when he writes: The exchange of equal national labor . . . would by no means serve the optimal development of socialist productive forces; it is contrary to the real content of the cooperating states' sovereignty, let alone the fact that it represents an outright contradiction to Marx's labor value theory.101

The debate concerning an independent Comecon price basis involves, in fact, nothing less than the economic sovereignty and independence of the Council's members. It lies in the nature of socialist prices that they are not autonomously formed, but imposed from above. And since, as we have seen, there are no rational and objective guidelines for price-fixing, the entire issue becomes a question of simple power: who is to impose on whom "socialist prices" and thereby his political will? For the time being, the economic intercourse between socialist countries is based on world market prices. This is not the place to describe in detail the various methods adopted to "correct" these prices; it may just be pointed out that they directly affect the respective countries' terms of trade and are therefore subject to embittered disputes. Frequently, prices are fixed by bilateral negotiations each year so that one and the same commodity has different quotations within the Comecon area as well as through successive rounds of negotiations. International Clearing between C.M.E.A. Countries As it is impossible to arrive at an ex ante equilibrium of the "material balances," the planners are unable to foresee with precision the development of their national balance of payments. Unplanned surplus and deficits frequently arise; at the same time, each C.M.E.A. country has been under obligation to balance, at the end of each year, its trade with every other brother state taken separately. Not until 1959 were provisions introduced to ease this rigid bilateral clearing. Noetel noted "a really spectacular increase of bilateral trade"102 due to these provisions; yet the fact remains that "the system of payments

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between socialist states is characterized by pure and simple barter."103 Formally, the ruble acts as the instrument of international monetary settlement. But since it is not convertible, bilateral balances must be settled by additional commodity deliveries which, under a system of central planning, represent an additional sacrifice to the national economies affected. In view of the general shortage of capital, the C.M.E.A. members avoid granting swing credits to each other, especially since these bear only very low interest. A few triangular compensation arrrangements have occurred, but their extended use finds its limits in the deficiencies of a centrally planned and administered system. In 1963, the Comecon countries agreed to set up an International Bank of Economic Cooperation,104 which started its operations in January, 1964. Strict bilateral balancing was to be replaced by "a balance of receipts and expenditures in transferable rubles within the calendar year with all the other contracting parties as a whole."105 Also, more attention was to be given to a precise ex ante planning of balance of payments surplus and deficits and to the inclusion of such imbalances into trade agreements with third countries. Are these measures a first step toward a more general multilateral clearing within the Comecon area? True multilateral payment arrangements are impossible to achieve by an economic system in which home costs cannot objectively be assessed and where therefore a rational link between national currencies does not exist. The "transferable" ruble would fulfill the conditions of multilateralism only if all other member currencies could be defined by a single and realistic exchange rate with regard to the Soviet monetary unit (and also to each other) and if any C.M.E.A. country holding such rubles was free to buy with them whatever it desired, if not in the Comecon area as a whole, at least in the U.S.S.R. But such advantages are incompatible with the principle of national planning. International economic relations between Comecon countries will therefore continue to be forced into restrictive bilateral channels.106 And this circumstance is little altered by the fact that the new Comecon Bank is not only to provide "lubricating" commercial credits, but also is to finance joint investment projects at very low interest rates.

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Recently, a high official in the Polish Ministry of Finance, H. Kotlicki, proposed the introduction, by degrees, of ruble convertibility.107 According to this suggestion, debtor countries are to pay in gold approximately 10% of their liabilities to the Comecon Bank. This provision would, in Kotlicki's view, tend to increase both the financial discipline of Comecon countries and the quality of the products they offer to each other. However, Czechoslovak authors already warned against the consequences of such a measure which would cause the less efficient C.M.E.A. partners to shrink back from an extension of their foreign trade. Some countries may even be led into a kind of commercial "flight into the West," a nightmare which for years has haunted many Soviet economists and state officials. It is not surprising that the U.S.S.R. has openly rejected the Polish proposal. In doing so, "Moscow has apparently been concerned not only about the Soviet shares in the proposed gold coverage, but to an equal extent also about the implied East-West political-economic quintessence of the Polish convertibility suggestions— about the question relative to the control of trade in the Soviet Bloc."108 The continued survival of separate national sovereignties in a collectivist economic order thus precludes a unified international monetary system. THE PROBLEMS CONNECTED WITH EAST-WEST TRADE

The basic characteristic of a socialist economy, that is, the subjection of the economic sphere to political control, is at the bottom of all problems hitherto analyzed. It is nowhere more evident than when East-West trade is discussed. Here, two economic systems founded on entirely different principles and conceptions meet with and react to each other, one system openly proclaiming its firm determination to undermine and eventually to smash the other.109 The unfortunate Western intervention in Siberia in 1918 served as a confirmation of the theory that imperialism constituted a deadly menace to a young socialist country. It gave Stalin a welcome ideological explanation for the hardships his autarkic industrialization program imposed on the Soviet peoples. But we have already seen that autarky is an inherent fea-

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ture of a centrally planned economy. It also appears whenever the economic control of one state authority, necessarily limited regionally or branchwise, conflicts with that of another. After World War II, Western "strategic controls" of exports to the Soviet Bloc were again used as a pretext for the reorientation of the Eastern European countries' trade to fit Russian purposes. One passed over the fact in silence110 that these controls were provoked by the aggressive postwar policies of the U.S.S.R. itself. Foreign Trade Problems with C.M.E.A. Countries as Seen from the West The classical theory of international trade no longer holds for trade relations with socialist countries in which real costs cannot be assessed. Cheap sources of supply from the C.M.E.A. Bloc, therefore, do not justify a corresponding shift of resources in the Western partner states; to the extent that such changes nevertheless occur, the socialist foreign trade monopoly and through it the Foreign Ministry obtain a fruitful field for manipulating the internal market of its capitalist partners. This circumstance is of special avail in the case of Eastern large-scale orders for productive equipment. These orders usually have, via the acceleration principle, more or less far-reaching effects on the supplying country's internal economy, depending upon the latter's existing capacities. Conversely, the supply of vital commodities by Comecon countries (e.g. Russian oil) may— and is frequently intended to—lead to a dangerous economic dependence of the West. On the other hand, communist trade relations with Western countries are accompanied with increased personal contacts between the principal agents of the two systems. Such contacts tend to correct stubborn ideological prejudices. This factor and the opportunity given to Eastern European officials of forming independent judgments on the Western economic and political order constitute an important political potential for the free enterprise countries. The form under which East-West trade takes place is usually a bilateral trade agreement containing a list of goods or commodity groups to be exchanged. But this list can more

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easily be agreed upon on paper than executed in practice. On the one hand, the socialist foreign trade monopoly remains free to switch its orders from one country to another for both political and economic reasons (e.g. foreign exchange availabilities or shortages). On the other hand, no Western government can guarantee that the goods offered by the Eastern European states will provoke sufficient interest in private traders and entrepreneurs so that they will actually be imported. The problem involved in the bargaining position of the two trading partners must also be mentioned: an individual enterprise, competing with many others, is faced with a powerful state agency. Yet, as we know, the Western disadvantage is frequently offset by the rigidity of socialist demand for a specific product, a fact which has led to relatively higher prices for commodities delivered to the East. This tendency is reinforced by the restricted use which Western countries or entrepreneurs can make of a bilateral credit balance accumulated against an Eastern state. If no one can be found who is willing to acquire these sums at the agreed exchange rate, they must be disposed of on the international currency market at a disagio—a. risk which will naturally be included in the initial price calculations. This fact, and Western reluctance to grant most-favorednation treatment to the centrally planned economies, has led Eastern European economists to complain of "capitalist" trade discrimination against the exports of their countries. However, it should be remembered that the most-favored-nation clause is a device built wholly on the assumption of international trade between free market economies. It is, in fact, one of the characteristics of international economic intercourse between free market and centrally planned economies that the latter force their proper forms of cooperation on their Western partners. Thus, for instance, "it is generally known that a great part of [Western, E.T.] export industry was feeling very well under the protection of bilateral contingents."111 A number of political problems therefore arises, for the Western countries, from EastWest trade. If they do not wish to emerge as the net losers— and this question must be judged following the same method that is adopted in the socialist countries themselves, considering economic as well as political aspects—they should subject

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this trade to conscious government control and mutually harmonize their commercial policies. Foreign Trade with "Capitalist" Countries as Seen from the East Officially approved Eastern European textbooks and articles on foreign trade openly advocate self-sufficiency of the C.M.E.A. Bloc as the long-term goal of socialist economic policy. They not only refer to the alleged aggressiveness of the imperialist camp and the corresponding necessity for their countries to attain economic independence; they also point out that the "chaos" of the world market and its unpredictabilities provide a constant source of disturbance to the planned machinery of their national economies. In addition (though less emphasized), East-West trade finds itself in direct competition with the extension of the socialist international division of labor and the strengthening of Comecon.112 The conclusion is obvious: East-West trade must be reduced to a minimum. Yet it is clear that both the abundance and the variety and quality of "capitalist" goods and services have a great attraction to socialist planners, especially those from the small Comecon countries. The increase of trade with the West beyond the extent dictated by the strict necessities of the plan would bring a twofold advantage: in the first place, it would in some way rationalize at least the import side of the foreign trade of these countries since the conditions for the acquisition of these goods are objectively defined by market prices. Thus, it is reported that Rumania has been able to raise the rate and efficiency of her industrial growth by purchasing the latest Western factory equipment.113 But it will of course still be true that the country's exports are composed of those goods which are apt to find a Western buyer, whatever price they may bring, without regard to their production profitability. Secondly, this trade would lead to a loosening of the political ties by which the C.M.E.A. countries are bound to the U.S.S.R. But the smaller Eastern European governments' willingness to expand their trade with the West finds its limits not only in the distrust with which the Soviet Union views all such attempts, but also in their acute shortage of convertible curren-

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cies. Frequently, these countries' exports are unable to meet the much higher quality requirements of the Western consumer. Here, the deficiencies of the planning apparatus described above constitute a special encumbrance. This is why these states are pressing for long-term credits from their Western trade partners. The Prospects of East-West Trade What, then, are the prospects of East-West trade? A number of Western authors, among them A. Nove and F. L. Pryor, are warning against an overemphasis of the political factors by the West. They point to the increased attention that is being devoted by socialist planners to purely economic considerations and to the probability that the rise of living standards in the C.M.E.A. countries will gradually weaken the impact of communist ideology. Therefore, the West should renounce its discriminatory commercial policies and expand East-West trade which is beneficial to both parties. It is argued that the markets for Western goods lying east of the Elbe are unlimited; but that the West must also consent to buy more from these countries since otherwise no lasting trade expansion can take place. This proposal cannot be discussed in length here since this would involve a thorough examination of the deep political and social forces now at work in the C.M.E.A. Bloc. Yet, our previous analysis has yielded two results that are relevant in this context: a certain "liberalization" of scientific inquiry has, indeed, occurred. We have seen that the burning economic problems are openly discussed and that today audacious theoretical conclusions and even policy recommendations are allowed to be printed in these states—a thing unheard of in Stalin's times. However, the Communist parties in this area still adhere to the principles of Marxism-Leninism and to their unlimited power position derived from it. It is due to this fact that so little progress has been made in the realization of the economists' reform suggestions. The importance of this fact can only be grasped if one considers the enormous national economic costs that have been caused by the lack of rational value criteria, irresponsible planning, slow administration, and the drive for autarky. The

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"true representatives of the workers and of the people" do not hesitate to impose these costs on their population. In view of this unchanged fact it is to be hoped that the extension of East-West trade will go hand in hand with a concerted though carefully prepared and differentiated policy of the Western industrialized countries. SUMMARY AND CONCLUSIONS

Foreign trade, which is the principal form of socialist "integration," shows the lowest expansion rate next to agriculture in the Comecon countries' economies. Five main reasons account for this fact and conspicuously contradict the often repeated principles of socialist internationalism and brotherhood; reasons which are inherent in the political and economic system adopted by the Eastern European countries headed by the Soviet Union: (1) The absence of a rational value criterion and the corresponding impossibility of international cost and price comparisons; (2) inconsistent planning and the slow and deficient working of the administrative apparatus; (3) a system of material rewards stimulating enterprise actions which are contrary both to the interests of the national economy and to the planners' intentions; (4) a resulting drive for autarky on all levels, from the individual company up to the national planning office; (5) the obstinate survival of national sovereignty which leads, due to its enlarged internal powers, to a complete separation of national price systems. It is for these reasons that the national antagonisms inherited in this area from earlier times were unable to be tempered by socialist economic cooperation. They grew, in fact, more intense as a result of the overall competition of these countries for raw materials and favorable production assignments from the Council of Mutual Economic Aid. The number of obstacles for

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the expansion of fruitful international trade between Comecon members is increased by "the uncertainty of being able to obtain, in the narrow framework of bilateralism, the products which become the speciality of another member or to dispose of their own specialized products on the other's markets."114 Generally, international production specialization is accompanied by a price rise of the commodities agreed upon, a factor which particularly prejudices those trade partners that renounce the earlier production phases of these commodities. The "socialist world market" is characterized by resource immobility. There have been, as yet, very few instances of international lending and investment cooperation; international migrations have outright been declared as "incompatible with socialism." Here, as well as with respect to the problem of constructing a workable international monetary order, the basic contradiction of socialism again becomes apparent: socialism first concentrates economic power in the hands of a small group representing a particular "collectivity" and then expects the holders of this internally unlimited power to show a degree of self-imposed restraint in their relations with other collectivities which cannot even be found in Utopia. The manifold obstacles to international economic cooperation under collectivism can only be removed by the "internationalization" of the internal orders realized in each socialist state, that is, by the abolition of hitherto sovereign governments and the subjection of their territories to the will of a single, all-powerful superstate. Numerous proposals have been advanced for remedying the chaotic situation of domestic prices. They range from the suggestion to introduce a free market economy—with the retention, to be sure, of public ownership of the means of production—to orthodox Marxist conceptions based on the labor theory of value and the dual price system. But these debates have little affected economic practice in the C.M.E.A. countries due to the party hierarchies' determined resistance against any interference with their discretionary power. As interesting as Czechoslovakia's and Hungary's recent price reforms may be in detail, these countries' economies continue to bear the marks of this fundamental dilemma. Can it nevertheless be maintained, as it often is, that the Soviet-type economies have, in recent years, successfully ap-

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proached efficiency and rationality?. The enormous economic waste that occurred in the Stalin era due to negligence, incompetence, and total irresponsibility—a waste which is "unnecessary" even in a centrally planned economy—has certainly been reduced in the past decade. Great progress has also been made in the scientific investigation of economic laws and their general economic interdependence. Yet, the Communist parties in power are well aware that a consistent implementation of the results of this economic research would shake the foundations of the socialist economic structure. They combat the "decentralizing" tendencies within their countries just as the most powerful of them, the Communist Party of the Soviet Union, is gravely concerned about the centrifugal forces within the Comecon area dominated by it. The fundamental issue of socialist integration: the conflict between national economic sovereignty and centralized planning on a supranational level, is still unresolved. Power will have the last word in deciding this issue, a power which is decisively influenced by the political developments both within and without the Communist Bloc. These developments will also have a decisive impact on the final solution of the question as to whether the C.M.E.A. Bloc will permanently and hermetically be separated from the rest of the world or whether the victory of common sense and mutual economic advantage will lead to a true and worldwide economic integration. NOTES TO CHAPTER XI 1. This objective has, for decades, been expressed by the slogan that the Soviet Union must, within the shortest possible time, catch up with and surpass the most developed capitalist countries, especially the U.S.A. 2. Speech given in 1926, quoted in Kaser, M., Comecon. Integration Problems of the PL·nned Economies. London, Oxford University Press, 1965, p. 18. 3. E.g. in Pravda, October 19, 1961: "Heavy industry has always played and will play the leading role in expanded production. The party will continue unflaggingly to concern itself with its growth, considering this as the decisive condition for the creation of the material-technical basis for swift technical progress, as the basis for the strengthening of the defense capacity of the socialist state." 4. Stalin wrote: "The country of the dictatorship of the proletariat, in conditions of capitalist encirclement, cannot remain economically independent if it does not produce at home the instruments and means of production." Quoted in Kaser, M., op. cit., p. 18. 5. Ulbricht, W., "Die Anwendung der Leninschen Prinzipien der sozialistischen Wirtschaftsführung in der D.D.R." Wirtschaftswissenschaft, Vol. XI, No. 3,

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6. 7. 8. 9. 10. 11. 12. 13. 14.

15. 16. 17. 18. 19. 20.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER March 1964, p. 357. Cf. also Gáspár, S., "A part vezetö szerepéröl" (On the Leading Role of the Party). Társadalmi Szemle, Vol. XIX, No. 10, 1964, p. 3: The most important prerequisite of the party's leading role is its possession of those qualities by means of which it understands and formulates the interests, wishes, and aspirations of the working class and the entire working population, lays down the strategies and tactics of the struggle and is able to secure, by its organizational activities, the implementation of the policies thus determined." Italics original. Quoted from BoL·haya Sovetskaya Entisikhpedia (USSR) in Kaser, M., op. cit., p. 26. There also exist long-term "perspective plans" covering fifteen or twenty years. Knirsch, P., "Grundzüge und Perspektiven der sowjetischen Wirtschaftspolitik." Neue Zürcher Zeitung, December 24, 26, 27, and 28 (Nos. 4956, 4964, 4975, and 4987), 1961; separate reproduction, p. 6. See p. 145. Revisions in the balance of one product usually entail a wave of corrections affecting other inputs and outputs which in turn engender further revisions and so on in an almost infinite chain. Report of the Director of Omsk Tyre Factory in Pravda, October 5, 1962. Ibid., November 4, 1962. The chief function of the state bank is thus the control of managerial performance. Esze, Z,, "Érték és árvita. A szocializmus árúviszonyainak megismerése" (The Debate on Value and Prices; The Proper Understanding of Commodity Relations Under Socialism). Közgazdasági Szemle, Vol. XII, No. 4, 1965, p. 443. Since Soviet planning methods served as a model to all Eastern European countries, socialist price policy can be illustrated by the following example, published in the Polish Gaspodarska Planowa, 1960, No. 6, p. 3, relating to hard coal: Average prime Average sales costs per ton price per ton Prices covering Year (zlotìes) (zloties) costs (percent) 1950 62.14 53.22 85 1951 62.22 54.82 88 1952 73.82 57.37 78 1953 102.41 74.88 71 1954 110.86 73.45 66 1955 120.39 72.35 60 1956 163.18 128.25 79 1957 222.49 128.91 58 1958 225.26 128.84 57 1959 236.01 128.98 55 Esze, Z., loc. cit., p. 444. Népszabadság, August 31, 1962. Pravda, October 20, 1961. V. Iljitchev's speech on the 22nd Party Congress, Pravda, October 26, 1961. Esze, Z., loc. cit., p. 450. This is so because the prices of some commodities contain, for extra-economic reasons, a greater percentage of planned profit than others. That this problem is still subject to ideological dispute becomes evident from the following recently printed passage: "Does not the charge for the use of capital imply a violation of the Marxist theory of value? . . . Since the main task consists of the minimalization of labor costs, and since society disposes of

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23. 24. 25. 26. 27. 28. 29. 30. 31. 32.

33. 34. 35. 36. 37.

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its instruments—i.e. capital goods—only to a limited extent, the use of capital, considered as the reflection of the scarcity of the material factors, can be reckoned among real costs." Pirittyi, O., "Vita a szocialista árrendszerröl" (Debate on the Socialist Price System), Közgazdasági Szemle, Vol. XI, Nos. 7-8, 1964, p. 974. Balázsy, S., "További mechanizmusproblémák a külkereskedelemben" (Further Organizational Problems in Foreign Trade). Ibid., Vol. XII, No. 5, 1965, p. 587. Ibid. However, one has only to consider that the Soviet price reform, having become effective on January 1, 1965, "is the result of a preparatory work carried out since 1960 to which practically the whole economic administrative apparatus has contributed" (Haffner, F., "Die Revision der Industriepreise in der Sowjetunion zum 1. Januar 1965." Osteuropa-Wirtschaft, July 1946, p. 1) in order to get a glimpse of the practical difficulties involved in the problem of centralized price fixing. This renders Balázsy's vague statement meaningless. Esze, Z., loc. dt., p. 457. Hoehmann, H. H., "Zur Entwicklung der sowjetischen Wirtschaftslehre." Osteuropa-Wirtschaft, December, 1964, p. 11. Ibid., p. 12. Ibid., p. 13. Ibid. Libermann, J., "Plan, Profit, Premium." Paper reprinted in Pravda, September 9, 1962. Kurowski, S. J., "Rynek i plan." 1957, quoted in Machowski, H., "Die Preisdiskussion und die Industriepreisreform vom 1. Juli 1960 in Polen." OsteuropaWirtschaft, April, 1964, p. 25. Ekonomicheskaja Gazeta, March 9, 1963, translated and reprinted in "Price Policy and Theory." Problems of Economics, Vol. VI, No. 12, 1964, p. 27. See pp. 101-2. The granting of this assistance was even more "self-evident" to the Soviet government itself which was thereby correctly fulfilling its "historical role." We can read in the 1960 version of the History of the Communist Party of the Soviet Union: "The international character of the dictatorship of the proletariat gave rise to a fundamentally new, hitherto non-existent function of the Socialist State—the function of assisting other countries in the building of Socialism and of establishing international Socialist relations. . . . The path travelled by the Soviet people is the highroad of Socialist development for the working people of all countries. The main features and laws of development of the Socialist revolution and of the building of Socialism in the U.S.S.R. are not of local, specifically national, significance: they are of international importance." Quoted in Kaser, M., op. dt., p. 17. At the same time, however, de-industrialization became the fate of Eastern Germany. The large-scale dismantling of industrial facilities by the Soviet Union was estimated at 70 billion Reichsmark. Kaser, M., op. dt., p. 19. Ágoston, I., L·e marché commun communiste. Principes et pratique du COMECON. Geneva, Droz, 1964, p. 22. Kaser, M., op. dt., p. 19. Thus, during 1946-53, Poland delivered Silesian coal to the Soviet Union at a price that covered only transport costs. The total Soviet gains from this transaction are estimated at $900 million. In the years immediately following World War II, the Soviet Union also exacted reparation payments from Eastern Germany, Hungary, Rumania, and Bulgaria. In these and other states under her influence, she converted, in addition, enterprises formerly owned by Ger-

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38. 39. 40. 41.

42. 43. 44. 45.

46. 47.

48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59.

60.

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER man nationals into the so-called Mixed Companies over which she exercised exclusive control. They were not dismantled until 1954, when the Soviet shares were "bought back" against heavy sums by the respective governments. Ágoston, I., op. cit., p. 220. "The main contradiction was that in spite of the rapid growth of production, the standard of living not only failed to rise, but even declined to a certain extent." Közgazdasági Szemle, Vol. IV, No. 3, 1957. Noetel, R., "Les relations économiques de 1'Union soviétique avec les pays de l'Est européen." Revue économique et sociale, April 21, 1963, p. 83, italics added. Népszabadság, April 2, 1963. The author, S. Énekes, continues: "This study is all the more urgent as one begins at last to recognize that metallurgical products cannot be produced during decades without the modernization and improvement of their quality." Âgoston, I., op. cit., p. 113. Pravda, May 25, 1958. New Times (Moscow), 1962, No. 27. "The crucial fact of Comecon's history from its foundation to the present is that the rapid growth of its aggregate production has not been accompanied, as in other world economic groups, by a relatively more extensive international division of labor, either among its members or with the rest of the world." Kaser, M., op. cit., p. 16. Ibid. Noetel, R., loc. cit., p. 97. Cf. also Âgoston, I., op. cit., p. 163: "It is one of the characteristic aspects of cooperation within C.M.E.A. that the U.S.S.R. possesses an absolute preference right as to the purchase of investment goods and equipment produced by the people's democracies." Kommunist, August 1962. Ibid. Karkhin, G., "Socialist Community: Possibilities and Prospects." International Affairs (Moscow), August 1962, pp. 19-20. Ibid., p. 19. Ágoston, I., op. cit., p. 116. Apró, A., A szocialista országok gazdasági együttmüködése (Economic Coopation Between Socialist States). Budapest, Kossuth Könyvkiadó, 1964, p. 252. Kaser, M., op. cit., p. 121, cf. also pp. 161 seq. Valev, E., in Vestnik Moskovskogo universiteta: Seriya geografia, No. 2, 1964. Vita economica, June 12, 1964. P. Alampiev's lecture, delivered to the Fourth Congress of the Geographical Society of the U.S.S.R. in 1964. Quoted in Kaser, M., op. cit., p. 166. In fact, the organization of technical collaboration and the interchange of expertise have provided a field for successful Comecon activities. Âgoston observes, however, that the reception by one country of technical experts and elaborated projects from abroad is not always an unmixed blessing. The receiving country may see itself obliged to develop "this or that branch of industry the choice of which does not belong to itself and the economic efficiency and profitability of which may be doubtful. The resulting waste of national resources may be far greater than the gain from technical assistance." Op. cit., p. 207. Bogomolov, O., "Erfahrungen aus der wirtschaftlichen Zusammenarbeit der Lander des R. G. W." Wirtschaftswissenschaft, Vol. XII, No. 4, April, 1964, p. 535.

THE "SOCIALIST WORLD MARKET" 61. 62. 63. 64. 65. 66. 67. 68. 69. 70.

71. 72. 73. 74. 75.

76. 77.

78. 79. 80. 81. 82.

83.

277

Tálas, B., "A szocialista világgazdasági kapcsolatok néhány elméleti kérdéséhez" (Theoretical Questions Concerning Socialist Economic Relations). Közgazdasági Szemle, Vol. XI, No. 9, 1964, pp. 997-998, italics added. Kiss, T., A szocialista országok gazdaságì együttmüködése (Economic Cooperation of Socialist States). Budapest, Kossuth Kiadó, 1961, p. 129. Neue Zürcher Zeitung, No. 3104, July 24, 1965, italics original. Ibid., No. 3054, July 20, 1965, italics original. Tálas, B., loc. cit., pp. 1007-8, italics original. Kiss, T., op. cit., p. 131. Esze, Z., loc. cit., p. 444. Rába, A., "Export és gazdasági mechanizmus" (Export and Economic Mechanism). Külkereskedelem, Vol. IX, No. 7, 1965, pp. 199-201, italics original. Ibid., p. 201. Quoted from Forster, W., "Das Aussenhandelssystem und Valutamonopol der UdSSR und ihrer Satellitenstaaten," in Das Unternehmertum und die politische Gefahr der Gegenwart, Frankfurt/M., 1956, by Etschmann, R., Die Währungsund Devisenpolitik des OstbL·cks und ihre Austvirkungen auf die Wirtscha†tsbeziehungen zwischen Ost und West. Ph.D. dissertation, Bonn, Rheinische Friedrich-Wilhelms Universität, 1959, p. 37. "The New System of Foreign Trade Direction in Czechoslovakia." Külkereskedelem, Vol. IX, No. 5, 1965, pp. 142-43. Tálas, B., loc. cit., p. 999. Kaser, M., op. cit., p. 36. "Our economic system," writes a Polish author, "is an abracadabra of prices, costs, and salaries. No sage could possibly tell what is rational and what is not." Trybuna L·udu, November 18, 1956. Liska, T., and Máriás, A., "Economic Rationality and International Division of Labor." Közgazdasági Szemle, 1954, No. 1, pp. 75-94. Some types of indices show a higher export efficiency for products containing many imported materials than for those with less or no import contents. Others neglect the capital tied down in the production of a given export good. A third group only examines efficiency in the "last phase" of production, etc., etc. For a detailed analysis of these indices, cf. Ágoston, I., op. cit., pp. 233 seq. Gospodarska PL·nova, 1957, No. 2. In Hungarian economic language the term "accumulation" is used for denoting the total amount of planned profits being accumulated in each product as it passes from one enterprise to another. It is recalled that this question represents the central issue in the debate concerning socialist price reforms. Nagy, A., "A külkereskedelem optimalizálása és az ösztönzés" (The Optimization of Foreign Trade and Material Stimulation) Közgazdasági Szemle, Vol. XII, No. 2, pp. 214-15. Balázsy, S., "Termelöi árak-devizaárak-árkiegyenlítés" (Production Prices, Foreign Exchange Prices, Price Equalization). Közgazdasági Szemle, Vol. XI, No. 9, 1964, p. 1059. Nagy, A., he. cit., p. 216. Liska, T., and Máriás, A., loc cit., p. 76. I.e. the working population, land and known natural resources, productive capacities at the beginning of the planning period, the level of national income attained, and its present subdivision into consumption and investment; the known possibilities of technical progress, and the estimated interplay of supply and demand. Liska, T., "A gazdasági számítások továbbfejlesztéséért" (Toward the Further Development of Efficiency Calculations). Közgazdasági Szemle, Vol. VIII, No. 3, 1961, p. 305.

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84. Ibid. 85. 86. 87. 88. 89.

90. 91. 92. 93. 94.

95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106.

107. 108. 109.

110.

Kövér, K., "A valutaárfolyam néhány elméleti problémája a szocializmusban" (Theoretical Problems Relative to the Exchange Rate Under Socialism). Ibid., Vol. XI, Nos. 7-8, 1964, p. 919. Ibid., p. 920. Ibid., p. 921. Etschmann, R., op. cit., p. 93. Pécsi, K., "A beruházási együttmüködés néhány nemzetközi pénzügyi vonatkozása a K.G.S.T. országokban" (The International Monetary Aspects of Investment Cooperation Between the C.M.E.A. Countries). Közgazdasági Szemle, Vol. XI, No. 4, 1964, p. 430. Ibid. Noetel, R., he. cit., p. 99. Ibid. Basic unit of Hungarian currency. Balázsy, S., he. cit., p. 1062, italics original. Applied to our example on p. 250, the problem would be whether the calculative exchange rate ought to be fixed at 4, or 7.1 zloties per ruble (average index) or at 50 or some average of the least efficient items (marginal index). Balázsy, S., "További mechanizmusproblémák a kiilkereskedelemben" (Further Problems of Foreign Trade Mechanism). Közgazdasági Szemle, Vol. XII, No. 5,1965, p. 581. Ibid. Nagy, A., he. cit., p. 215. Kommunist, No. 12, 1962. Wirtscha†tswissenscha†t, No. 4, 1963, p. 553. Ibid., No. 4, 1964, pp. 601 and 608. Tálas, B., he. cit, p. 1010, italics added. Noetel, R., he. cit., p. 991. Âgoston, I., op. cit., p. 258. In fact, an international bank has already been in existence since 1957, but it remained not very effective. Birladeanu, A., in Pravda, October 25, 1963. An Eastern European C.M.E.A. expert wrote: "Polish investments in coal extraction were discouraged by the fact that it was difficult to obtain, in bilateral transactions, sufficient indispensable commodities from each of the countries that wished to purchase Pofish coal." Kiss, T., "The Effects of Economic Cooperation Between Socialist Countries on the Development of the Hungarian Economy." Társadalmi Szemle, 1958, No. 11, pp. 796-815. Neue Zürcher Zeitung, No. 3245, August 6, 1965. Ibid. We can read in the Great Soviet Encyclopedia: "The development of Soviet foreign trade is of first-rank importance for (Soviet) political relations." And the East German Secretary of Foreign Trade declared: "Foreign trade has not only the task of appreciably bettering the standard of living of our people; through its activity in the Capitalist world, foreign trade must also . . . support the peace-loving forces in these countries and strengthen them in their fight against the robbing monopolists." Both statements quoted in Pryor, F. L,, The Communist Foreign Trade System. Cambridge (Mass.), M.I.T. Press, 1963, pp. 163 and 170. A practice also adopted by not a few authors of pertinent books published outside the Communist Bloc.

THE "SOCIALIST WORLD MARKET"

279

111. Etschmann, R., op. cit., p. 110. This author also gives a detailed description of the West-German bilateral trade agreements with the Comecon countries and their practical results. In order to avoid the permanent granting of swing credits, the federal government introduced, in 1956, the restricted convertibility of the D-Mark (Beko-Mark) in order to encourage these countries to accumulate balance of trade surpluses with Western Germany. 112. "The fact that the C.M.E.A. member countries maintain their relations with the capitalist market limits, to a very large extent, the possibilities for introducing a price system which would differ too much from capitalist prices. Countries which would be placed at a disadvantage by this new system and the exports of which could obtain a better price on Western markets, would not fail to make an attempt at reorienting their trade in this direction." Ágoston, I., op. cit., p. 231. 113. Apparently, this country now disposes of sufficient workers and experts specially trained for operating and taking care of this equipment. 114. Ágoston, I., op. cit., p. 123.

CONCLUSION

The three basic approaches to the subject of this investigation have yielded identical results. They can be summarized under the following points: (1) L·ss of objective national and international value criteria; (2) politicalization of the economy, or in other words, the subjection of dominium to imperium and the nationalization of the economic process; (3) a corresponding disintegration of the international economy. The political and economic system concomitant with socialism is characterized by utmost centralization. All vital decisions are made at the top of a power pyramid by one man or by a restricted group of persons. In theory, the intermediary and lower agencies' only function consists of the faithful implementation of these decisions and orders. Underlying this conception of political and economic government is, as we have seen, the idea of a confined circle of individuals to whom, either because of their extraordinary intellectual capacity, their moral standing, or because of their advanced knowledge of the course of history, the fate of mankind must be entrusted. These aristoi should be endowed with unlimited power: only this is thought to guarantee the final victory of reason and solidarity over selfishness and inequality. But since no generally valid principle exists which would unobjectionably qualify these persons for their high responsibility, their selection, in practice, is made in accordance with their expertise in the game of power. Power therefore becomes the pivot of any socialist order. And because power, in order to be

CONCLUSION

281

efficient, must be exclusive, care must be taken that neither the will of other men or groups, nor any "spontaneous" mechanism interferes with the will of the supreme leader or group. Yet, this power is by nature limited: it is limited by a state's territory; it is also limited by the fact that the economic process of modern society demands the delegation of important competences to subordinate agencies. The latter in turn tend to develop exclusive power positions that rival both each other and the central authorities. Because, however, these various human wills clash without the intervention of an autonomous principle of order, the result is either chaos or the stern subordination of all to the will of the strongest. This alternative applies to the internal situation of collectivist states no less than to international relations between them and with free market economies. What are the reasons, in view of the logical unassailability of these arguments—and of practical experience confirming them—for the fact that most men have failed to recognize their impact, that they indeed continue to associate socialism with a true international order? In the first place, whenever traditional social relations were being broken up in the course of history, the resulting physical and psychic insecurity experienced by the masses caused them to eagerly accept prophecies for a millenium in which they would combine freedom from material worries with domination over (and punishment of) the evildoers of this world. In an ideal future, where the distinction between rich and poor and indeed all "artificial" barriers separating humanity would be abolished, it was felt to be self-evident that national border lines would be the first to disappear. And historical materialism added a new dimension to this hope: since "already" under capitalism, important strides had been made in the direction of internationalism, socialism would complete this historical process and lead to a "withering away" of the state. It is, secondly, in opposition to the interests of socialist rulers to have the conflict between these ideological assertions and actual political practice scientifically investigated. However, under the coverage of orthodox language, small Eastern European governments have tacitly abandoned Marxist-Leninist internationalism and have adopted Otto Bauer's views on autonomous nationality.

282

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

One can observe, thirdly, a marked reluctance on the part of Western intellectuals to think these matters to their end and take a definite stand. Many of them uncritically accept collectivist ideas as the most "progressive" ones; others fail to see the forest for the trees; they become confused by the countless propaganda phrases, humanitarian appeals, and arguments pro and contra socialism. Still others are deeply concerned over the defects of "capitalism" itself, especially over the rise of powerful monopolies and pressure groups which ruthlessly override the public interest as well as the legitimate cause of the small and the weak. This study has shown that socialism cannot solve these deficiencies. Furthermore, despite its internationalist aspirations, it is not capable of accomplishing stable international peace and order. If we postulate a true democracy, society is to be built not on centralization, but on federalism and decentralized decision making much as Proudhon had outlined it a century ago. But it is impossible to realize this political order without its economic counterpart: a free market economy based on competition. The demand of modern liberals for a political framework to be established and for policies to be conducted by the state to ensure a smooth national and international functioning of this economy fundamentally distinguishes itself from the recommendations of the laissez-faire protagonists. It aims at combining the individual's rightful desire for protection against undeserved blows with the maximum possible separation of dominium from imperium. Whether such a system can still be called capitalism is irrelevant; what matters alone is that the solution of today's pressing economic problems must be sought not in the undifferentiated enhancement of government power, but in a carefully planned economic policy that is "in conformity with the market." The author of this study was warned by a Western socialist professor against indiscriminately using the term socialism for the manifold shades and aspirations of this movement. He pointed out that his socialism had nothing in common with the economic and political system in force in the Eastern European countries. We do not know whether his conceptions fall under the definition of socialism underlying this investigation—the core of which is the postulate for centralized state direction of

CONCLUSION

283

the economic process. What can be affirmed with certainty is that every measure decreed by the state that represents a direct interference with the forces of supply and demand—such as price stops, import quotas, exchange control, and prohibitive tariffs—constitutes one step away not only from a free enterprise economy, but also from an integrated international economic order.

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STUDIES

Works Beer, M., Fifty Years of International Socialism. London, Allen & Unwin, 1935, 239 p. Beer, M., A History of British Socialism. London, Bell & Sons, 1920, 2 volumes. Boudin, L. B., Socialism and War. New York, New Review Publishing Association, 1916, 267 p. Bourgeat, J., P. J. Proudhon, père du socialisme français. Paris, Denoël, 1943, 277 p. Bourgeois, N., Les theories du droit international chez Proudhon. Le fédéralisme et la paix. Paris, Riviere, 1927, 138 p.

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Louis, P., La crise du socialisme mondial de L· deuxième à L· troisième internationale. Paris, Alcan, 1921, 192 p. Malon, B., Histoire du socialisme depuis les temps les plus reculés fusqu'à nos jours ou efforts des réformateurs et des revokes à trovers les ages. Paris, Derveaux, 1882-86, 6 volumes. Mandel, E., Traité d'économie marxiste. Paris, Julliard, 1962, 2 volumes. Meinecke, F., Weltbürgertum und Nationalstaat. Studien zur Genesis des deutschen Nationalstaates. 5th edition, München and Berlin, R. Oldenbourg, 1919, 539 p. Mossé, R., L'économie collectiviste. Paris, Pichon, 1939, 208 p. Muckle, F., Die grossen Sozialisten. Leipzig-Berlin, 1920, 2 volumes. Nova, F., The National-Socialist Fiihrerprinzip and Its Background in German Thought. Dissertation. Philadelphia, University of Pennsylvania, 1943, 169 p. Pareto, V., Les systèmes socialistes. Paris, Giard & Brière, 1902-3, 2 volumes. Ruyssen, T. E. C , Les sources doctrinales de I'internationalisme. Paris, Presses universitaires de France, 1954, 2 volumes.

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Libermann, J., "Plan, Profit, Premium." Paper reprinted in Pravda, September 9, 1962. Liska, T., and Máriás, A., "A gazdaságosság és a nemzetközi munkamegosztás." (Economic Efficiency and International Division of Labor.) Közgazdasági Szemle, No. 1, 1954, pp. 75-94. Liska, T., "A gazdasági számitások továbbfejlesztéséért." (Toward the Further Development of Efficiency Calculations.) Közgazdasági Szemle, Volume VIII, No. 3, March, 1961, pp. 302 seq. Maier, W., "Die Bildung einer eigenen Preisbasis." Wirtschaftswissenschaft, No. 12, 1962, pp. 1799-1814. Nagy, A., "A külkereskedelmi forgalom optimálís volumene és a gazdaságosság kritériuma." (The Optimum Volume of Foreign Trade and the Criterion of Economic Efficiency.) Közgazdasági Szemle, Volume XII, No. 1, 1965, pp. 25-40. Nagy, A., "A külkereskedelem optimalizálása és az ösztönzés." (The Optimization of Foreign Trade and Material Stimulation.) Közgazdasági Szemle, Volume XII, No. 2, 1965, pp. 204-17. Novazamsky, J., "A United Economy: the Aim of the Socialist System." Nova Mysl, October, 1962. Pécsi, K., "A beruházási együttmüködés ¤éhány nemzetközi pénzügyi vonatkozása a KGST országokban." (The International Monetary Aspects of Investment Cooperation Between the C.M.E.A. Countries.) Közgazdasági Szemle, Volume XI, No. 4,1964, pp. 423-30. Pirittyi, O., "Vita a szocialista árrendszerröl." (Debate on the Socialist Price System.) Közgazdasági Szemle, Volume XI, Nos. 7-8, 1964, pp. 973-78. Popisakoff, G., "Internationale sozialistische Arbeitsteilung und Warenaustausch zwischen den Mitgliedern des RGW." Wirtschaftswissenschaft, April, 1964, pp. 568-73. "Price Policy and Theory." Problems of Economics, Volume VI, No. 12, April 1964, pp. 26 seq. Rába, A., "Export és gazdasági mechanizmus." Export and Economic Mechanism." Külkereskedelem, Volume IX, No. 7, 1965, pp. 199-201. Révész, G., "Eszközlekötés és exportgazdasági számitás." (Calculations of Export Efficiency with Special Regard to Capital Outlays.) Közgazdasági Szemle, No. 3, 1963. Roman, Z., "Gazdasági döntések—gazdaságossági számitások." (Economic Decisions —Efficiency Calculations.) Közgazdasági Szemle, Volume XI, No. 12, 1964, pp. 1397-1410. Schmidt, A., and Schweitzer, I., "A saját árbázis egyes elvi kérdései." (Theoretical Problems of an Independent Price Basis.) Külkereskedelem, Volume VIII, No. 1, 1964, pp. 4-8. Tálas, B., "A szocialista világgazdasági kapcsolatok néhány ehnéleti kérdéséhez." (Theoretical Questions Concerning Socialist Economic Relations.) Közgazdasági Szemle, Volume XI, No. 9, 1964, pp. 997-1011. Valev, E., Vestnik Moskovskogo universiteta. Seryia geografia, No. 2, 1964. Wiesel, I., "A külkereskedelem néhány problémájáról." (Problems of Foreign Trade.) Külkereskedelem, Volume IX, No. 3, 1965, pp. 83 seq. Zhanin, W., "Problems of Equalizing the Levels of Economic Development of the Countries Forming the World Socialist System." Problems of Economics, June, 1961. Zscherpe, K., "Zu Problemen eines sozialistischen Weltmarktpreissystems." Aussenhandel, No. 12, 1961.

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Periodicals and Newspapers Quoted Gospodarska PL·nova, Poland Kommunist, Moscow Népszabadság, Hungary New Times, Moscow Pravda, Moscow Trybuna Luda, Poland,

WESTERN PUBLICATIONS

Studies Âgoston, I., Le marché commun communiste. Principes et pratique du COMECON. Geneva, Droz, 1964, 353 p. Balassa, R. L., The Hungarian Experience in Economic PL·nning. New Haven, Yale University Press, 1959, 285 p. Bergson, A., The Economics of Soviet PL·nning. New Haven, Yale University Press, 1964, 394 p. Birke, E., and Neumann, R., Die Sowjetisierung Ost-Mitteleuropas. Untersuchungen zu ihrem AbL·uf in den einzelnen Ländern. Frankfurt/M., Metzner, 1959. Boettcher, E., Die sowjetische Wirtschaftspolitik am Scheidewege. Tubingen, Mohr, 1959, 307 p. Brzezinski, Z. K., The Soviet Bloc: Unity and Conflict. Cambridge, Massachusetts, Harvard University Press, I960, 470 p. Campell, R., Soviet Economic Power. Its Organization, Growth and Challenge. Cambridge, Massachusetts, Houghton Mifflin, 1960, 209 p. Etschmann, R., Die Währungs- und Devisenpolitik des OstbL·cks und ihre Auswirkungen auf die Wirtschaftsbeziehungen zwischen Ost und West. Dissertation. Bonn, Rheinische Friedrich-Wilhelm Universität, 1959, 213 p. Goodman, E. R., The Soviet Design for a World State. New York, Columbia University Press, 1960, 512 p. Hallowell, J. E. (editor), The Soviet Satellite Nations. A Study of the New Imperialism. A Symposium. Gainesville, Florida, Kallman, 1958, 293 p. Kaser, M., Comecon. Integration Problems of the Planned Economies. London, Oxford University Press, 1965, 215 p. Kiesewetter, B., Der Ostblock. Aussenhandel des östlichen Wirtscha†tsbL·ckes einschliesslich China. Berlin, Safari, 1960, 386 p. Klinkmüller, E., and Ruban, M., Die wirtschaftliche Zusammenarbeit der Ostblockstaatten. Berlin, Duncker & Humblot, 1960, 310 p. Leemann, W. A., Capitalism, Market Socialism and Central PL·nning. Readings in Comparative Economic Systems. Boston, Houghton Mifflin, 1963, 372 p. Marczewski, J., PL·nißcation et croissance économique des démocraties popuL·ires. Paris, Presses Universitaires de France, 1956, 3 volumes. Mendershausen, H., The Terms of Soviet-Satellites Trade. A Broadened Analysis. U.S. Air Forces Project, Rand Research Memorandum RM 2507, December 29, 1959. Neuberger, E., Soviet Bloc Economic Integration. Some Suggested ExpL·nations for SL·w Progress. Santa Monica, Rand Corporation, 1963, 24 p.

298

SOCIALISM AND INTERNATIONAL ECONOMIC ORDER

Nove, A., and Donnelly, D., Trade with Communist Countries. London, Macmillan, 1960, 183 p. Pryor, F. L., The Communist Foreign Trade System. Cambridge, Massachusetts, M.I.T. Press, 1963, 296 p. Spulber, N., The Soviet Economy. Structure, Principles, Problems. New York, Norton, 1962, 311 p. Weber, A., Sowjetwirtschaft und Weltwirtschaft. Berlin, Duncker & Humblot, 1959, 292 p. Wiles, P. J. D., The Political Economy of Communism. Oxforc\ Blackwell, 1962, 404 p. Wszelaki, J. H., Communist Economic Strategy; the Role of Eastern Central Europe. Washington, National Planning Association, 1959, 132 p. Zaubermann, A., The Soviet Debate on the Law of Value and Price Formation. Berkeley, University of California, 1958, 28 p.

Articles Bornstein, M., "The Soviet Price Reform Discussion." Quarterly Journal of Economics, Volume LXXVIII, February, 1964, pp. 15-48. Ciamaga, M., "Les problèmes-clés de la cooperation économique des Etats socialistes." Annuaire politique des Affaires Internationales, 1962, pp. 37-58. Drucker, A., "Compensation Treaties Between Communist Countries." International and Comparative Law Quarterly, April, 1961, pp. 238-64. Fortier, C , "La planiflcation du réseau commercial dans les pays socialistes." Cooperation, February, 1963, pp. 19-25. Gasteyger, C. W., "Die Organisation des COMECON." Oesterreichische Osthefte, No. 5, July, 1963, pp. 267-82. Haffner, F,, "Die Revision der Industriepreise in der Sowjetunion zum 1. Januar 1965." Osteuropa-Wirtschaft, Volume IX, No. 2, July, 1964, pp. 1-24. Hoehmann, H. H., "Zur Entwicklung der sowjetischen Wirtschaftslehre." Osteuropa-Wirtschaft, Volume IX, No. 4, December, 1964, pp. 1-14. Jaster, R. S., "The Defeat of Khrushchev's Plan to Integrate Eastern Europe." World Today, Volume XIX, October, 1963, pp. 514-22. Knirsch, P., "Grundzüge und Perspektiven der sowjetischen Wirtschaftspolitik." Neue Xürcher Zeitung, Nos. 4956, 4964, 4975, 4987, December, 1961. Special edition. Machowski, H., "Die Preisdiskussion und die Industriepreisreform vom 1. Juli, 1960 in Polen." Osteuropa-Wirtschaft, Volume IX, No. 1, April, 1964, pp. 18-37. Marczewski, J., "Les conflits de souveraineté économique dans un système planifìé." L'actualité économique, No. 1, April-June, 1963, pp. 5-34. Noetel, R., "Les relations économiques de l'Union soviétique avec les pays de l'Est européen." Revue économique et sociale, Volume XXI, April 1963, pp. 77-106. Nove, A., "The Dilemma of Communism." Financial Times (Supplement), February 11, 1963, pp. 21-22. Pryor, F. L., "Foreign Trade Theory in the Communist Bloc." Soviet Studies, No. 1, July, 1962, pp. 41-61. Ramerie, L., "Tensions au sein du COMECON; le cas roumain." Politique étrangère, No. 3, 1963, pp. 249-57. Toma, V., "Rumänien zwischen Rebellion und Integration." Europa-Archiv, Volume VIII, November 10, 1963, pp. 811-18. Wolter, R., "Der Rubel am schwarzen Markt. Fiktiver und wirklicher Wert der Ostwährungen." Volkswirt, Volume XVII, October 25, 1963, pp. 2431-2432.

BIBLIOGRAPHY

299

United Nations Publications Economic Bulletin for Europe Economic Survey of Europe World Economic Survey

INDEX TO AUTHORS —A— Agad, J., 196 Agoston, I., 243, 247, 275-79 Alampiev, P., 276 Andler, C , 117 Apró, A., 276 Archer, W., 88, 90 - B Bakunin, M., 92 Balázsy, S., 275, 277, 278 Baldesi, C , 73, 76 Balfour, A. J., 73 Barone, E., 133-35 Bauer, O., 94, 147, 223, 281 Bauer, P. T., 214 Bazard, S. A., 30 Bettelheim, C , 112, 119,161, 168, 220 Birladeanu, A., 278 Bismarck, O. von, 194 Blackett, Sir B., 90 Blanc, L., 80 Bodnaras, E., 251 Bogomolov, Ó., 276 Boncour, P., 72, 89 Borkenau, F., 197 Bray, J. F., 40 Brutzkus, B., 131-32, 147 Bucharin, N., 116, 131 - C Carey, H. C , 51, 52 Ceausescu, N,, 251 Chang, S. H. M., 114 Chatterjee, I. K., 181, 197, 202, 204, 213, 214-16 Clausewitz, K. von, viii, 4 Cohen, M., 117 Cohn, N. R., 317 Cole, G. D. H., 42, 46, 90, 106, 118, 148, 157, 197 _DDickinson, H. D., 67, 88, 106, 108, 110, 111, 118, 119, 138-41, 144, 149 Djilas, M., 159, 168, 225-26, 228

—E — Edie, J. H., 78 Ellis, H., 169 Ellsworth, P. T., 214 Enekes, S., 276 Enfantin, P., 30 Engels, F., 24, 45, 62, 69, 93, 96-97, 115, 159,168, 200 Esze, Z., 274, 275, 277 Etschmann, R., 261, 278, 279 Eucken, W., 147, 163 - F Fichte, J. G., 5, 13-19, 21, 22, 23, 107, 114, 153-54, 167, 197 Forster, W., 277 Fourier, F., 24 Franq, R., 91 Frederick William I, 103 Freyer, H., 5, 6, 20, 21 Friedman, M., 181 - G Gáspár, S., 274 Gide, C., 72 Gini, L., 73 Goebbels, J., 74 Graf, A., 164, 168, 169, 197 Gurland, A. R. L., 194 Guthrie, W. B., 4, 21, 22 - H Haffner, F., 275 Hall, C., 25, 40 Hall, R. L., 90,106, 111, 118,119, 149 Halm, G., 149 Hayek, F. A., 40, 129, 138, 141, 147, 149, 181, 218, 227 Hegel, G. W. F., 44,102 Heflperin, M. A., 167, 216 Hesse, K., 215, 216 Heuss, A., 21 Heuss, E., 161, 168, 169 Hilferding, R., 48, 52-56, 57, 58, 61, 6264, 66, 87, 170, 171, 203, 206, 214, 215, 216

INDEX TO AUTHORS Hirota, L., 74 Hitler, A., 74, 147 Hobson, J. A., 53, 63, 119 Hoehmann, H. H., 275 Horace, 197 - I lljitchev, V., 274 Jaurès, J., 57, 81 Jewkes, J., 162, 168, 194, 216 Johnston, G. A., 68, 88, 90 Jouhaux, L., 71-72 -KKant, E., 4 Karkhin, G., 276 Kaser, M., 273, 274-77 Kautsky, K., 57, 60, 69, 94, 104, 115, 117 Keynes, J. M., 175-83, 192,196 Khrushchev, N. S., 235, 238, 247, 249, 263 Kiss, T., 250, 277, 278 Knirsch, P., 274 Kotlicki, H., 266 Kovér, K., 278 Kurovski, S. J., 275

301 Menger, K., 30 Michelis, G. de, 68, 76, 90 Milhaud, E., 70, 79-80, 83, 89, 90, 219 Mises, L. von, 135-37, 146, 148, 183, 197, 205 Moeller van den Bruck, A., 104, 117 More, Sir T., 10-13, 19, 21, 102, 151-52 Mossé, R., 106-10, 118, 119, 157, 161 Müller, A., 117 Myrdal, G., 181,196 - N Nagy, A., 277, 278 Nasser, G. A., 215 Neurath, O., 147 Newton, I., 41 Noetel, R., 244, 262, 264, 276, 278 Nove, A., 270 - O Owen, R., 2, 4, 26-28, 30, 38, 39, 40-41, 155 - P Painlevé, P., 72 Pareto, V., 133 Paulsen, A., 176, 196 Pecqueur, C., 40, 43, 85 Pécsi, K., 261, 278 Person, H. S., 88 Pirittyi, O., 275 Plato, 2, 5-10, 19, 20, 21, 85, 150-51, 152, 153,194 Plenge, J., 114 Poetzsch, H., 117 Proudhon, P. J., 33-37, 40, 43, 61, 113, 156-57 165, 282 Pryor, F. L., 270, 278

- L Lange, O , 137-38, 140, 141, 144, 146, 149, 161, 241 Lansbury, G., 89 Lawley, F. E., 72, 74, 79, 80, 82, 87, 89, 90, 91, 219 Lenel, O. von, 194 Lenin, V. I., x, 3, 57, 58, 60, 61, 68-69, 84-85, 88, 93-94, 97-99, 105, 113, 115, 116, 126, 128, 131, 158, 165, 203, 223, 224, 225, 226, 228, 232, 234 Lerner, A. P., 149 Libermann, J., 241, 275 Linder, W., 216 Liska, T., 260, 277 List, F., 52,106, 206 Lorwin, L. L., 87, 88, 89 Lutz, F. A., 169, 180,195, 196 Luxemburg, R., 62, 94, 215, 223, 228

-RRába, A., 253, 255, 277 Renner, K., 94 Ricardo, D., 24, 37 Robbins, L., 138, 148, 219, 227 Rooper, D., 81 Röpke, W., viii, 173, 181, 194, 195, 196, 198, 210, 215, 221, 227 Rüstow, A., 216

- M Machlup, F., 172, 194, 195, 205, 206 McKenna, R., 78, 90 Maier, K. F., 134, 148 Maizenberg, L., 241 Malthus, T. R., 188 Máriás, A., 277 Marx, K., 3, 4, 24, 44-48, 50-51, 53, 58, 59, 60, 62, 65, 69, 84, 85, 92-96, 103, 112, 114, 128, 131-32, 174, 264 Meinecke, F. von, 117

- S Saint-Simon, C. H. de, 28-33, 38, 41, 42, 155,159 Salter, A., 68 Say, J. B., 24 Scheel, W. W , 216 Schippel, M., 117 Schumpeter, J., 63, 171 Shenoy, B. R., 208, 215 Sickle, J. van, 216 Simpson, H. S., 148

302 Sismondi, J. C. L. Simonde de, 24, 87 Smith, A., 37, 174 Socrates, 5, 6 Sombart, W., 105, 113, 117 Spengler, O., 103-4, 113, 114, 117 Staley, F., 185, 197, 198 Stalin, J. W., 94, 100-102, 116, 141, 165, 225, 231, 233, 239, 241, 244, 266, 270, Sweezy, P. M, 46, 61, 62, 126, 143-44, 147, 149

_TTálas, B 264, 277, 278 Taylor, F. M., 149 Thomas, A., 66, 77, 80-81, 82, 87, 90 Thompson, W., 40 Tittoni, G., 73 Triffin, R., 196

INDEX TO AUTHORS Trotsky, L., 116 Tschajanow, A. W., 131 Tucker, R. C, 61 u

„ , „, n ~ Ulbncht, W., 273

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