Socialist economics
Encyclopedia
Socialist economics are the economic theories and practices of hypothetical and existing socialist economic systems.
A socialist economy is based on public ownership or independent cooperative
ownership of the means of production
, wherein production is carried out to directly produce use-value
, usually, but not always
, coordinated through economic planning
and a system of accounting based on calculation-in-kind
or labor-time
.
The term socialist economics may also be applied to analysis of former and existing economic systems that call themselves "socialist", such as the works of Hungarian economist János Kornai
.
Socialist economics have been associated with different schools of economic thought, most notably Marxian economics
, institutional economics
and evolutionary economics
. Early socialism, like Ricardian socialism
, was based on classical economics
, and some forms of market socialism are based on the neoclassical school of economics.
, in contrast to a capitalist economic system, where goods and services are produced to generate profit
(and therefore indirectly for use). Goods and services would be produced for their usefulness, or for their use-value, eliminating the need for market-induced needs to ensure a sufficient amount of demand for products to be sold at a profit. Production in a socialist economy is therefore "planned" or "coordinated", and does not suffer from the business cycle
inherent to capitalism. In most socialist theories, economic planning only applies to the factors of production
and not to the allocation of goods and services produced for consumption, which would be distributed through a market. Karl Marx
stated that "lower-stage communism" would consist of compensation based on the amount of labor one contributes to the social product.
The ownership of the means of production
varies in different socialist theories. It can either be based on public ownership by a state apparatus; direct ownership by the users of the productive property through worker cooperative
; or commonly owned
by all of society with management and control delegated to those who operate/use the means of production.
Management and control over the activities of enterprises is based on self-management and self-governance, with equal power-relations in the workplace to maximize occupational autonomy. A socialist form of organization would eliminate controlling hierarchies so that only a hierarchy based on technical knowledge in the workplace remains. Every member would have decision-making power in the firm and would be able to participate in establishing its overall policy objectives. The policies/goals would be carried out by the technical specialists that form the coordinating hierarchy of the firm, who would establish plans or directives for the work community to accomplish these goals.
However, the economies of the former Socialist states, excluding SFR Yugoslavia, were based on bureaucratic, top-down administration of economic directives and micromanagement of the worker in the workplace inspired by capitalist models of scientific management. As a result, socialists have argued that they were not socialist due to the lack of equal power-relations in the workplace, the presence of a new "elite", and because of the commodity production that took place in these economies. These economic and social systems have been classified as being either Bureaucratic collectivist, State capitalist or Deformed workers' state
s, the exact nature of the USSR et al remains unresolved within the socialist movement
, which is based on indirect allocation. An economy based on economic planning appropriates its resources as needed, so that allocation comes in the form of internal transfers rather than market transactions involving the purchasing of assets by one government agency or firm by another. Decision-making is carried out by workers and consumers on the enterprise-level.
Economic planning is not synonymous with the concept of a command economy, which existed in the Soviet Union
, and was based on a highly bureaucratic administration of the entire economy in accordance to a comprehensive plan formulated by a central planning agency, which specified output requirements for productive units and tried to micromanage the decisions and policies of enterprises. The command economy is based on the organizational model of a capitalist firm, but applies it to the entire economy.
Various advocates of economic planning have been staunch critics of command economies and centralized planning. For example, Leon Trotsky
believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand the local conditions and rapid changes in the economy. Therefore, central planners would be unable to effectively coordinate all economic activity because they lacked this informal information.
Economic planning in socialism takes a different form than economic planning in capitalist mixed economies (such as Dirigisme
, Central bank
ing and Indicative planning
); in the former case planning refers to production of use-value directly (planning of production), while in the latter case planning refers to the planning of capital accumulation in order to stabilize or increase the efficiency of this process.
, to subject investment and capital to social planning), to coordinate the production of goods and services to directly satisfy demand (as opposed to market-induced needs), and to eliminate the business cycle
and crisis of overproduction
that occur as a result of an economy based on capital accumulation and private property in the means of production.
Socialists generally aim to achieve greater equality
in decision-making and economic affairs, grant workers greater control of the means of production
and their workplace, and to eliminate exploitation by directing the surplus value to employees. Free access to the means of subsistence is a requisite for liberty, because it ensures that all work is voluntary and no class or individual has the power to coerce others into performing alienating
work.
The ultimate goal for Marxist socialists is the emancipation of labor from alienating work, and therefore freedom from having to perform such labor to receive access to the material necessities for life. It is argued that freedom from necessity would maximize individual liberty, as individuals would be able to pursue their own interests and develop their own talents without being coerced into performing labor for others (the power-elite or ruling class in this case) via mechanisms of social control, such as the labor market and the state. The stage of economic development in which this is possible is contingent upon advances in the productive capabilities of society. This advanced stage of social relations and economic organization is called pure communism.
, rather than its cost of production (labor theory of value
) or its exchange value (Marginal Utility
).
Other socialist theories, such as mutualism
and market socialism
, attempt to apply the labor theory of value to socialism, so that the price of a good or service is adjusted to equal the amount of labor time expended in its production. The labor-time expended by each worker would correspond to labor credits, which would be used as a currency to acquire goods and services.
Market socialists that base their models on neoclassical economics
, and thus marginal utility
, such as Oskar Lange
and Abba Lerner, have proposed that publicly owned enterprises set their price to equal marginal cost, thereby achieving pareto efficiency
.
Anarcho-communism as defended by Peter Kropotkin
and Errico Malatesta
rejected the labor theory of value and exchange value iself, advocated a gift economy
and to base distribution on need.
and Michael Albert
identify five economic models within the rubric of socialist economics:
Additionally, Janos Kornai
identifies five distinct classifications for socialism:
production. Nonetheless, various elements of a socialist economy have been implemented or experimented with in various economies throughout history.
Various forms of socialist organizational attributes have existed as minor modes of production within the context of a capitalist economy throughout history - examples of this include cooperative enterprises in a capitalist economy, and the emerging free-software movement based on social peer-to-peer production.
. This model is usually associated with the Soviet-style command economy
. In a centrally planned economy, decisions regarding the quantity of goods and services to be produced are planned in advance by a planning agency. The planning process was based around material balances
- balancing economic inputs with planned output targets for the planning period. Although nominally a "centrally planned" economy, in reality formulation of the plan took place on a more local level of the production process as information was relayed from enterprises to planning ministries. Aside from the USSR and Eastern bloc
economies, this economic model was also utilized by the People's Republic of China
, Socialist Republic of Vietnam, Republic of Cuba and North Korea
.
and the extraction of surplus value
from the working class by the planning agency in order to reinvest this surplus into the economy - and to distribute to managers and senior officials, indicating the Soviet Union (and other Soviet-style economies) were state capitalist economies. More fundamentally, these economies are still structured around the dynamic of capitalism: the accumulation of capital and production for profit (as opposed to being based on production for use
- the defining criterion for socialism), and have not yet transcended the system of capitalism but are in fact a variation of capitalism based on a process of state-directed accumulation.
Other socialist critics point to the lack of socialist social relations in these economies - specifically the lack of self-management
, a bureaucratic elite based on hierarchical and centralized powers of authority, and the lack of genuine worker control over the means of production - leading them to conclude that they were not socialist but either bureaucratic collectivism
or state capitalism
. Trotskyists argue they are neither socialist nor capitalist - but are deformed workers' state
s.
This analysis is consistent with Lenin's April Theses, which stated that the goal of the Bolshevik revolution was not the introduction of socialism, which could only be established on a worldwide scale, but was intended to bring production and the state under the control of the Soviets of Workers' Deputies. Furthermore, these "Communist states" often don't claim to have achieved socialism
in their countries; on the contrary, they claim to be building and working toward the establishment of socialism in their countries. For example, the preamble to the Socialist Republic of Vietnam's constitution states that Vietnam only entered a transition stage between capitalism and socialism after the country was re-unified under the Communist party in 1976, and the 1992 Constitution of the Republic of Cuba states that the role of the Communist Party is to "guide the common effort toward the goals and construction of socialism".
This view is challenged by Stalinists
and their followers, who claim that socialism was established in the Soviet Union after Joseph Stalin
came to power and instituted the system of five year plans. Joseph Stalin introduced the theory of Socialism in one country
, which argued that socialism can be built in a single country, despite existing in a global capitalist economic system.
and some of its European satellites aimed for a fully centrally planned economy
. They dispensed almost entirely with private ownership over the means of production. Workers were still, however, effectively paid a wage for their labour. Some believe that according to Marxist theory this should have been a step towards a genuine workers' state. However, some Marxists consider this a misunderstanding of Marx's views of historical materialism
, and his views of the process of socialization.
The characteristics of this model of economy were:
s presiding over centrally planned economies began introducing reforms that shifted their economies away from centralized planning.
The Republic of Cuba, under the leadership of Raul Castro
, has begun to encourage co-operatives and self-employment in a move to reduce the central role of state enterprise and state management over the economy, with the goal of building a co-operative form of socialism.
Vietnam adopted an economic model it formally titled the socialist-oriented market economy. This economic system is a form of mixed-economy consisting of state, private, co-operative and individual enterprises coordinated by the market mechanism
. This system is intended to be transitional stage in the development of socialism.
embraced a socialist planned economy after the Communist victory in its Civil War. Private property and private ownership of capital were abolished, and various forms of wealth made subject to state control or to workers' councils.
The Chinese economy broadly adopted a similar system of production quotas and full employment by fiat to the Russian model. The Great Leap Forward
saw a remarkably large-scale experiment with rapid collectivisation of agriculture, and other ambitious goals. Results were less than expected, (e.g., there were food shortages and mass starvation) and the program was abandoned after three years.
In recent decades China has opened its economy to foreign investment and to market-based trade, and has continued to experience strong economic growth. It has carefully managed the transition from a planned socialist economy to a market economy, officially referred to as the socialist commodity market economy, which has been likened to capitalism by some outside observers. As a result, centralized economic planning has little relevance in China today.
The current Chinese economic system is characterized by state ownership combined with a strong private sector that privately owned enterprises that generate about 33% (People's Daily Online 2005) to over 50% of GDP in 2005, with a BusinessWeek article estimating 70% of GDP, a figure that might be even greater considering the Chengbao system
. Some western observers note that the private sector is likely underestimated by state officials in calculation of GDP due to its propensity to ignore small private enterprises that are not registered. Most of the state and private sectors of economy are governed by free market practices, including a stock exchange for trading equity. The free-market is the arbitrator for most economic activity, which is left to the management of both state and private firms. A significant amount of privately owned firms exist, especially in the consumer service sector.
The state sector is concentrated in the 'commanding heights' of the economy with a growing private sector engaged primarily in commodity production and light industry. Centralized directive planning based on mandatory output requirements and production quotas has been superseded by the free-market mechanism for most of the economy and directive planning is utilized in some large state industries. A major difference from the old planned economy is the privatization
of state institutions. 150 state-owned enterprises remain and report directly to the central government, most having a number of subsidiaries. By 2008, these state-owned corporations have became increasingly dynamic largely contributing to the increase in revenue for the state. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises.
This type of economic system is defended from a Marxist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, letting it fully develop until it exhausts its historical stage and gradually transforms itself into a planned economy. Proponents of this model distinguish themselves from market socialists who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy.
The Socialist Republic of Vietnam has pursued similar economic reforms, though less extensive, which have resulted in what is officially called a Socialist-oriented market economy
, a mixed economy where the state plays a dominant role intended to be a transitional phase in establishment of a socialist economy.
Nevertheless, these western European countries tried to restructure their economies away from a purely private capitalist model. Variations range from social democratic welfare states, such as in Sweden, to mixed economies where a major percentage of GDP comes from the state sector, such as in Norway, which ranks among the highest countries in quality of life and equality of opportunity for its citizens. Elements of these efforts persist throughout Europe, even if they have repealed some aspects of public control and ownership. They are typically characterized by:
and their economic reforms. While these policies and reforms did not change the fundamental aspect of capitalism, and non-socialist elements within these countries supported or often implemented many of these reforms themselves, the result has been a set of economic institutions that were at least partly influenced by socialist ideology.
, which initially adopted a Leninist approach to politics and a broad socialist model of economic development. The PAP was initially a member of the Socialist International
. Singapore's economy is dominated by state-owned enterprises and government-linked companies through Temasek Holdings
, which generate 60% of Singapore's GDP.
The state also provides substantial public housing, free education, health and recreational services, as well as comprehensive public transportation. Today Singapore is often characterized as having a state capitalist economy that combines economic planning with the free-market. While government-linked companies generate a majority of Singapore's GDP, moderate state planning in the economy has been reduced in recent decades.
adopted a broadly socialist-inspired approach to economic growth. Like other countries with a democratic transition to a mixed economy
, it did not abolish private property in capital. India proceeded by nationalizing various large privately run firms, creating state-owned enterprises and redistributing income through progressive taxation in a manner similar to social democratic Western European nations than to planned economies such as the USSR or China. Today India is often characterized as having a free-market economy that combines economic planning with the free-market. It did however adopt a very firm focus on national planning
with a series of broad Five-Year Plans
.
and in some cases, production directly for use
, have existed within the broader context of the capitalist mode of production since the Paris Commune. New forms of socialist institutional arrangements began to take form at the end of the 20th century with the advancement and proliferation of the internet and other tools that allow for collaborative decision-making.
Michel Bauwens
identifies the emergence of the open software movement and peer-to-peer production as an emergent alternative mode of production
to the capitalist economy that is based on collaborative self-management, common ownership of resources, and the (direct) production of use-values through the free cooperation of producers who have access to distributed capital.
Commons-based peer production
generally involves developers who produce goods and services with no aim to profit directly, but freely contribute to a project relying upon an open common pool of resources and software code. In both cases, production is carried out directly for use - software is produced solely for their use-value.
Wikipedia
, being based on collaboration and cooperation and a freely associated individuals, has been cited as a template for how socialism might operate. This is a modern example of what the Paris Commune - a template for possible future organization - was to Marx in his time.
pursued a socialist economy based on autogestion or worker-self management. Rather than implementing a centrally planned economy, Yugoslavia developed a market socialist system where enterprises and firms were socially owned
rather than publicly owned by the state. In these organizations, the management was elected by directly by the workers in each firm, and were later organized according to Edvard Kardelj
's theory of associated labor.
region of Spain, organizes itself as an employee-owned, employee-managed enterprise. Similar styles of decentralized management, which embrace cooperation and collaboration in place of traditional hierarchical management structures, have been adopted by various private corporations such as Cisco Systems
, inc. But unlike Mondragon, Cisco remains firmly under private ownership. More fundamentally, employee-owned, self-managed enterprises still operate within the broader context of capitalism and are subject to the accumulation of capital and profit-loss mechanism.
doctrine such as Jean-Jacques Rousseau
's Discourse on Inequality, Wilhelm von Humboldt
's Limits of State Action, or Immanuel Kant
's insistent defense of the French Revolution
.
Capitalism
appeared in mature form as a result of the problems raised when an industrial factory system requiring long-term investment and entailing corresponding risks was introduced into an internationalized commercial (mercantilist) framework. Historically speaking, the most pressing needs of this new system were an assured supply of the elements of industry – land, elaborate machinery, and labour – and these imperatives led to the commodification of these elements.
According to influential socialist economic historian Karl Polanyi
's classic account, the forceful transformation of land, money and especially labour into commodities to be allocated by an autonomous market mechanism was an alien and inhuman rupture of the pre-existing social fabric. Marx had viewed the process in a similar light, referring to it as part of the process of "primitive accumulation" whereby enough initial capital is amassed to begin capitalist production. The dislocation that Polyani and others describe, triggered natural counter-movements in efforts to re-embed the economy in society. These counter-movements, that included, for example, the Luddite
rebellions, are the incipient socialist movements. Over time such movements gave birth to or acquired an array of intellectual defenders who attempted to develop their ideas in theory.
As Polanyi noted, these counter-movements were mostly reactive and therefore not full-fledged socialist movements. Some demands went no further than a wish to mitigate the capitalist market's worst effects. Later, a full socialist program developed, arguing for systemic transformation. Its theorists believed that even if markets and private property could be tamed so as not to be excessively "exploitative", or crises could be effectively mitigated, capitalist social relations would remain significantly unjust and anti-democratic, suppressing universal human needs for fulfilling, empowering and creative work, diversity and solidarity.
Within this context socialism has undergone four periods: the first in the 19th century was a period of utopian visions (1780s-1850s); then occurred the rise of revolutionary socialist and Communist movements in the 19th century as the primary opposition to the rise of corporations and industrialization (1830–1916); the polarisation of socialism around the question of the Soviet Union
, and adoption of socialist or social democratic policies in response (1916–1989); and the response of socialism in the neo-liberal era (1990- ). As socialism developed, so did the socialist system of economics.
Socialist ideas found expression in utopian movements, which often formed agricultural communes aimed at being self-sufficient on the land. These included many religious movements, such as the Shakers
in America.
Utopian socialism had little to offer in terms of a systematic theory of economic phenomena. In theory, economic problems were dissolved by a utopian society which had transcended material scarcity. In practice, small communities with a common spirit could sometimes resolve allocation problems.
, Robert Malthus and David Ricardo
. In Smith there is a conception of a common good not provided by the market, a class analysis
, a concern for the dehumanizing aspects of the factory system, and the concept of rent as being unproductive
. Ricardo argued that the renting class was parasitic. This, and the possibility of a "general glut
", an over accumulation of capital to produce goods for sale rather than for use, became the foundation of a rising critique of the concept that free markets with competition would be sufficient to prevent disastrous downturns in the economy, and whether the need for expansion would inevitably lead to war.
A key early socialist theorist of political economy was Pierre-Joseph Proudhon
. He was the most well-known of nineteenth century mutualist
theorists and the first thinker to refer to himself as an anarchist. Others were: Technocrats like Henri de Saint Simon, agrarian radicals like Thomas Spence
, William Ogilvie
and William Cobbett
; anti-capitalists like Thomas Hodgskin
; communitarian and utopian socialists like Robert Owen
, William Thompson
and Charles Fourier
; anti-market socialists like John Gray
and John Francis Bray
; the Christian mutualist William Batchelder Greene
; as well as the theorists of the Chartist movement and early proponents of syndicalism
.
The first advocates of socialism promoted social leveling in order to create a meritocratic or technocratic society based upon individual talent. Count Henri de Saint-Simon was the first individual to coin the term "socialism". Simon was fascinated by the enormous potential of science and technology, which led him to advocate a socialist society that would eliminate the disorderly aspects of capitalism and which would be based upon equal opportunities. Simon advocated a society in which each person was ranked according to his or her capacities and rewarded according to his or her work. This was accompanied by a desire to implement a rationally organized economy based on planning and geared towards large-scale scientific and material progress, which embodied a desire for a semi-planned economy
.
Other early socialist thinkers were influenced by the classical economists. The Ricardian socialists, such as Thomas Hodgskin and Charles Hall, were based on the work of David Ricardo
and reasoned that the equilibrium value of commodities approximated producer prices when those commodities were in elastic supply, and that these producer prices corresponded to the embodied labor. The Ricardian socialists viewed profit, interest and rent as deductions from this exchange-value.
employed systematic analysis in an ambitious attempt to elucidate capitalism's contradictory laws of motion, as well as to expose the specific mechanisms by which it exploits and alienates. He radically modified classical political economic theories. Notably, the labor theory of value
that had been worked upon by Adam Smith
and David Ricardo
, was transformed into his characteristic "law of value
" and used for the purpose of revealing how commodity fetishism
obscures the reality of capitalist society.
His approach, which Engels would call "scientific socialism
", would stand as the branching point in economic theory: in one direction went those who rejected the capitalist system as fundamentally anti-social, arguing that it could never be harnessed to effectively realize the fullest development of human potentialities wherein "the free development of each is the condition for the free development of all.".
Das Kapital
is one of the many famous incomplete works of economic theory: Marx had planned four volumes, completed two, and left his collaborator Engels to complete the third. In many ways the work is modelled on Adam Smith's Wealth of Nations, seeking to be a comprehensive logical description of production, consumption and finance in relation to morality and the state.
It is a work of philosophy, anthropology and sociology as much as one of economics. However, it has several important statements:
and economic activity within the political philosophy of anarchism
.
Pierre Joseph Proudhon was involved with the Lyons mutualists and later adopted the name to describe his own teachings
. Mutualism
is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon
, who envisioned a society where each person might possess a means of production
, either individually or collectively, with trade representing equivalent amounts of labor in the free market
. Integral to the scheme was the establishment of a mutual-credit bank that would lend to producers at a minimal interest rate, just high enough to cover administration. Mutualism is based on a labor theory of value
that holds that when labor or its product is sold, in exchange, it ought to receive goods or services embodying "the amount of labor necessary to produce an article of exactly similar and equal utility". Receiving anything less would be considered exploitation, theft of labor, or usury
.
Collectivist anarchism
(also known as anarcho-collectivism) is a revolutionary doctrine that advocates the abolition of the state
and private ownership
of the means of production
. Instead, it envisions the means of production being owned collectively and controlled and managed by the producers themselves. Once collectivization takes place, workers' salaries would be determined in democratic organizations based on the amount of time they contributed to production. These salaries would be used to purchase goods in a communal market. Collectivist anarchism is most commonly associated with Mikhail Bakunin
, the anti-authoritarian
sections of the First International, and the early Spanish anarchist movement
.
Anarchist communism
is a theory of anarchism
which advocates the abolition of the state
, private property
, and capitalism
in favor of common ownership
of the means of production
, direct democracy
and a horizontal network of voluntary association
s and workers' council
s with production and consumption based on the guiding principle: "from each according to ability, to each according to need". Unlike mutualism, collectivist anarchism and marxism, anarcho-communism as defended by Peter Kropotkin
and Errico Malatesta
rejected the labor theory of value altogether, instead advocating a gift economy
and to base distribution on need.
Anarchist communism as a coherent, modern economic-political philosophy was first formulated in the Italian section of the First International by Carlo Cafiero
, Emilio Covelli, Errico Malatesta
, Andrea Costa
and other ex-Mazzinian
Republicans. Out of respect for Mikhail Bakunin
, they did not make their differences with collectivist anarchism
explicit until after Bakunin's death. By the early 1880s, most of the European anarchist movement had adopted an anarchist communist position, advocating the abolition of wage labour and distribution according to need. Ironically, the "collectivist" label then became more commonly associated with Marxist state socialists who advocated the retention of some sort of wage system during the transition to full communism
.
Non-revolutionary socialists took inspiration from the work of John Stuart Mill
, and later Keynes and the Keynesians, who provided theoretical justification for (potentially very extensive) state involvement in an existing market economy. According to the Keynesians, if the business cycle could be solved by national ownership of key industries and state direction of their investment, class antagonism would be effectively tamed; a compact would be formed between labour and the capitalists. There would be no need for revolution; instead Keynes looked to the eventual "euthenasia of the rentier" sometime in the far future. Joan Robinson
and Michael Kalecki employed Keynesian insights to form the basis of a critical post-Keynesian economics that at times went well beyond liberal reformism. Many original socialist economic ideas would also emerge out of the trade union
movement (see Guild Socialism
).
In the wake of Marx, "Marxist" economists developed many different, sometimes contradictory tendencies. Some of these tendencies were based on internal disputes about the meaning of some of Marx's ideas, including the 'Law of Value' and his crisis theory. Other variations were elaborations that subsequent theorists made in light of real world developments. For example the monopoly capitalist school saw Paul A. Baran
and Paul Sweezy
attempt to modify Marx's theory of capitalist development, which was based upon the assumption of price competition, to reflect the evolution to a stage where both economy and state were subject to the dominating influence of giant corporations. World-systems analysis, would restate Marx's ideas about the worldwide division of labour and the drive to accumulate from the holistic perspective of capitalism's historical development as a global system.
Accordingly, Immanuel Wallerstein
, writing in 1979, maintained that "There are today no socialist systems in the world-economy any more than there are feudal systems because there is only one world-system. It is a world-economy and it is by definition capitalist in form. Socialism involves the creation of a new kind of world-system, neither a redistributive world-empire nor a capitalist world-economy but a socialist world-government. I don't see this projection as being in the least utopian but I also don't feel its institution is imminent. It will be the outcome of a long social struggle in forms that may be familiar and perhaps in very few forms, that will take place in all the areas of the world-economy."
Meanwhile other notable strands of reformist and revolutionary socialist economics sprung up that were either only loosely associated with Marxism or wholly independent. Thorsten Veblen is widely credited as the founder of critical institutionalism
. His idiosyncratic theorizing included acidic critiques of the inefficiency of capitalism, monopolies, advertising, and the utility of conspicuous consumption. Some institutionalists have addressed the incentive problems experienced by the Soviet Union. Critical institutionalists have worked on the specification of incentive-compatible institutions, usually based on forms of participatory democracy, as a resolution superior to allocation by an autonomous market mechanism.
Another key socialist, closely related to Marx, Keynes, and Gramsci, was Piero Sraffa
. He mined classical political economy, particularly Ricardo, in an attempt to erect a value theory that was at the same time an explanation of the normal distribution of prices in an economy, as well that of income and economic growth. A key finding was that the net product or surplus in the sphere of production was determined by the balance of bargaining power
between workers and capitalists, which was in turn subject to the influence of non-economic, presumably social and political factors. The mutualist tradition associated with Proudhon also continued, influencing the development of libertarian socialism
, anarchist communism
, syndicalism
and distributivism.
In the real world, revolutionary socialists were confronted by the necessity of running an economy, and generally a war economy
, and developed ideas and practice in response to the situations they found themselves in.
and decentralized socialism.
Market economists generally criticise socialism for eliminating the free market and its price signals, which they consider necessary for rational economic calculation.
They also consider that it causes lack of incentive. They believe that these problems lead to a slower rate of technological advance and a slower rate of growth of GDP.
Austrian school
economists, such as Friedrich Hayek
and Ludwig Von Mises
, have argued that the elimination of private ownership of the means of production
would inevitably create worse economic conditions for the general populace than those that would be found in market economies. They argue that without the price signals of the market, it is impossible to calculate rationally how to allocate resources. Mises called this the economic calculation problem
. Polish economist Oskar Lange and Abba Lerner attempted to rebut Mises' argument by developing the Lange Model during the Economic calculation debate. The Lange model states that an economy in which all production is performed by the state, where there is a functioning price mechanism, has similar properties to a market economy under perfect competition, in that it achieves Pareto efficiency.
The neoclassical view is that there is a lack of incentive, not a lack of information in a planned economy. They argue that within a socialist planned economy there is a lack of incentive to act on information. Therefore, the crucial missing element is not so much information as the Austrian school argued, as it is the motivation to act on information.
A socialist economy is based on public ownership or independent cooperative
Worker cooperative
A worker cooperative is a cooperative owned and democratically managed by its worker-owners. This control may be exercised in a number of ways. A cooperative enterprise may mean a firm where every worker-owner participates in decision making in a democratic fashion, or it may refer to one in which...
ownership of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, wherein production is carried out to directly produce use-value
Production for use
Production for use is a defining criterion of a socialist economy and distinguishes socialism from capitalism...
, usually, but not always
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
, coordinated through economic planning
Economic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
and a system of accounting based on calculation-in-kind
Calculation in kind
Calculation in kind is a type of accounting based on physical magnitudes and physical quantities rather than a common unit of accounting for economic calculation. Calculation in kind, or valueless calculation, is often described as the form of calculation that would supersede monetary calculation...
or labor-time
Labour voucher
Labour vouchers are a device proposed to govern demand for goods in some models of socialism, much as money does under capitalism.-Outline:...
.
The term socialist economics may also be applied to analysis of former and existing economic systems that call themselves "socialist", such as the works of Hungarian economist János Kornai
János Kornai
János Kornai , is an economist noted for his analysis and criticism of the command economies of Eastern European communist states.- Biography :...
.
Socialist economics have been associated with different schools of economic thought, most notably Marxian economics
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...
, institutional economics
Institutional economics
Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the...
and evolutionary economics
Evolutionary economics
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology...
. Early socialism, like Ricardian socialism
Ricardian socialism
Ricardian socialism refers to a branch of socialist economic thought based upon the work of economist David Ricardo. The Ricardian socialists reasoned that the free-market was the route to socialism, and that rent, profit and interest were not natural outgrowths of the free-market...
, was based on classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
, and some forms of market socialism are based on the neoclassical school of economics.
Description
A socialist economy is a system of production where goods and services are produced directly for useProduction for use
Production for use is a defining criterion of a socialist economy and distinguishes socialism from capitalism...
, in contrast to a capitalist economic system, where goods and services are produced to generate profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
(and therefore indirectly for use). Goods and services would be produced for their usefulness, or for their use-value, eliminating the need for market-induced needs to ensure a sufficient amount of demand for products to be sold at a profit. Production in a socialist economy is therefore "planned" or "coordinated", and does not suffer from the business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
inherent to capitalism. In most socialist theories, economic planning only applies to the factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
and not to the allocation of goods and services produced for consumption, which would be distributed through a market. Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
stated that "lower-stage communism" would consist of compensation based on the amount of labor one contributes to the social product.
The ownership of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
varies in different socialist theories. It can either be based on public ownership by a state apparatus; direct ownership by the users of the productive property through worker cooperative
Worker cooperative
A worker cooperative is a cooperative owned and democratically managed by its worker-owners. This control may be exercised in a number of ways. A cooperative enterprise may mean a firm where every worker-owner participates in decision making in a democratic fashion, or it may refer to one in which...
; or commonly owned
Common ownership
Common ownership is a principle according to which the assets of an enterprise or other organization are held indivisibly rather than in the names of the individual members or by a public institution such as a governmental body. It is therefore in contrast to public ownership...
by all of society with management and control delegated to those who operate/use the means of production.
Management and control over the activities of enterprises is based on self-management and self-governance, with equal power-relations in the workplace to maximize occupational autonomy. A socialist form of organization would eliminate controlling hierarchies so that only a hierarchy based on technical knowledge in the workplace remains. Every member would have decision-making power in the firm and would be able to participate in establishing its overall policy objectives. The policies/goals would be carried out by the technical specialists that form the coordinating hierarchy of the firm, who would establish plans or directives for the work community to accomplish these goals.
However, the economies of the former Socialist states, excluding SFR Yugoslavia, were based on bureaucratic, top-down administration of economic directives and micromanagement of the worker in the workplace inspired by capitalist models of scientific management. As a result, socialists have argued that they were not socialist due to the lack of equal power-relations in the workplace, the presence of a new "elite", and because of the commodity production that took place in these economies. These economic and social systems have been classified as being either Bureaucratic collectivist, State capitalist or Deformed workers' state
Deformed workers' state
In Trotskyist political theory, deformed workers' states are states where the bourgeoisie has been overthrown through social revolution, the industrial means of production have been largely nationalized bringing benefits to the working class, but where the working class has never held political power...
s, the exact nature of the USSR et al remains unresolved within the socialist movement
Socialist economic planning
Economic planning is a mechanism for the allocation of economic inputs and decision-making based on direct allocation, in contrast to the market mechanismMarket economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
, which is based on indirect allocation. An economy based on economic planning appropriates its resources as needed, so that allocation comes in the form of internal transfers rather than market transactions involving the purchasing of assets by one government agency or firm by another. Decision-making is carried out by workers and consumers on the enterprise-level.
Economic planning is not synonymous with the concept of a command economy, which existed in the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
, and was based on a highly bureaucratic administration of the entire economy in accordance to a comprehensive plan formulated by a central planning agency, which specified output requirements for productive units and tried to micromanage the decisions and policies of enterprises. The command economy is based on the organizational model of a capitalist firm, but applies it to the entire economy.
Various advocates of economic planning have been staunch critics of command economies and centralized planning. For example, Leon Trotsky
Leon Trotsky
Leon Trotsky , born Lev Davidovich Bronshtein, was a Russian Marxist revolutionary and theorist, Soviet politician, and the founder and first leader of the Red Army....
believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand the local conditions and rapid changes in the economy. Therefore, central planners would be unable to effectively coordinate all economic activity because they lacked this informal information.
Economic planning in socialism takes a different form than economic planning in capitalist mixed economies (such as Dirigisme
Dirigisme
Dirigisme is an economy in which the government exerts strong directive influence. While the term has occasionally been applied to centrally planned economies, where the state effectively controls both production and allocation of resources , it originally had neither of these meanings when...
, Central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
ing and Indicative planning
Indicative planning
Indicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...
); in the former case planning refers to production of use-value directly (planning of production), while in the latter case planning refers to the planning of capital accumulation in order to stabilize or increase the efficiency of this process.
Normative aspects
The goal of socialist economics is to neutralize capital (or, in the case of market socialismMarket socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
, to subject investment and capital to social planning), to coordinate the production of goods and services to directly satisfy demand (as opposed to market-induced needs), and to eliminate the business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
and crisis of overproduction
Overproduction
In economics, overproduction, oversupply or excess of supply refers to excess of supply over demand of products being offered to the market...
that occur as a result of an economy based on capital accumulation and private property in the means of production.
Socialists generally aim to achieve greater equality
Egalitarianism
Egalitarianism is a trend of thought that favors equality of some sort among moral agents, whether persons or animals. Emphasis is placed upon the fact that equality contains the idea of equity of quality...
in decision-making and economic affairs, grant workers greater control of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
and their workplace, and to eliminate exploitation by directing the surplus value to employees. Free access to the means of subsistence is a requisite for liberty, because it ensures that all work is voluntary and no class or individual has the power to coerce others into performing alienating
Marx's theory of alienation
Marx's theory of alienation , as expressed in the writings of the young Karl Marx , refers to the separation of things that naturally belong together, or to put antagonism between things that are properly in harmony...
work.
The ultimate goal for Marxist socialists is the emancipation of labor from alienating work, and therefore freedom from having to perform such labor to receive access to the material necessities for life. It is argued that freedom from necessity would maximize individual liberty, as individuals would be able to pursue their own interests and develop their own talents without being coerced into performing labor for others (the power-elite or ruling class in this case) via mechanisms of social control, such as the labor market and the state. The stage of economic development in which this is possible is contingent upon advances in the productive capabilities of society. This advanced stage of social relations and economic organization is called pure communism.
Economic value in socialism
Socialist economic theories base the value of a good or service on its use valueUse value
Use value or value in use is the utility of consuming a good; the want-satisfying power of a good or service in classical political economy. In Marx's critique of political economy, any labor-product has a value and a use-value, and if it is traded as a commodity in markets, it additionally has an...
, rather than its cost of production (labor theory of value
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
) or its exchange value (Marginal Utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
).
Other socialist theories, such as mutualism
Mutualism (economic theory)
Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...
and market socialism
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
, attempt to apply the labor theory of value to socialism, so that the price of a good or service is adjusted to equal the amount of labor time expended in its production. The labor-time expended by each worker would correspond to labor credits, which would be used as a currency to acquire goods and services.
Market socialists that base their models on neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, and thus marginal utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
, such as Oskar Lange
Oskar Lange
Oskar Ryszard Lange was a Polish economist and diplomat...
and Abba Lerner, have proposed that publicly owned enterprises set their price to equal marginal cost, thereby achieving pareto efficiency
Pareto efficiency
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...
.
Anarcho-communism as defended by Peter Kropotkin
Peter Kropotkin
Prince Pyotr Alexeyevich Kropotkin was a Russian zoologist, evolutionary theorist, philosopher, economist, geographer, author and one of the world's foremost anarcho-communists. Kropotkin advocated a communist society free from central government and based on voluntary associations between...
and Errico Malatesta
Errico Malatesta
Errico Malatesta was an Italian anarcho-communist. He was an insurrectionary anarchist early in his life. He spent much of his life exiled from his homeland of Italy and in total spent more than ten years in prison. He wrote and edited a number of radical newspapers and was also a friend of...
rejected the labor theory of value and exchange value iself, advocated a gift economy
Gift economy
In the social sciences, a gift economy is a society where valuable goods and services are regularly given without any explicit agreement for immediate or future rewards . Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community...
and to base distribution on need.
Socialist economies in theory
Robin HahnelRobin Hahnel
Robin Hahnel is a Professor of Economics at Portland State University. He is best known for his work on participatory economics with Z Magazine editor Michael Albert. He is currently a visiting professor at Lewis & Clark College....
and Michael Albert
Michael Albert
Michael Albert is an American activist, economist, speaker, and writer. He is co-editor of ZNet, and co-editor and co-founder of Z Magazine. He also co-founded South End Press and has written numerous books and articles...
identify five economic models within the rubric of socialist economics:
- Public Enterprise Centrally Planned Economy in which all property is owned by the State and all key economic decisions are made centrally by the State, e.g. the former Soviet Union.
- Public Enterprise State-Managed Market Economy, one form of market socialismMarket socialismMarket socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
which attempts to use the price mechanism to increase economic efficiency, while all decisive productive assets remain in the ownership of the state, e.g. socialist market economySocialist market economyThe socialist market economy or socialist market economy with Chinese characteristics is the official term used to refer to the economic system of the People's Republic of China after the reforms of Deng Xiaoping. It is also referred to as socialism with Chinese characteristics...
in China after reform. - A mixed economyMixed economyMixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
, where public and private ownership are mixed, and where industrial planning is ultimately subordinate to market allocation, the model generally adopted by social democrats e.g. in twentieth century Sweden. - Public Enterprise Employee Managed Market Economies, another form of market socialismMarket socialismMarket socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
in which publicly owned, employee-managed production units engage in free market exchange of goods and services with one another as well as with final consumers, e.g. mid twentieth century Yugoslavia, Two more theoretical models are Prabhat Ranjan SarkarPrabhat Ranjan SarkarPrabhat Ranjan Sarkar , also known by his spiritual name, Shrii Shrii Anandamurti , was an Indian philosopher, author, social revolutionary, poet, composer and linguist...
's Progressive Utilization Theory and Economic democracyEconomic democracyEconomic democracy is a socioeconomic philosophy that suggests a shift in decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders...
. - Public Enterprise Participatory Planning, an economy featuring social ownership of the means of production with allocation based on an integration of decentralized democratic planning, e.g. stateless communismStateless communismStateless communism, also known as pure communism, is the post-capitalist stage of society which Karl Marx predicted would inevitably result from the development of the productive forces...
, libertarian socialismLibertarian socialismLibertarian socialism is a group of political philosophies that promote a non-hierarchical, non-bureaucratic, stateless society without private property in the means of production...
. An incipient historical forebear is that of Catalonia during the Spanish revolutionSpanish RevolutionThe Spanish Revolution was a workers' social revolution that began during the outbreak of the Spanish Civil War in 1936 and resulted in the widespread implementation of anarchist and more broadly libertarian socialist organizational principles throughout various portions of the country for two to...
. More developed theoretical models include those of Karl PolanyiKarl PolanyiKarl Paul Polanyi was a Hungarian philosopher, political economist and economic anthropologist known for his opposition to traditional economic thought and his book The Great Transformation...
, Participatory EconomicsParticipatory economicsParticipatory economics, often abbreviated parecon, is an economic system proposed primarily by activist and political theorist Michael Albert and radical economist Robin Hahnel, among others. It uses participatory decision making as an economic mechanism to guide the production, consumption and...
and the negotiated coordination model of Pat DevinePat DevinePat Devine is a radical economist concerned mainly with industrial economics and comparative economic systems. He made one of the most thorough descriptions of a future economy where allocation is done by democratic planning and social ownership without any social division of labour...
, as well as in Cornelius CastoriadisCornelius CastoriadisCornelius Castoriadis was a Greek philosopher, social critic, economist, psychoanalyst, author of The Imaginary Institution of Society, and co-founder of the Socialisme ou Barbarie group.-Early life in Athens:...
's pamphlet "Workers' Councils and the Economics of a Self-Managed Society"
Additionally, Janos Kornai
János Kornai
János Kornai , is an economist noted for his analysis and criticism of the command economies of Eastern European communist states.- Biography :...
identifies five distinct classifications for socialism:
- Classical / Marxist conception, where socialism is a stage of economic development in which wage labour, private property in the means of production and monetary relations have been made redundant through the development of the productive forces, so that capital accumulation has been superseded by economic planningEconomic planningEconomic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
. Economic planning in this definition means conscious allocation of economic inputs and the means of production by the associated producers to directly maximise use-values as opposed to exchange-values, in contrast to the "anarchy of production" of capitalism. - Walrasian / Market Socialist which defines socialism as public-ownership or cooperative-enterprises in a market economy, with prices for producer goods set through a trial-and-error method by a central planning board. In this view, socialism is defined in terms of de jure public property rights over major enterprises.
- Leninist conception, which includes a form of political organisation based on control of the means of production and government by a single political party apparatus that claims to act in the interest of the working class, and an ideology hostile toward markets and political dissent, with coordination of economic activity through centralised economic planning (a "command economy").
- Social Democratic concept, based on the capitalist mode of productionCapitalist mode of productionIn Marx's critique of political economy, the capitalist mode of production is the production system of capitalist societies, which began in Europe in the 16th century, grew rapidly in Western Europe from the end of the 18th century, and later extended to most of the world...
, which defines socialism as a set of values rather than a specific type of social and economic organisation. It includes unconditional support for parliamentary democracy, gradual and reformist attempts to establish socialism, and support for socially progressive causes. Social democrats are not opposed to the market or private property; instead they try to ameliorate the effects of capitalism through a welfare state, which relies on the market as the fundamental coordinating entity in the economy and a degree of public ownership/public provision of public goods in an economy otherwise dominated by private enterprise. - East Asian model, or socialist market economySocialist market economyThe socialist market economy or socialist market economy with Chinese characteristics is the official term used to refer to the economic system of the People's Republic of China after the reforms of Deng Xiaoping. It is also referred to as socialism with Chinese characteristics...
, based on a largely free-market, capital accumulation for profit and substantial private ownership along with state-ownership of strategic industries monopolised by a single political party. Janos Kornai ultimately leaves the classification of this model (as either socialist or capitalist) to the reader.
Socialist economies in practice
Although a number of economic systems have existed with various socialist attributes, or have been deemed socialist by their proponents, almost all of the economic systems listed below have largely retained elements of capitalism such as wage labor, the accumulation of capital, and commodityCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
production. Nonetheless, various elements of a socialist economy have been implemented or experimented with in various economies throughout history.
Various forms of socialist organizational attributes have existed as minor modes of production within the context of a capitalist economy throughout history - examples of this include cooperative enterprises in a capitalist economy, and the emerging free-software movement based on social peer-to-peer production.
Centrally planned economies
A centrally planned economy combines public ownership of the means of production with centralised state planningPlanned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
. This model is usually associated with the Soviet-style command economy
Economy of the Soviet Union
The economy of the Union of Soviet Socialist Republics was based on a system of state ownership of the means of production, collective farming, industrial manufacturing and centralized administrative planning...
. In a centrally planned economy, decisions regarding the quantity of goods and services to be produced are planned in advance by a planning agency. The planning process was based around material balances
Material balance planning
Material balance accounting is a form of economic accounting based on balancing inputs with outputs in terms of natural units...
- balancing economic inputs with planned output targets for the planning period. Although nominally a "centrally planned" economy, in reality formulation of the plan took place on a more local level of the production process as information was relayed from enterprises to planning ministries. Aside from the USSR and Eastern bloc
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...
economies, this economic model was also utilized by the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
, Socialist Republic of Vietnam, Republic of Cuba and North Korea
North Korea
The Democratic People’s Republic of Korea , , is a country in East Asia, occupying the northern half of the Korean Peninsula. Its capital and largest city is Pyongyang. The Korean Demilitarized Zone serves as the buffer zone between North Korea and South Korea...
.
Dispute that the Soviet model is socialism
Various scholars and political economists have criticized the claim that the centrally planned economy, and specifically, the Soviet model of economic development, constitutes a form of socialism. They argue that the Soviet economy was structured upon the accumulation of capitalCapital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
and the extraction of surplus value
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
from the working class by the planning agency in order to reinvest this surplus into the economy - and to distribute to managers and senior officials, indicating the Soviet Union (and other Soviet-style economies) were state capitalist economies. More fundamentally, these economies are still structured around the dynamic of capitalism: the accumulation of capital and production for profit (as opposed to being based on production for use
Production for use
Production for use is a defining criterion of a socialist economy and distinguishes socialism from capitalism...
- the defining criterion for socialism), and have not yet transcended the system of capitalism but are in fact a variation of capitalism based on a process of state-directed accumulation.
Other socialist critics point to the lack of socialist social relations in these economies - specifically the lack of self-management
Self-management
Self-management means different things in different fields:* In business, education, and psychology, self-management refers to methods, skills, and strategies by which individuals can effectively direct their own activities toward the achievement of objectives, and includes goal setting, decision...
, a bureaucratic elite based on hierarchical and centralized powers of authority, and the lack of genuine worker control over the means of production - leading them to conclude that they were not socialist but either bureaucratic collectivism
Bureaucratic collectivism
Bureaucratic collectivism is a theory of class society. It is used by some Trotskyists to describe the nature of the Soviet Union under Joseph Stalin, and other similar states in Central and Eastern Europe and elsewhere .- Theory :...
or state capitalism
State capitalism
The term State capitalism has various meanings, but is usually described as commercial economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or...
. Trotskyists argue they are neither socialist nor capitalist - but are deformed workers' state
Deformed workers' state
In Trotskyist political theory, deformed workers' states are states where the bourgeoisie has been overthrown through social revolution, the industrial means of production have been largely nationalized bringing benefits to the working class, but where the working class has never held political power...
s.
This analysis is consistent with Lenin's April Theses, which stated that the goal of the Bolshevik revolution was not the introduction of socialism, which could only be established on a worldwide scale, but was intended to bring production and the state under the control of the Soviets of Workers' Deputies. Furthermore, these "Communist states" often don't claim to have achieved socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
in their countries; on the contrary, they claim to be building and working toward the establishment of socialism in their countries. For example, the preamble to the Socialist Republic of Vietnam's constitution states that Vietnam only entered a transition stage between capitalism and socialism after the country was re-unified under the Communist party in 1976, and the 1992 Constitution of the Republic of Cuba states that the role of the Communist Party is to "guide the common effort toward the goals and construction of socialism".
This view is challenged by Stalinists
Stalinism
Stalinism refers to the ideology that Joseph Stalin conceived and implemented in the Soviet Union, and is generally considered a branch of Marxist–Leninist ideology but considered by some historians to be a significant deviation from this philosophy...
and their followers, who claim that socialism was established in the Soviet Union after Joseph Stalin
Joseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...
came to power and instituted the system of five year plans. Joseph Stalin introduced the theory of Socialism in one country
Socialism in One Country
Socialism in One Country was a theory put forth by Joseph Stalin in 1924, elaborated by Nikolai Bukharin in 1925 and finally adopted as state policy by Stalin...
, which argued that socialism can be built in a single country, despite existing in a global capitalist economic system.
Union of Soviet Socialist Republics
The Soviet UnionSoviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
and some of its European satellites aimed for a fully centrally planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
. They dispensed almost entirely with private ownership over the means of production. Workers were still, however, effectively paid a wage for their labour. Some believe that according to Marxist theory this should have been a step towards a genuine workers' state. However, some Marxists consider this a misunderstanding of Marx's views of historical materialism
Historical materialism
Historical materialism is a methodological approach to the study of society, economics, and history, first articulated by Karl Marx as "the materialist conception of history". Historical materialism looks for the causes of developments and changes in human society in the means by which humans...
, and his views of the process of socialization.
The characteristics of this model of economy were:
- Production quotas for every productive unit. A farm, mine or factory was judged on the basis of whether its production met the quota. It would be provided with a quota of the inputs it needed to start production, and then its quota of output would be taken away and given to downstream production units or distributed to consumers. Critics of both left and right persuasions have argued that the economy was plagued by incentive-related problems; claiming, for instance, that the system incentivized enterprise managers to underreport their unit's productive capacities so that their quotas would be easier to achieve, especially since the manager's bonuses were linked to the fulfillment of quotas.
- Allocation through political control. In contrast with systems where prices determined allocation of resources, in the Soviet Union, allocation, particularly of means of production was determined by the bureaucracy. The prices that were constructed were done so after the formulation of the economy plan, and such prices did not factor into choices about what was produced and how it was produced in the first place.
- Full employment. Every worker was ensured employment. However workers were generally not directed to jobs. The central planning administration adjusted relative wages rates to influence job choice in accordance with the outlines of the current plan.
- Clearing goods by planning : if a surplus of a product was accumulated, then the central planning authority would either reduce the quota for its production or increase the quota for its use.
- Five Year PlansFive-Year Plan (USSR)The Five-Year Plans for the National Economy of the Soviet Union were a series of nation-wide centralized exercises in rapid economic development in the Soviet Union. The plans were developed by a state planning committee based on the Theory of Productive Forces that was part of the general...
for the long-term development of key industries.
Post-Soviet reforms
After the dissolution of the Soviet Union and the Eastern bloc, many of the remaining socialist stateSocialist state
A socialist state generally refers to any state constitutionally dedicated to the construction of a socialist society. It is closely related to the political strategy of "state socialism", a set of ideologies and policies that believe a socialist economy can be established through government...
s presiding over centrally planned economies began introducing reforms that shifted their economies away from centralized planning.
The Republic of Cuba, under the leadership of Raul Castro
Raúl Castro
Raúl Modesto Castro Ruz is a Cuban politician and revolutionary who has been President of the Council of State of Cuba and the President of the Council of Ministers of Cuba since 2008; he previously exercised presidential powers in an acting capacity from 2006 to 2008...
, has begun to encourage co-operatives and self-employment in a move to reduce the central role of state enterprise and state management over the economy, with the goal of building a co-operative form of socialism.
Vietnam adopted an economic model it formally titled the socialist-oriented market economy. This economic system is a form of mixed-economy consisting of state, private, co-operative and individual enterprises coordinated by the market mechanism
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
. This system is intended to be transitional stage in the development of socialism.
People's Republic of China
ChinaChina
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
embraced a socialist planned economy after the Communist victory in its Civil War. Private property and private ownership of capital were abolished, and various forms of wealth made subject to state control or to workers' councils.
The Chinese economy broadly adopted a similar system of production quotas and full employment by fiat to the Russian model. The Great Leap Forward
Great Leap Forward
The Great Leap Forward of the People's Republic of China was an economic and social campaign of the Communist Party of China , reflected in planning decisions from 1958 to 1961, which aimed to use China's vast population to rapidly transform the country from an agrarian economy into a modern...
saw a remarkably large-scale experiment with rapid collectivisation of agriculture, and other ambitious goals. Results were less than expected, (e.g., there were food shortages and mass starvation) and the program was abandoned after three years.
In recent decades China has opened its economy to foreign investment and to market-based trade, and has continued to experience strong economic growth. It has carefully managed the transition from a planned socialist economy to a market economy, officially referred to as the socialist commodity market economy, which has been likened to capitalism by some outside observers. As a result, centralized economic planning has little relevance in China today.
The current Chinese economic system is characterized by state ownership combined with a strong private sector that privately owned enterprises that generate about 33% (People's Daily Online 2005) to over 50% of GDP in 2005, with a BusinessWeek article estimating 70% of GDP, a figure that might be even greater considering the Chengbao system
Chengbao system
In the People's Republic of China, the Chengbao system refers to the private or individual contracted operation of public assets such as bus lines, hospitals, and schools. These operators pay a fee as well as a percentage of profit generated to the state...
. Some western observers note that the private sector is likely underestimated by state officials in calculation of GDP due to its propensity to ignore small private enterprises that are not registered. Most of the state and private sectors of economy are governed by free market practices, including a stock exchange for trading equity. The free-market is the arbitrator for most economic activity, which is left to the management of both state and private firms. A significant amount of privately owned firms exist, especially in the consumer service sector.
The state sector is concentrated in the 'commanding heights' of the economy with a growing private sector engaged primarily in commodity production and light industry. Centralized directive planning based on mandatory output requirements and production quotas has been superseded by the free-market mechanism for most of the economy and directive planning is utilized in some large state industries. A major difference from the old planned economy is the privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
of state institutions. 150 state-owned enterprises remain and report directly to the central government, most having a number of subsidiaries. By 2008, these state-owned corporations have became increasingly dynamic largely contributing to the increase in revenue for the state. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises.
This type of economic system is defended from a Marxist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, letting it fully develop until it exhausts its historical stage and gradually transforms itself into a planned economy. Proponents of this model distinguish themselves from market socialists who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy.
The Socialist Republic of Vietnam has pursued similar economic reforms, though less extensive, which have resulted in what is officially called a Socialist-oriented market economy
Socialist-oriented market economy
The socialist-oriented market economy is the official name given to the current economic system in the Socialist Republic of Vietnam, as a product of the Đổi mới economic reforms, which led to the displacement of the centrally-planned economy with a market socialist system based on commodity...
, a mixed economy where the state plays a dominant role intended to be a transitional phase in establishment of a socialist economy.
Social Democratic Mixed Economies
Many of the industrialized, open countries of Western Europe experimented with one form of social democratic mixed economies or another during the 20th century. These include Britain (mixed economy and welfare state) from 1945 to 1979, France (state capitalism and indicative planning) from 1945 to 1982 under dirigisme, Sweden (social democratic welfare state) and Norway (state capitalist mixed economy) to the present. They can be regarded as social democratic experiments, because they universally retained a wage-based economy and private ownership and control of the decisive means of production.Nevertheless, these western European countries tried to restructure their economies away from a purely private capitalist model. Variations range from social democratic welfare states, such as in Sweden, to mixed economies where a major percentage of GDP comes from the state sector, such as in Norway, which ranks among the highest countries in quality of life and equality of opportunity for its citizens. Elements of these efforts persist throughout Europe, even if they have repealed some aspects of public control and ownership. They are typically characterized by:
- NationalizationNationalizationNationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
of key industries, such as coal, steel, power, and transportation. A common model was for a sector to be taken over by the state and then one or more publicly owned corporations set up for its day-to-day running. Advantages of nationalization include: the ability of the state to direct investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
in key industries, the distribution of state profitsProfit (economics)In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
from nationalized industries for the overall national good, the ability to direct producers to social rather than market goals, greater control of the industries by and for the workers, and the benefits and burdens of publicly funded research and development are extended to the wider populace. - Redistribution of wealth, typically through progressive taxation.
- Minimum wages, employment protection and trade unionTrade unionA trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
recognition rights for the benefit of workers. There were a number of different models of protection and trade union protection which evolved. Germany, for instance, appointed union representatives at high levels in all corporations and had much less industrial strife than the UK, whose laws encouraged strikeStrike actionStrike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...
s rather than negotiation. The objectives of these policies were to guarantee living wages and help produce full employmentFull employmentIn macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
. - National planningIndicative planningIndicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...
for industrial development. - Demand managementDemand managementDemand management is a planning methodology used to manage forecasted demand.-Demand management in economics:In economics, demand management is the art or science of controlling economic demand to avoid a recession...
in a Keynesian fashion to help ensure economic growth and employment.
State capitalism
Various state capitalist economies, which consist of large commercial state enterprises that operate according to the laws of capitalism and pursue profits, have evolved in countries that have been influenced by various elected socialist political partiesSocialist Party
Socialist Party is the name of several different political parties around the world that are explicitly called Socialist. All of these parties claim to uphold socialism, though they might belong to different branches of the socialist movement and might therefore have different interpretations of...
and their economic reforms. While these policies and reforms did not change the fundamental aspect of capitalism, and non-socialist elements within these countries supported or often implemented many of these reforms themselves, the result has been a set of economic institutions that were at least partly influenced by socialist ideology.
Singapore
Singapore pursued a state-led model of economic development under the People's Action PartyPeople's Action Party
The People's Action Party is the leading political party in Singapore. It has been the city-state's ruling political party since 1959....
, which initially adopted a Leninist approach to politics and a broad socialist model of economic development. The PAP was initially a member of the Socialist International
Socialist International
The Socialist International is a worldwide organization of democratic socialist, social democratic and labour political parties. It was formed in 1951.- History :...
. Singapore's economy is dominated by state-owned enterprises and government-linked companies through Temasek Holdings
Temasek Holdings
Temasek Holdings is an investment company owned by the government of Singapore. With an international staff of 380 people, it manages a portfolio of about S$193 billion at end of March 2011, focused primarily in Asia...
, which generate 60% of Singapore's GDP.
The state also provides substantial public housing, free education, health and recreational services, as well as comprehensive public transportation. Today Singapore is often characterized as having a state capitalist economy that combines economic planning with the free-market. While government-linked companies generate a majority of Singapore's GDP, moderate state planning in the economy has been reduced in recent decades.
India
After gaining independence from Britain, IndiaIndia
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
adopted a broadly socialist-inspired approach to economic growth. Like other countries with a democratic transition to a mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
, it did not abolish private property in capital. India proceeded by nationalizing various large privately run firms, creating state-owned enterprises and redistributing income through progressive taxation in a manner similar to social democratic Western European nations than to planned economies such as the USSR or China. Today India is often characterized as having a free-market economy that combines economic planning with the free-market. It did however adopt a very firm focus on national planning
Indicative planning
Indicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...
with a series of broad Five-Year Plans
Five-Year Plans of India
The economy of India is based in part on planning through its five-year plans, which are developed, executed and monitored by the Planning Commission. The tenth plan completed its term in March 2007 and the eleventh plan is currently underway...
.
Paris Commune
The Paris Commune was considered to be a prototype mode of economic and political organization for a future socialist society by Karl Marx. Private property in the means of production was abolished so that individuals and co-operative associations of producers owned productive property and introduced democratic measures where elected officials received no more in compensation than the average worker and could be recalled at any time.Social ownership and peer-to-peer production
Various forms of socialist organization based on co-operative decision making, workplace democracyWorkplace democracy
Workplace democracy is the application of democracy in all its forms to the workplace....
and in some cases, production directly for use
Production for use
Production for use is a defining criterion of a socialist economy and distinguishes socialism from capitalism...
, have existed within the broader context of the capitalist mode of production since the Paris Commune. New forms of socialist institutional arrangements began to take form at the end of the 20th century with the advancement and proliferation of the internet and other tools that allow for collaborative decision-making.
Michel Bauwens
Michel Bauwens
Michel Bauwens is a Belgian Peer-to-Peer theorist and an active writer, researcher and conference speaker on the subject of technology, culture and business innovation.-Biography:...
identifies the emergence of the open software movement and peer-to-peer production as an emergent alternative mode of production
Mode of production
In the writings of Karl Marx and the Marxist theory of historical materialism, a mode of production is a specific combination of:...
to the capitalist economy that is based on collaborative self-management, common ownership of resources, and the (direct) production of use-values through the free cooperation of producers who have access to distributed capital.
Commons-based peer production
Commons-based peer production
Commons-based peer production is a term coined by Harvard Law School professor Yochai Benkler to describe a new model of socio-economic production in which the creative energy of large numbers of people is coordinated into large, meaningful projects mostly without traditional hierarchical...
generally involves developers who produce goods and services with no aim to profit directly, but freely contribute to a project relying upon an open common pool of resources and software code. In both cases, production is carried out directly for use - software is produced solely for their use-value.
Wikipedia
Wikipedia
Wikipedia is a free, web-based, collaborative, multilingual encyclopedia project supported by the non-profit Wikimedia Foundation. Its 20 million articles have been written collaboratively by volunteers around the world. Almost all of its articles can be edited by anyone with access to the site,...
, being based on collaboration and cooperation and a freely associated individuals, has been cited as a template for how socialism might operate. This is a modern example of what the Paris Commune - a template for possible future organization - was to Marx in his time.
Socialist Federal Republic of Yugoslavia
YugoslaviaYugoslavia
Yugoslavia refers to three political entities that existed successively on the western part of the Balkans during most of the 20th century....
pursued a socialist economy based on autogestion or worker-self management. Rather than implementing a centrally planned economy, Yugoslavia developed a market socialist system where enterprises and firms were socially owned
Cooperative
A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
rather than publicly owned by the state. In these organizations, the management was elected by directly by the workers in each firm, and were later organized according to Edvard Kardelj
Edvard Kardelj
Edvard Kardelj also known under the pseudonyms Sperans and Krištof was a Yugoslav communist political leader, economist, partisan, publicist, and full member of the Serbian Academy of Sciences and Arts...
's theory of associated labor.
Self-managed enterprises
The Mondragon Corporation, a federation of cooperatives in the BasqueBasque Country (autonomous community)
The Basque Country is an autonomous community of northern Spain. It includes the Basque provinces of Álava, Biscay and Gipuzkoa, also called Historical Territories....
region of Spain, organizes itself as an employee-owned, employee-managed enterprise. Similar styles of decentralized management, which embrace cooperation and collaboration in place of traditional hierarchical management structures, have been adopted by various private corporations such as Cisco Systems
Cisco Systems
Cisco Systems, Inc. is an American multinational corporation headquartered in San Jose, California, United States, that designs and sells consumer electronics, networking, voice, and communications technology and services. Cisco has more than 70,000 employees and annual revenue of US$...
, inc. But unlike Mondragon, Cisco remains firmly under private ownership. More fundamentally, employee-owned, self-managed enterprises still operate within the broader context of capitalism and are subject to the accumulation of capital and profit-loss mechanism.
Anarchist Spain
The Spanish Revolution was a workers' social revolution that began during the outbreak of the Spanish Civil War in 1936 and resulted in the widespread implementation of anarchist and more broadly socialist organizational principles throughout various portions of the country for two to three years, primarily Catalonia, Aragon, Andalusia, and parts of the Levante. Much of Spain's economy was put under worker control; in anarchist strongholds like Catalonia, the figure was as high as 75%, but lower in areas with heavy Communist Party influence, as the Soviet-allied party actively resisted attempts at collectivization enactment. Factories were run through worker committees, agrarian areas became collectivised and run as libertarian communes. Even places like hotels, barber shops, and restaurants were collectivized and managed by their workers. Sam Dolgoff estimated that over 10 million people participated directly or at least indirectly in the Spanish Revolution, which he claimed "came closer to realizing the ideal of the free stateless society on a vast scale than any other revolution in history."History of socialist economic thought
Values of socialism have roots in pre-capitalist institutions such as the religious communes, reciprocal obligations, and communal charity of Mediaeval Europe, the development of its economic theory primarily reflects and responds to the monumental changes brought about by the dissolution of feudalism and the emergence of specifically capitalist social relations. As such it is commonly regarded as a movement belonging to the modern era. Many socialists have considered their advocacy as the preservation and extension of the radical humanist ideas expressed in EnlightenmentAge of Enlightenment
The Age of Enlightenment was an elite cultural movement of intellectuals in 18th century Europe that sought to mobilize the power of reason in order to reform society and advance knowledge. It promoted intellectual interchange and opposed intolerance and abuses in church and state...
doctrine such as Jean-Jacques Rousseau
Jean-Jacques Rousseau
Jean-Jacques Rousseau was a Genevan philosopher, writer, and composer of 18th-century Romanticism. His political philosophy influenced the French Revolution as well as the overall development of modern political, sociological and educational thought.His novel Émile: or, On Education is a treatise...
's Discourse on Inequality, Wilhelm von Humboldt
Wilhelm von Humboldt
Friedrich Wilhelm Christian Karl Ferdinand Freiherr von Humboldt was a German philosopher, government functionary, diplomat, and founder of Humboldt Universität. He is especially remembered as a linguist who made important contributions to the philosophy of language and to the theory and practice...
's Limits of State Action, or Immanuel Kant
Immanuel Kant
Immanuel Kant was a German philosopher from Königsberg , researching, lecturing and writing on philosophy and anthropology at the end of the 18th Century Enlightenment....
's insistent defense of the French Revolution
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
.
Capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
appeared in mature form as a result of the problems raised when an industrial factory system requiring long-term investment and entailing corresponding risks was introduced into an internationalized commercial (mercantilist) framework. Historically speaking, the most pressing needs of this new system were an assured supply of the elements of industry – land, elaborate machinery, and labour – and these imperatives led to the commodification of these elements.
According to influential socialist economic historian Karl Polanyi
Karl Polanyi
Karl Paul Polanyi was a Hungarian philosopher, political economist and economic anthropologist known for his opposition to traditional economic thought and his book The Great Transformation...
's classic account, the forceful transformation of land, money and especially labour into commodities to be allocated by an autonomous market mechanism was an alien and inhuman rupture of the pre-existing social fabric. Marx had viewed the process in a similar light, referring to it as part of the process of "primitive accumulation" whereby enough initial capital is amassed to begin capitalist production. The dislocation that Polyani and others describe, triggered natural counter-movements in efforts to re-embed the economy in society. These counter-movements, that included, for example, the Luddite
Luddite
The Luddites were a social movement of 19th-century English textile artisans who protested – often by destroying mechanised looms – against the changes produced by the Industrial Revolution, which they felt were leaving them without work and changing their way of life...
rebellions, are the incipient socialist movements. Over time such movements gave birth to or acquired an array of intellectual defenders who attempted to develop their ideas in theory.
As Polanyi noted, these counter-movements were mostly reactive and therefore not full-fledged socialist movements. Some demands went no further than a wish to mitigate the capitalist market's worst effects. Later, a full socialist program developed, arguing for systemic transformation. Its theorists believed that even if markets and private property could be tamed so as not to be excessively "exploitative", or crises could be effectively mitigated, capitalist social relations would remain significantly unjust and anti-democratic, suppressing universal human needs for fulfilling, empowering and creative work, diversity and solidarity.
Within this context socialism has undergone four periods: the first in the 19th century was a period of utopian visions (1780s-1850s); then occurred the rise of revolutionary socialist and Communist movements in the 19th century as the primary opposition to the rise of corporations and industrialization (1830–1916); the polarisation of socialism around the question of the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
, and adoption of socialist or social democratic policies in response (1916–1989); and the response of socialism in the neo-liberal era (1990- ). As socialism developed, so did the socialist system of economics.
Utopian socialism
The first theories which came to hold the term "socialism" began to be formulated in the late 18th century, and were termed "socialism" early in the 19th century. The central beliefs of the socialism of this period rested on the exploitation of those who labored by those who owned capital or rented land and housing. The abject misery, poverty and disease to which laboring classes seemed destined was the inspiration for a series of schools of thought which argued that life under a class of masters, or "capitalists" as they were then becoming to be called, would consist of working classes being driven down to subsistence wages. (See Iron law of wages).Socialist ideas found expression in utopian movements, which often formed agricultural communes aimed at being self-sufficient on the land. These included many religious movements, such as the Shakers
Shakers
The United Society of Believers in Christ’s Second Appearing, known as the Shakers, is a religious sect originally thought to be a development of the Religious Society of Friends...
in America.
Utopian socialism had little to offer in terms of a systematic theory of economic phenomena. In theory, economic problems were dissolved by a utopian society which had transcended material scarcity. In practice, small communities with a common spirit could sometimes resolve allocation problems.
Socialism and classical political economy
The first organized theories of socialist economics were significantly impacted by classical economic theory, including elements in Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
, Robert Malthus and David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
. In Smith there is a conception of a common good not provided by the market, a class analysis
Class analysis
Class analysis is research in sociology, politics and economics from the point of view of the stratification of the society into dynamic classes...
, a concern for the dehumanizing aspects of the factory system, and the concept of rent as being unproductive
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...
. Ricardo argued that the renting class was parasitic. This, and the possibility of a "general glut
General glut
In macroeconomics, a general glut is when supply exceeds demand, specifically, when there is more production in all fields of production in comparison with what resources are available to consume said production....
", an over accumulation of capital to produce goods for sale rather than for use, became the foundation of a rising critique of the concept that free markets with competition would be sufficient to prevent disastrous downturns in the economy, and whether the need for expansion would inevitably lead to war.
Socialist political economy before Marx
Pierre-Joseph Proudhon
Pierre-Joseph Proudhon was a French politician, mutualist philosopher and socialist. He was a member of the French Parliament, and he was the first person to call himself an "anarchist". He is considered among the most influential theorists and organisers of anarchism...
. He was the most well-known of nineteenth century mutualist
Mutualism (economic theory)
Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...
theorists and the first thinker to refer to himself as an anarchist. Others were: Technocrats like Henri de Saint Simon, agrarian radicals like Thomas Spence
Thomas Spence
Thomas Spence was an English Radical and advocate of the common ownership of land.-Life:Spence was born in Newcastle-on-Tyne, England and was the son of a Scottish net and shoe maker....
, William Ogilvie
William Ogilvie of Pittensear
William Ogilvie of Pittensear—the ‘rebel professor’—was the 18th century Scottish author of an influential historic land reform treatise. Published in London in 1782, An Essay on the Right of Property in Land was issued anonymously, necessarily it seems in a revolutionary age.Along with John Locke,...
and William Cobbett
William Cobbett
William Cobbett was an English pamphleteer, farmer and journalist, who was born in Farnham, Surrey. He believed that reforming Parliament and abolishing the rotten boroughs would help to end the poverty of farm labourers, and he attacked the borough-mongers, sinecurists and "tax-eaters" relentlessly...
; anti-capitalists like Thomas Hodgskin
Thomas Hodgskin
Thomas Hodgskin was an Englishsocialist writer on political economy, critic of capitalism, free-market anarchist and defender of free trade and early trade unions...
; communitarian and utopian socialists like Robert Owen
Robert Owen
Robert Owen was a Welsh social reformer and one of the founders of utopian socialism and the cooperative movement.Owen's philosophy was based on three intellectual pillars:...
, William Thompson
William Thompson (philosopher)
William Thompson was an Irish political and philosophical writer and social reformer, developing from utilitarianism into an early critic of capitalist exploitation whose ideas influenced the Cooperative, Trade Union and Chartist movements as well as Karl Marx...
and Charles Fourier
Charles Fourier
François Marie Charles Fourier was a French philosopher. An influential thinker, some of Fourier's social and moral views, held to be radical in his lifetime, have become main currents in modern society...
; anti-market socialists like John Gray
John Gray (19th century socialist)
John Gray was a British socialist economist.-Life and views:Very little personal information about John Gray is available. He lived mostly in Edinburgh. According to his own account, he was a poor student who dropped out of school early, went to London and took up factory work as a youngster...
and John Francis Bray
John Francis Bray
John Francis Bray was a radical, Chartist, writer on socialist economics and activist in both Britain and hisnative America in the 19th century. He was hailed in later life as the 'Benjamin Franklin' of American labor.- Life :...
; the Christian mutualist William Batchelder Greene
William Batchelder Greene
William Batchelder Greene was a 19th century individualist anarchist, Unitarian minister, soldier and promotor of free banking in the United States.-Biography:...
; as well as the theorists of the Chartist movement and early proponents of syndicalism
Syndicalism
Syndicalism is a type of economic system proposed as a replacement for capitalism and an alternative to state socialism, which uses federations of collectivised trade unions or industrial unions...
.
The first advocates of socialism promoted social leveling in order to create a meritocratic or technocratic society based upon individual talent. Count Henri de Saint-Simon was the first individual to coin the term "socialism". Simon was fascinated by the enormous potential of science and technology, which led him to advocate a socialist society that would eliminate the disorderly aspects of capitalism and which would be based upon equal opportunities. Simon advocated a society in which each person was ranked according to his or her capacities and rewarded according to his or her work. This was accompanied by a desire to implement a rationally organized economy based on planning and geared towards large-scale scientific and material progress, which embodied a desire for a semi-planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
.
Other early socialist thinkers were influenced by the classical economists. The Ricardian socialists, such as Thomas Hodgskin and Charles Hall, were based on the work of David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
and reasoned that the equilibrium value of commodities approximated producer prices when those commodities were in elastic supply, and that these producer prices corresponded to the embodied labor. The Ricardian socialists viewed profit, interest and rent as deductions from this exchange-value.
Das Kapital
Karl MarxKarl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
employed systematic analysis in an ambitious attempt to elucidate capitalism's contradictory laws of motion, as well as to expose the specific mechanisms by which it exploits and alienates. He radically modified classical political economic theories. Notably, the labor theory of value
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
that had been worked upon by Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
and David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
, was transformed into his characteristic "law of value
Law of value
-General:The law of value is a central concept in Karl Marx's critique of political economy, first expounded in his polemic The Poverty of Philosophy against Pierre-Joseph Proudhon, with reference to David Ricardo's economics...
" and used for the purpose of revealing how commodity fetishism
Commodity fetishism
In Marx's critique of political economy, commodity fetishism denotes the mystification of human relations said to arise out of the growth of market trade, when social relationships between people are expressed as, mediated by and transformed into, objectified relationships between things .The...
obscures the reality of capitalist society.
His approach, which Engels would call "scientific socialism
Scientific Socialism
Scientific socialism is the term used by Friedrich Engels to describe the social-political-economic theory first pioneered by Karl Marx. The purported reason why this socialism is "scientific socialism" is because its theories are held to an empirical standard, observations are essential to its...
", would stand as the branching point in economic theory: in one direction went those who rejected the capitalist system as fundamentally anti-social, arguing that it could never be harnessed to effectively realize the fullest development of human potentialities wherein "the free development of each is the condition for the free development of all.".
Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
is one of the many famous incomplete works of economic theory: Marx had planned four volumes, completed two, and left his collaborator Engels to complete the third. In many ways the work is modelled on Adam Smith's Wealth of Nations, seeking to be a comprehensive logical description of production, consumption and finance in relation to morality and the state.
It is a work of philosophy, anthropology and sociology as much as one of economics. However, it has several important statements:
- The Law of ValueLaw of value-General:The law of value is a central concept in Karl Marx's critique of political economy, first expounded in his polemic The Poverty of Philosophy against Pierre-Joseph Proudhon, with reference to David Ricardo's economics...
Capitalist production is the production of “an immense multitude of commodities” or generalised commodity production. A commodity has two essential qualities firstly, they are useful, they satisfy some human want, “the nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference,” and secondly they are sold on a market or exchanged. Critically the exchange value of a commodity “is independent of the amount of labour required to appropriate its useful qualities.” But rather depends on the amount of socially necessary labour required to produce it. All commodities are sold at their value, so the origin of the capitalist profit is not in cheating or theft but in the fact that the cost of reproduction of labour power, or the worker's wage, is less than the value created during their time at work, enabling the capitalists to yield a surplus value or profit on their investments.
- Historical Property Relations Historical capitalism represents a process of momentous social upheaval where rural masses were separated from the land and ownership of the means of productionMeans of productionMeans of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
by force, deprivation, and legal manipulation, creating an urban proletariatProletariatThe proletariat is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian...
based on the institution of wage-labour. Moreover, capitalist property relations aggravated the artificial separation between city and country, which is a key factor in accounting for the metabolic riftMetabolic riftMetabolic rift is a term developed by John Bellamy Foster and other theorists to refer to Karl Marx’s understanding of ecological disruption under capitalism...
between human beings in capitalism and their natural environment, which is at the root of our current ecological dilemmas. - Commodity FetishismCommodity fetishismIn Marx's critique of political economy, commodity fetishism denotes the mystification of human relations said to arise out of the growth of market trade, when social relationships between people are expressed as, mediated by and transformed into, objectified relationships between things .The...
Marx adapted previous value-theory to show that in capitalism phenomena involved with the price system (markets, competition, supply and demand) constitute a powerful ideology that obscures the underlying social relations of capitalist society. "Commodity fetishism" refers to this distortion of appearance. The underlying social reality is one of economic exploitation. - Economic ExploitationExploitationThis article discusses the term exploitation in the meaning of using something in an unjust or cruel manner.- As unjust benefit :In political economy, economics, and sociology, exploitation involves a persistent social relationship in which certain persons are being mistreated or unfairly used for...
Workers are the fundamental creative source of new value. Property relations affording the right of usufruct and despotic control of the workplace to capitalists are the devices by which the surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
created by workers is appropriated by the capitalists. - AccumulationAccumulationAccumulation may refer to:* Accumulation: None, a 2002 lo-fi album* Capital accumulation, the gathering of objects of value* Glacier ice accumulation, an element in the glacier mass balance formula...
Inherent to capitalism is the incessant drive to accumulate as a response to the competitive forces acting upon all capitalists. In such a context the accumulated wealth which is the source of the capitalist's social power derives itself from being able to repeat the circuit of Money-->Commodity-->Money', where the capitalist receives an increment or "surplus value" higher than their initial investment, as rapidly and efficiently as possible. Moreover this driving imperative leads capitalism to its expansion on a worldwide scale. - Crises Marx identified natural and historically specific (i.e. structural) barriers to accumulation that were interrelated and interpenetrated one another in times of crises. Different types of crises, such as realization crises and overproduction crises, are expressions of capitalism's inability to constructively overcome such barriers. Moreover, the upshot of crises is increased centralization, the expropriation of the many capitalists by the few.
- Centralization The interacting forces of competition, endemic crises, intensive and extensive expansion of the scale of production, and a growing interdependency with the state apparatus, all promote a strong developmental tendency towards the centralization of capital.
- Material Development As a result of its constant drive to optimize profitability by increasing the productivityProductivityProductivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
of labour, typically by revolutionizing technology and production techniques, capitalism develops so as to progressively reduce the objective need for work, suggesting the potential for a new era of creative forms of work and expanded scope for leisure. - Socialization, and the pre-conditions for Revolution By socializing the labour process, concentrating workers into urban settings in large scale production processes and linking them in a worldwide market, the agents of a potential revolutionary change are created. Thus Marx felt that in the course of its development capitalism was at the same time developing the preconditions for its own negation. However, although the objective conditions for change are generated by the capitalist system itself, the subjective conditions for social revolution can only come about through the apprehension of the objective circumstances by the agents themselves and the transformation of such understanding into an effective revolutionary program.
Anarchist economics
Anarchist economics is the set of theories and practices of economicsEconomics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
and economic activity within the political philosophy of anarchism
Anarchism
Anarchism is generally defined as the political philosophy which holds the state to be undesirable, unnecessary, and harmful, or alternatively as opposing authority in the conduct of human relations...
.
Pierre Joseph Proudhon was involved with the Lyons mutualists and later adopted the name to describe his own teachings
Mutualism (economic theory)
Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...
. Mutualism
Mutualism (economic theory)
Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...
is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon
Pierre-Joseph Proudhon
Pierre-Joseph Proudhon was a French politician, mutualist philosopher and socialist. He was a member of the French Parliament, and he was the first person to call himself an "anarchist". He is considered among the most influential theorists and organisers of anarchism...
, who envisioned a society where each person might possess a means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, either individually or collectively, with trade representing equivalent amounts of labor in the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
. Integral to the scheme was the establishment of a mutual-credit bank that would lend to producers at a minimal interest rate, just high enough to cover administration. Mutualism is based on a labor theory of value
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
that holds that when labor or its product is sold, in exchange, it ought to receive goods or services embodying "the amount of labor necessary to produce an article of exactly similar and equal utility". Receiving anything less would be considered exploitation, theft of labor, or usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
.
Collectivist anarchism
Collectivist anarchism is a revolutionary doctrine that advocates the abolition of both the state and private ownership of the means of production...
(also known as anarcho-collectivism) is a revolutionary doctrine that advocates the abolition of the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
and private ownership
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
. Instead, it envisions the means of production being owned collectively and controlled and managed by the producers themselves. Once collectivization takes place, workers' salaries would be determined in democratic organizations based on the amount of time they contributed to production. These salaries would be used to purchase goods in a communal market. Collectivist anarchism is most commonly associated with Mikhail Bakunin
Mikhail Bakunin
Mikhail Alexandrovich Bakunin was a well-known Russian revolutionary and theorist of collectivist anarchism. He has also often been called the father of anarchist theory in general. Bakunin grew up near Moscow, where he moved to study philosophy and began to read the French Encyclopedists,...
, the anti-authoritarian
Anti-authoritarian
Anti-authoritarianism is opposition to authoritarianism, which is defined as a "political doctrine advocating the principle of absolute rule: absolutism, autocracy, despotism, dictatorship, totalitarianism." Anti-authoritarians usually believe in full equality before the law and strong civil...
sections of the First International, and the early Spanish anarchist movement
Anarchism in Spain
Anarchism has historically gained more support and influence in Spain than anywhere else, especially before Francisco Franco's victory in the Spanish Civil War of 1936–1939....
.
Anarchist communism
Anarchist communism
Anarchist communism is a theory of anarchism which advocates the abolition of the state, markets, money, private property, and capitalism in favor of common ownership of the means of production, direct democracy and a horizontal network of voluntary associations and workers' councils with...
is a theory of anarchism
Anarchism
Anarchism is generally defined as the political philosophy which holds the state to be undesirable, unnecessary, and harmful, or alternatively as opposing authority in the conduct of human relations...
which advocates the abolition of the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
, private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
, and capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
in favor of common ownership
Common ownership
Common ownership is a principle according to which the assets of an enterprise or other organization are held indivisibly rather than in the names of the individual members or by a public institution such as a governmental body. It is therefore in contrast to public ownership...
of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, direct democracy
Direct democracy
Direct democracy is a form of government in which people vote on policy initiatives directly, as opposed to a representative democracy in which people vote for representatives who then vote on policy initiatives. Direct democracy is classically termed "pure democracy"...
and a horizontal network of voluntary association
Voluntary association
A voluntary association or union is a group of individuals who enter into an agreement as volunteers to form a body to accomplish a purpose.Strictly speaking, in many jurisdictions no formalities are necessary to start an association...
s and workers' council
Workers' council
A workers' council, or revolutionary councils, is the phenomenon where a single place of work or enterprise, such as a factory, school, or farm, is controlled collectively by the workers of that workplace, through the core principle of temporary and instantly revocable delegates.In a system with...
s with production and consumption based on the guiding principle: "from each according to ability, to each according to need". Unlike mutualism, collectivist anarchism and marxism, anarcho-communism as defended by Peter Kropotkin
Peter Kropotkin
Prince Pyotr Alexeyevich Kropotkin was a Russian zoologist, evolutionary theorist, philosopher, economist, geographer, author and one of the world's foremost anarcho-communists. Kropotkin advocated a communist society free from central government and based on voluntary associations between...
and Errico Malatesta
Errico Malatesta
Errico Malatesta was an Italian anarcho-communist. He was an insurrectionary anarchist early in his life. He spent much of his life exiled from his homeland of Italy and in total spent more than ten years in prison. He wrote and edited a number of radical newspapers and was also a friend of...
rejected the labor theory of value altogether, instead advocating a gift economy
Gift economy
In the social sciences, a gift economy is a society where valuable goods and services are regularly given without any explicit agreement for immediate or future rewards . Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community...
and to base distribution on need.
Anarchist communism as a coherent, modern economic-political philosophy was first formulated in the Italian section of the First International by Carlo Cafiero
Carlo Cafiero
Carlo Cafiero was an Italian anarchist and champion of Mikhail Bakunin during the second half of the 19th century.-Early years:...
, Emilio Covelli, Errico Malatesta
Errico Malatesta
Errico Malatesta was an Italian anarcho-communist. He was an insurrectionary anarchist early in his life. He spent much of his life exiled from his homeland of Italy and in total spent more than ten years in prison. He wrote and edited a number of radical newspapers and was also a friend of...
, Andrea Costa
Andrea Costa
Andrea Costa was an Italian socialist activist, born in Imola.He co-founded the Partito dei Lavoratori Italiani in 1892 after renouncing his anarchist principles in 1879. It is probable that this happened due to his marriage to Russian Socialist Anna Kulischov...
and other ex-Mazzinian
Giuseppe Mazzini
Giuseppe Mazzini , nicknamed Soul of Italy, was an Italian politician, journalist and activist for the unification of Italy. His efforts helped bring about the independent and unified Italy in place of the several separate states, many dominated by foreign powers, that existed until the 19th century...
Republicans. Out of respect for Mikhail Bakunin
Mikhail Bakunin
Mikhail Alexandrovich Bakunin was a well-known Russian revolutionary and theorist of collectivist anarchism. He has also often been called the father of anarchist theory in general. Bakunin grew up near Moscow, where he moved to study philosophy and began to read the French Encyclopedists,...
, they did not make their differences with collectivist anarchism
Collectivist anarchism
Collectivist anarchism is a revolutionary doctrine that advocates the abolition of both the state and private ownership of the means of production...
explicit until after Bakunin's death. By the early 1880s, most of the European anarchist movement had adopted an anarchist communist position, advocating the abolition of wage labour and distribution according to need. Ironically, the "collectivist" label then became more commonly associated with Marxist state socialists who advocated the retention of some sort of wage system during the transition to full communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...
.
After Marx
Marx's work sharpened the existing differences between the revolutionary and non-revolutionary socialists.Non-revolutionary socialists took inspiration from the work of John Stuart Mill
John Stuart Mill
John Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
, and later Keynes and the Keynesians, who provided theoretical justification for (potentially very extensive) state involvement in an existing market economy. According to the Keynesians, if the business cycle could be solved by national ownership of key industries and state direction of their investment, class antagonism would be effectively tamed; a compact would be formed between labour and the capitalists. There would be no need for revolution; instead Keynes looked to the eventual "euthenasia of the rentier" sometime in the far future. Joan Robinson
Joan Robinson
Joan Violet Robinson FBA was a post-Keynesian economist who was well known for her knowledge of monetary economics and wide-ranging contributions to economic theory...
and Michael Kalecki employed Keynesian insights to form the basis of a critical post-Keynesian economics that at times went well beyond liberal reformism. Many original socialist economic ideas would also emerge out of the trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
movement (see Guild Socialism
Guild socialism
Guild socialism is a political movement advocating workers' control of industry through the medium of trade-related guilds. It originated in the United Kingdom and was at its most influential in the first quarter of the 20th century. It was strongly associated with G. D. H...
).
In the wake of Marx, "Marxist" economists developed many different, sometimes contradictory tendencies. Some of these tendencies were based on internal disputes about the meaning of some of Marx's ideas, including the 'Law of Value' and his crisis theory. Other variations were elaborations that subsequent theorists made in light of real world developments. For example the monopoly capitalist school saw Paul A. Baran
Paul A. Baran
Paul Alexander Baran was an American economist known for his Marxist views. In 1951 Baran was promoted to full professor at Stanford University and Baran was the only tenured Marxist economist in the United States until his death in 1964...
and Paul Sweezy
Paul Sweezy
Paul Marlor Sweezy was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine Monthly Review...
attempt to modify Marx's theory of capitalist development, which was based upon the assumption of price competition, to reflect the evolution to a stage where both economy and state were subject to the dominating influence of giant corporations. World-systems analysis, would restate Marx's ideas about the worldwide division of labour and the drive to accumulate from the holistic perspective of capitalism's historical development as a global system.
Accordingly, Immanuel Wallerstein
Immanuel Wallerstein
Immanuel Maurice Wallerstein is a US sociologist, historical social scientist, and world-systems analyst...
, writing in 1979, maintained that "There are today no socialist systems in the world-economy any more than there are feudal systems because there is only one world-system. It is a world-economy and it is by definition capitalist in form. Socialism involves the creation of a new kind of world-system, neither a redistributive world-empire nor a capitalist world-economy but a socialist world-government. I don't see this projection as being in the least utopian but I also don't feel its institution is imminent. It will be the outcome of a long social struggle in forms that may be familiar and perhaps in very few forms, that will take place in all the areas of the world-economy."
Meanwhile other notable strands of reformist and revolutionary socialist economics sprung up that were either only loosely associated with Marxism or wholly independent. Thorsten Veblen is widely credited as the founder of critical institutionalism
Institutionalism
Institutionalism can refer to:* Old Institutionalism: An approach to the study of politics that focuses on formal institutions of government* New institutionalism: a social theory that focuses on developing a sociological view of institutions, the way they interact and the effects of institutions...
. His idiosyncratic theorizing included acidic critiques of the inefficiency of capitalism, monopolies, advertising, and the utility of conspicuous consumption. Some institutionalists have addressed the incentive problems experienced by the Soviet Union. Critical institutionalists have worked on the specification of incentive-compatible institutions, usually based on forms of participatory democracy, as a resolution superior to allocation by an autonomous market mechanism.
Another key socialist, closely related to Marx, Keynes, and Gramsci, was Piero Sraffa
Piero Sraffa
Piero Sraffa was an influential Italian economist whose book Production of Commodities by Means of Commodities is taken as founding the Neo-Ricardian school of Economics.- Early life :...
. He mined classical political economy, particularly Ricardo, in an attempt to erect a value theory that was at the same time an explanation of the normal distribution of prices in an economy, as well that of income and economic growth. A key finding was that the net product or surplus in the sphere of production was determined by the balance of bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
between workers and capitalists, which was in turn subject to the influence of non-economic, presumably social and political factors. The mutualist tradition associated with Proudhon also continued, influencing the development of libertarian socialism
Libertarian socialism
Libertarian socialism is a group of political philosophies that promote a non-hierarchical, non-bureaucratic, stateless society without private property in the means of production...
, anarchist communism
Anarchist communism
Anarchist communism is a theory of anarchism which advocates the abolition of the state, markets, money, private property, and capitalism in favor of common ownership of the means of production, direct democracy and a horizontal network of voluntary associations and workers' councils with...
, syndicalism
Syndicalism
Syndicalism is a type of economic system proposed as a replacement for capitalism and an alternative to state socialism, which uses federations of collectivised trade unions or industrial unions...
and distributivism.
In the real world, revolutionary socialists were confronted by the necessity of running an economy, and generally a war economy
War economy
War economy is the term used to describe the contingencies undertaken by the modern state to mobilise its economy for war production. Philippe Le Billon describes a war economy as a "system of producing, mobilising and allocating resources to sustain the violence".Many states increase the degree of...
, and developed ideas and practice in response to the situations they found themselves in.
Criticism of socialist economics
Criticism of socialist economics comes from market economists, including the classicals, neoclassicals and Austrians, as well as from some anarchist economists. Besides this, some socialist economic theories are criticized by other socialists. Libertarian socialist, mutualist, and market socialist economists, for example, criticize centralized economic planning and propose participatory economicsParticipatory economics
Participatory economics, often abbreviated parecon, is an economic system proposed primarily by activist and political theorist Michael Albert and radical economist Robin Hahnel, among others. It uses participatory decision making as an economic mechanism to guide the production, consumption and...
and decentralized socialism.
Market economists generally criticise socialism for eliminating the free market and its price signals, which they consider necessary for rational economic calculation.
They also consider that it causes lack of incentive. They believe that these problems lead to a slower rate of technological advance and a slower rate of growth of GDP.
Austrian school
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
economists, such as Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
and Ludwig Von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
, have argued that the elimination of private ownership of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
would inevitably create worse economic conditions for the general populace than those that would be found in market economies. They argue that without the price signals of the market, it is impossible to calculate rationally how to allocate resources. Mises called this the economic calculation problem
Economic calculation problem
The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy...
. Polish economist Oskar Lange and Abba Lerner attempted to rebut Mises' argument by developing the Lange Model during the Economic calculation debate. The Lange model states that an economy in which all production is performed by the state, where there is a functioning price mechanism, has similar properties to a market economy under perfect competition, in that it achieves Pareto efficiency.
The neoclassical view is that there is a lack of incentive, not a lack of information in a planned economy. They argue that within a socialist planned economy there is a lack of incentive to act on information. Therefore, the crucial missing element is not so much information as the Austrian school argued, as it is the motivation to act on information.
See also
Further reading
- Albert, MichaelMichael AlbertMichael Albert is an American activist, economist, speaker, and writer. He is co-editor of ZNet, and co-editor and co-founder of Z Magazine. He also co-founded South End Press and has written numerous books and articles...
& Hahnel, Robin: The Political Economy of Participatory Economics, Princeton University Press, 1991. (Available online) - Amin, SamirSamir AminSamir Amin is an Egyptian economist. He currently lives in Dakar, Senegal.- Biography :Samir Amin was born in Cairo, the son of an Egyptian father and a French mother . He spent his childhood and youth in Port Said; there he attended a French High School, leaving in 1947 with a Baccalauréat...
: Spectres of Capitalism: A Critique of Current Intellectual Fashions, 1998, Monthly Review Press - Cole, G.D.H. : Socialist Economics, 1950, London : Victor Gollancz Ltd.
- G.A. Cohen : If you're an Egalitarian, How Come You're So Rich? : Harvard UP
- Horvat, Branko: The Political Economy of Socialism, 1982, M.E. Sharpe, Inc.
- Kennedy, Liam (ed.) : Economic Theory of Co-operative Enterprises: Selected Readings, 1983, The Plunkett Foundation for Co-operative Studies.
- Lebowitz, Michael A. : Beyond Capital, Marx's Political Economy of the Working Class, 1992, 2003, Palgrave.
- Noel Thompson Left in the Wilderness: The Political Economy of British Democratic Socialism since 1979 2002, Acumen Publishing ISBN 1902683544
- Sweezy, Paul M.Paul SweezyPaul Marlor Sweezy was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine Monthly Review...
: The Theory of Capitalist Development, 1942, Monthly Review Press. - Veblen, ThorsteinThorstein VeblenThorstein Bunde Veblen, born Torsten Bunde Veblen was an American economist and sociologist, and a leader of the so-called institutional economics movement...
: The Theory of the Leisure Class: An Economic Study of Institutions, 1899, New York Macmillan Company. - Von Mises, LudwigLudwig von MisesLudwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
, Socialism. - Makoto ItohMakoto Itohis a Japanese economist and is considered internationally to be one of the most important scholars of Marx's theory of value. He teaches at Kokugakuin University, Tokyo, and is professor emeritus of the University of Tokyo....
, Political Economy of Socialism.