Capital & Class

http://cnc.sagepub.com/ Money and Credit in Socialist Economies: a Reconsideration

Makoto Itoh Capital & Class 1996 20: 95 DOI: 10.1177/030981689606000105 The online version of this article can be found at: http://cnc.sagepub.com/content/20/3/95

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How should socialist economies treat money? Theoretically at least three different cases are conceivable. First, a form of socialist quasi-money (s-money) or labour certicate is introduced, called labour-money. Second, another form of s-money is possible without accounting for labour-time but with publicly determined prices. Third, money exists in a market socialist economy. This paper examines the nature of money in the Soviet Union, and criticizes the Soviet orthodox view dening the rouble as real money by the false dichotomy of posing either labour certicate or real money. The possible forms and functions of (s-)money as well as those of (s-)credit in socialist economies should be more exibly understood in accordance with various possible forms of socialist economies.

Money and Credit in Socialist Economies: a Reconsideration

by Makoto Itoh
1. Money in Socialist Economies
How should socialist economies treat the money form in the transition from capitalism with all its disasters, instability and inequalities? In origins and function money is an essential nexus of market economies. It represents the means of accounting and exchange as well as the absolute form of wealth. Therefore, as we shall see in more detail below, the classics of Marxism assumed that in a socialist planned economy without markets money would disappear. In reality however, the Soviet type of socialism retained a form of paper money (e.g. rouble, mark, zloty) with certain restricted social functions. Goods and services were in a sense priced although their prices were not determined in a market. The nature and functions of money in such societies are therefore an interesting theoretical problem in itself as well as being relevant to wider questions of how societies of the Soviet type should be interpreted and to our vision of a future socialism beyond the market. It will be

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Capital & Class #60 argued in this paper that there is no single model of the relationship between money form and socialist economies. The functions and signicance of money or quasi-money in socialist societies must vary in accordance with different modes of social organisation of the economy. Theoretically we can conceive of three different cases. In the first case an associational society completely dissolves the capitalist market order and realises social relations in which both the social allocation of labour time and the distribution of the means of subsistence to individuals are performed transparent in their simplicity by directly using labour time as a unit of accounting.1 In this case an hour of labour can be called, for example, 10 roubles. If an individual works for 8 hours a day, he or she would receive 80 roubles. Or, under the same conditions, income for personal consumption could be, say, 40 roubles after deducting the contribution to a social fund. At the same time, all the products are priced in terms of accounting roublesprices which are directly proportional to the amount of labour time embodied in them. Although certicates signifying roubles are used both for distributing the means of subsistence and for allocating means of production and labour to firms, the certificate is just a labour certificate representing the consciously planned distribution of social labour. Marx held that these labour certificates were not to be thought of as money but were analogous to theatre tickets. However as long as the certicate for 80 roubles of personal income is used either as a means of exchange to obtain selected (non-rationed) means of subsistence or hoarded or lent and borrowed, it has features in common with money and may be termed labour money. Although there is not a free market economy there is conceptual room for treating labour certificates as socialist quasi-money (s-money) and for correspondingly referring to socialist prices (s-prices) based on a conscious measurement of labour time. We assume of course that not all goods and services are rationed. In the second type of social organisation the labour time embodied in each product is either not calculated or prices are determined by plan at levels which for various reasons differ from those directly proportional to embodied labour time. The Soviet rouble for example was used officially to determine

Money and credit in Socialist economies prices in the planned economy but without calculating amounts of labour time embodied in products. The rouble could not be regarded as a labour certicate, as in the rst case we have considered, but nevertheless it was very different from money and prices in a market economy. Money in the Soviet economy was used as a means of purchasing those goods and services for consumption which were not rationed. It was also deposited and borrowed by the state and firms. Although money and prices cannot perform their essential comprehensive function without a free market, socialist quasi-money (smoney) and socialist quasi-prices can be used in both the first and second cases of socialist economy. It follows that there can be two different sorts of s-money. The third case we shall consider is market socialism which incorporates and utilizes the market. Here the original functions of money would remain. Market socialism presupposes public ownership of the means of production or of firms, unlike social democracy which stresses income redistribution through welfare and tax policies within the limits of private ownership. In a market socialist economy, planned distribution of goods and services and price control can be incorporated to various degrees in the areas where socially conscious management of economic activities is desirable. The function of money in these restricted areas of the economy would be somewhat similar to s-money. At the same time the state under market socialism would seek to control money supply, interest rates and the rate of ination and deation of the aggregate level of prices as an important part of macro-economic management. Thus market socialism would certainly differ from a comprehensive system of free market relations. The nature and functions of money would be more restricted and subject to greater social control. In retrospect money in capitalist market economies has also been greatly transformed during the twentieth century from the form of commodity (gold) money arising anarchically from within the private market economy into the form of inconvertible bank notes under the strong control of the state. Money in a capitalist market economy has therefore already become much more subject to social control. The system of managed currency in the form of inconvertible bank notes realises to a certain degree the socialisation of money by imposing some control over the core nexus of the capitalist

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Capital & Class #60 economy. However there are fundamental difficulties in the social control of a capitalist economy grounded in essentially anarchic market relations. These are well exemplied by the processes of transforming the economic crisis of basic capital accumulation into explosive inflation, wild speculative fluctuations in exchange rates or the swell and collapse of bubbles which result from the anarchic pursuit of speculative profits. To the extent that socialism is able to expand the possibilities for the socialisation of money, it will be able to overcome these forms of instability.

2. Abolition or Socialisation of Money?

The Classical Marxist View Should socialism abolish money or, approving of its continued existence, endeavour socially to control it? This is basically an expression of another question: Should socialism abolish or utilise the market? My own position on the issue is that either strategy is theoretically possible but the outcome would have to be determined in each country by democratic decisionat least in the medium term. The classical Marxist view was somewhat narrower. Marx and his immediate followers assumed that a socialist society must abolish both money and markets so as to emancipate people from the domination of money fetishism. Labour time, in their vision of an associational socialist society was usually supposed to serve as a unit of economic account which would make transparent the necessary social allocation of labour as well as the principle of distributing consumption goods and services to societys members in accordance with individual contributions of labour time. The reason why commodities and money were supposed to disappear in an associational society must be related to Marxs notion that only the products of mutually independent acts of labour, performed in isolation, can confront each other as commodities. (Marx 1976: 132). If this is true and production in an associational community is not carried out by independent and isolated producers, it follows that both commodities and money (as their general equivalent) would have little place in this kind of society. Lenin agreed. When we are victorious on a world scale, he wrote, I think we shall use gold for the purpose of building

Money and credit in Socialist economies public lavatories in the streets of some of the largest cities of the world (Lenin 1921: 113). This was a typical expression of the classical Marxist ambition to abolish money. It also predated the discovery of new uses for gold as in terminals for sophisticated electronic equipment and other manufactured goods. At the risk of labouring Lenins joke, gold is used nowadays in many useful goods: it would of course be wasted as raw material for building lavatories. Marx had other insights into the social preconditions of commodity production. Discussing its origins, he stated that the exchange of commodities begins where communities have their boundaries, at their points of contact with other communities or with members of the latter. (Marx 1976: 182) Marx saw the origins of exchange in relations between different societies; historically exogenous to the internal relations which organise the labour processes in various social formations. Indeed before capitalism, the forms of commodity economy functioned for long periods as mainly inter-social economic relations or as forms of trade between different communities which organise their own relations of production outside the market economic order. The Uno school of Japanese Marxist political economy, starting from this historical observation by Marx has put forward the view that the forms of market economy such as commodities, money and some kinds of capital, can theoretically be studied as pure forms of circulation without referring to the substance of value or the social relations that structure labour processes. 2 This theoretical starting point which separates the external origin of the forms of market economy from the intra-social labour process can be developed in two ways. In one line of argument this analysis does not contradict the project to abolish money in a socialist economy. If the forms of commodities and money are in origin external forms of circulation as against internal socio-economic life then socialism can aim to push these out again from the basic social labour process and nally realise an associational conscious control of the metabolism between human beings and nature by altogether excluding market relations and money. Kozo Uno seems to have endorsed this view when he criticised Stalins notion that the law of value could be utilised under socialism.3 Stalin had argued that that a socialist economy should use the

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The views of the Uno School of Japanese Marxism

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Capital & Class #60 law of value just like the laws of physics. Uno replied that socialism should aim at abolishing the law of value together with the anarchic forms of market economy which give rise to it. As we have seen, this view of socialism would not necessarily negate the use of s-money either in the initial process of construction of socialism or even in a completely socialist economy. However, in another line of argument, the same starting point can be adopted to argue at least in the medium term for the possibility of market socialism in which the forms of market economy are functionally utilised as a co-ordinating mechanism among decentralised communities, firms and consumers upon foundations of socially owned means of production and the democratic organisation of the labour process. This is precisely because the forms of market economy were originally inter-social trading relations among communal societies of various characters.

S-Money in Soviet-type Societies

Realising the total associational planning of the global economy would be difficult to achieve in the medium term. The Soviet Union, which domestically realised a type of centralised planned economy on foundations of state ownership of major means of production had to depend on foreign trade in a capitalist world market. Even with strict state control of the internal economy, gold and dollars as world money had to be used by the Soviet government to settle trade balances with countries of the capitalist world. The historical fact that the Soviet Union happened to be one of the worlds greatest producers of gold considerably eased access to such international means of settlement, serving as a hidden foundation of economic growth for decades and consolidating socialism in a single country. On the other hand the Soviet Union could not use labour time as a domestic unit of account. The rouble, a sort of smoney different from both free market money and labour certicates, was used as a unit of economic account for income distribution as well as a means of settlement for and by rms and kolkhozes (collective farms). So long as the composition of necessary goods and services varied among consumers or where free choice was allowed for those goods and services (albeit in a restricted range) some sort of s-money had to be distributed to households and individuals to choose them. In addition the rouble as a kind of s-money with corresponding prices enabled

Money and credit in Socialist economies economic calculation by the central planning board and rms including the calculation of production costs. These were theoretically to be minimised (although not in the same way as envisaged by neo-classical Hayekian price theory.)4 The Soviet s-money rouble was also used as an international means of settlement between nations within the COMECOM (Council for Mutual Economic Assistance). In a socialist economy under comprehensive economic planning, foreign trade must be controlled and planned too, so as not to disrupt domestic economic plans. The international means of settlement therefore needed to be controlled according to plan. The socialist planned economies in the USSR and eastern Europe were actually run on the premise of central control of the international economy as well as of international means of payment. These experiences illustrate how an economic unit of account and settlement can be converted into s-money domestically by restricting its functions in comparison with those of real money and how international currency can be socialised even though in a particular statist way.

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In a market socialist economy which combines a wide range of Money in Market co-ordination through the market with various forms of public Socialism ownership, essential functions of money must still remain. Note however that money in the market socialist economy would act as s-money in some respectsin socially controlled areas of economic life. At the same time, as inconvertible central bank notes, its supply can be subject to social control and manipulation by scal and monetary policies. In the years since the 1930s, capitalist economies have developed a sophisticated policy mechanism socially to control and manipulate money. Market socialism would have to learn how to adapt this mechanism to its own social purposes. Should a market socialist country keep foreign trade open and free for its rms, while trying to secure the necessary stock of world money by means of scal and monetary policies amid uctuating exchange rates in the world market? Or should it allocate and control international currency and thereby exert a measure of control over foreign trade? There is no hard and fast rule. Strategies can vary and might change according to international competitive strength and the corresponding necessity to control foreign trade.

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Capital & Class #60 Thus while various functions of money would continue to exist in a market socialist economy there would also be opportunities to control its supply and accessibility both domestically and internationally. Keynesianism assumes that the necessary control of money should be carried out by elite specialists informed by a national point of view and inspired by Keynes own rational and liberal assumptionswhich have been called the premise of Harvey Road.5 If the regional integration of nation states such as the EU realise integration of nancial systems then the control of money supply would become subject to unied macroeconomic management, but it would still be in the hands of centralised specialist authorities at least for the time being. In the Soviet model, the supply and control of s-money clearly took a more statist form with decisions and directions coming from above. Money is the core and central nexus of commodity relations. Its control therefore cannot be decentralised like the management of individual rms. If monetary policy is to be carried out in a democratic way it requires fairness beyond partial interests, a wide knowledge, discretionary intelligence, democratic representativeness and exible rapidity of decision making. These objectives may seem rather difficult to achieve. We need not fear failure, however. Highly elitist political and bureaucratic management of money in capitalist economies has not been marked by either wisdom or outstanding success. Although informed by some theories it has been characterised in the main by trial and error. With the expansion of economic planning under market socialism, we could expect that monetary management and control would become somewhat easier than under capitalism. In any case it is both necessary and desirable for a market socialist economy to secure a social mechanism adequately to control money supply. This would entail politically adjudicating conicting demands and taking into consideration the side effects of ination and deation in ways that democratically reect what people want. It follows that it cannot be sufficient to call for a weakened State. When it comes to the necessary discretionary decision making in monetary management we need to think of socialist alternatives to the premise of Harvey Road. We need to open paths of free access to economic information, free opportunities to acquire wide economic knowledge and to enhance the general intelligence of working

Money and credit in Socialist economies people throughout their whole lives. These are necessary and signicant steps forwardif not by themselves sufficient, for more democratic social control of money.

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3. Reconsideration of Labour Money.

Marx advocated the use of labour time as a unit of economic Marxs Critique account for allocating labour to various needs and for of Labour- Money distributing social products to individuals in an associational society of free persons. But he criticised the theory of labour money put forward by John Gray and the Ricardian socialists. According to Gray, economic disasters, including crises of over-production, originate in the use of scarce gold as money. Therefore a harmonious and fair economic order could only be achieved by reforming the monetary system. Every producer would receive a certain amount of labour money, equating, say, 72 hours of labour time a week with a pound sterling. This would be in exchange for the amount of labourtime embodied in his or her products which are delivered to storehouses of a national bank or its branches. Such labourmoney would serve as a sort of bill to order enabling a bearer to receive any products in the same storehouses at equivalent prices. These would be directly proportional to the labour time necessary to produce them (Gray 1831).6 Marx opposed Gray on the following grounds. It is not at all clear in Grays theory why there has to be another external measure of the value of commodities besides labour-time (the immanent measure of value), and why all values have to be estimated exclusively in terms of the money commodity. Gray bypasses this problem and assumes that the private labour contained in commodities is directly social labour. While Gray presupposes continuing commodity production on the basis of private, individual exchange, he proposes a labour-money scheme in which a national bank would treat private labour directly as socialised labour. He therefore fails to recognise that the basis of the bourgeois mode of production are the anarchic social relations specic to commodity production. (Actually Gray also suggested the necessity of controlling production itself when he suggested that the national bank should transform capital into national capital and private property in land into national property). A bank which naively

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Capital & Class #60 believed in Grays theory of labour-money and tried to implement it in practicewithout social reform of the basis of reproductionwould certainly be criticised by the bitter experience of actual bankruptcy! There are three aspects of Marxs critique which call for consideration here. Firstly, when Marx criticises Grays lack of an explanation for the necessity of money, Marx asks why all values come to be assessed in terms of a single, exclusive commodity (money). Here Marx seems to suggest that the social relations of labourtime in commodity production give rise to the external measure of values in money. Marx seems to argue the necessity of money from the intra-social relations of private production of commodities. From the point of view of the Uno school such an analysis could not result in a correct understanding of the external nature of money and commodities as forms of circulation which have externally connected various systems of social production over long periods of human history. Marxs view would then make it difficult to conceive of a socialist system without private production but using money or s-money. Secondly, Marx dismisses as utopian Grays notion that a national bank could recognise and directly treat private labour as social labour-time while keeping the social basis of private commodity production unchanged. This suggests a conversely related problem. Would it be similarly utopian to conceive of commodity circulation and money in a society of socialist rms under public ownership? In my view it would not. Thirdly, Marxs critique of Gray can be read to suggest that labour money or labour certicates could be practicable as soon as the social relations of commodity production are reformed so as to transfer capital and land ownership into national property, making labour directly social. Actually Marx appreciated rather highly Owens idea of labour certicates as going far beyond the utopian limitations of Grays theory since Owens idea assumed a reformed associational economy organising agriculture and manufacturing in co-operative rms (Owen 1821).

Labour Money or Labour Certicates Unrealised.

Here Marx suggests that once socialised labour is realised with public ownership of the means of production, labour money would become the certicate of labour performed but it would not be real money. The labour certicates would either directly express certain hours of labour time or certain units of quasi-

Money and credit in Socialist economies price (pounds sterling for example) but assuming direct proportionality between hours of labour time and pounds. Thus if an hour of labour-time is equated to ten pounds, a days labour of 8 hours would be expressed as 80 pounds and 2,000 hours a year as 20,000 pounds. This would show his or her individual average contribution to associational production in terms of quasi-prices and simultaneously his or her claim on the common product. In so far as each unit of labour certicate thus expresses a unit of quasi-price it would maintain the appearance of quasi-money or a sort of s-money. Therefore it may be termed labour-money. Marxs image of an association of free persons was presented only for the sake of a parallel with the production of commodities, but he assumed that such a society would use labour-time as a measure for the allocation of labour in the correct proportion between various activities as well as for the distribution of the common store of products to individuals. This simple economic order therefore relies on both labour certificates as well as directly accounted labour hours. Assuming homogeneous labour, if the results of eight hours labour is expressed as 80 pounds and if the individual claim to the common product for 8 hours of labour is to be the same 80 pounds, then there cannot be any social surplus beyond distributed individual income. (Actually the idea of labour money put forward by Robert Owen and others was originally intended to abolish unearned incomes and to redistribute the whole results of labour to the producers). Compared with commodity production this image of associational society substantially parallels a society of small commodity producers working with their own means of production and without hired labour. Marx may have had this simple economic order with labour money in mind when he suggested the use of labourtime as a double measurefor allocation of labour and distribution of products. But elsewhere Marx suggests that individual workers may contribute, say, 8 hours a day but receive just 4 hours as their share for individual consumption, leaving 4 hours to a social fund to be spent on accumulation, communal consumption and insurance for accidents disease and so forth. Here the parallel is not with simple commodity production but with capitalism. This image of the social treatment of labour-time intends to transform the content and

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Capital & Class #60 functions of capitalist economythe regulation of labourtime and appropriation of surplus labourinto a socialist economic order by abolishing exploitation and the valorisation of private capital. In this model the individual worker who labours for 8 hours a day would receive for his or her individual consumption 40 pounds in terms of labourmoney representing a claim to products of 4 hours of labourtime while he or she contributes 80 pounds to society. There are therefore two different models for accounting labour costs for the economy. If the gap of 40 pounds between a workers labour contribution and consumption income directly belongs to a rm or to society, the socialist wage (swage) and labour cost for the rm would be counted as 40 pounds for a days work (5 pounds an hour). Alternatively, swages or labour costs can be counted as 80 pounds for a days work (10 pounds an hour) from which the individual worker pays his or her own social contribution (40 pounds a day). In the latter model, rms may collect such contributions by deducting it from s-wages in advance. Although the substantial result is quite similar, there can be differences between the two models in their implications for the relationship of the individual to society and their inuence on the price system as a whole. Despite public declarations that socialism (the rst stage of communism) had been achieved in the USSR the system failed to realise labour certicates or labour money or to achieve a society based on economy of labour time. It is important to establish the nature of s-money in the Soviet modela problem which can only be examined together with s-prices, or rather a quasi-commodity form of production with s-prices therein.

4. Socialist Forms of Money (S-Money)

Stalins Constitutional Law (1936) claimed that the Soviet Union had already established socialist public ownership of the means of production and eliminated antagonistic classes and was therefore a socialist society. Nevertheless Soviet economic planning could not form transparent and simple social and economic relations measured by labour time. Correspondingly the nature and functions of the rouble as smoney could not be identical with Owens labour certicates or so-called labour money. (Marx clearly refused to regard labour certicates as money).

Money and credit in Socialist economies Why did the Soviet Union fail to realise transparent and simple economic relations measured by labour time? One possible explanation ascribes the reason to temporary backwardness of Soviet society, still developing towards socialism. However this view ignores the theoretical and practical obstacles later in the more developed USSR of the 1950s and the 1960s. Theoretically there was a basic problem as to how to reduce heterogeneous and complex labour to homogeneous quantities of abstract human labour.This relates to one aspect of a long standing controversy around the labour theory of value. If reduction of heterogeneous concrete labour to abstract labour were performed only through the market as I.I. Rubin asserts, then a third concept, such as socially equalised labour, needs to be introduced into a socialist planned economy (Rubin 1992: chs. 13 and 14). But there was not a strong theoretical foundation for equalising different sorts of complex or skilled labour. As a result, grading of labour in the Soviet-type societies became arbitrary, allowed bureaucratic stratication of jobs and as a result gave apparent legitimacy to the privileged economic lives of state and party bureaucrats. In a free market economy the value of skilled labour is determined by the higher costs of education and training. This guarantees the generational reproduction of socially necessary labour power through private family income. However in the Marx-Ricardo tradition there is a basic theoretical difference between the value of labour-power on one hand and the amount of labour-time expended as the use-value of labourpower on the other. They should be theoretically disconnected. In a socialist society where costs of education and training are a charge against societys common fund there is no reason to guarantee higher levels of distribution, or higher wages to skilled workers on the grounds of their special costs of education and training. Abstracting from these costs, complex skilled labour is expenditure of universal human ability to work in concrete forms just as simple labour is. It cannot be seen as condensed or intensied labour, expending more labour time than simple labour in the same period of time. Actually even simple labour embodies different ways of using human capacity. Only when we see in these different forms the common universal ability to work in various ways can we reduce them to homogeneous abstract human labour which does not depend upon

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Capital & Class #60 commensuration of products in the form of prices in a market. From this point of view we can count the amount of labour time of complex, skilled labour in terms of physical hours in just the same way as that of simple labour. The possibility that we may have to pay an additional incentive for responsible complex labour should be considered separately while recognising the basically egalitarian nature of human labour.7 Once we assume homogeneous labour and a single product for each industrial process, the quantities of labour-time embodied in a unit of any product can be determined by solving simultaneous equations representing a technically given input-output system of reproduction.8 Although the feasibility of this device is theoretically proved it could not be realised practically. Firstly, reliable technical information on input-output relations between millions of products is difficult to collect. Secondly it would take too much time and labour to solve millions of simultaneous equationsa similar objection to that raised by Hayek on the practical calculability of equilibrium prices on the assumptions of general equilibrium theory. The recent development since the 1970s of micro-electronic information technology with high computer capacity promises to solve these problems in calculating embodied labour time to a certain extent, especially if we start from strategically important goods and services. Conversely, a great number of final products can be excluded from the initial process of calculation as they do not go into the means of production of other goods. Their labour costs can easily be calculated if amounts of labour-time embodied in their means of production are known. An alternative way to measure the amount of labour-time embodied in each unit of production involves a trial and error method, by using full s-wages which measure the maximum average distribution of the whole result of living labour, leaving no social surplus. In the preceding numerical example, 80 pounds for 8 hours of labour or 10 pounds an hour is fully paid out in average s-wages. From this total each individual worker pays,say, 40 pounds to the common fund. Without any social surplus or with zero profit, prices which enable reproduction of all the existing branches of production must become directly proportional to the amounts of embodied labour-time in their products.

Money and credit in Socialist economies Therefore, equilibrium prices which are reached by trial and errorthrough either the simulation of a market or transactions in a market with full s-wagesmust reveal the amount of labour-time embodied in various products in direct proportionality with their prices. Interestingly the same trial and error method which was employed by Taylor and Lange in the socialist economic calculation debate to reach equilibrium prices on the premise of general equilibrium theory can be symmetrically used for measuring embodied labour-time in a full s-wages model (Taylor 1929; Lange 19361937).9 In the Soviet type of planned economy the lack of proper A False theoretical, technological and practical preparation made it Dichotomy impossible to calculate the amount of labour time embodied in goods and services and therefore could not realise labour certificates or labour money. A type of s-price (officially determined by the central planning board) was given to each product and a kind of s-money rouble was used to distribute income as well as for transactions between the central organs on the one side and the individual rms, collective farms and consumers on the other. Those prices were measured neither in terms of embodied labour time nor subject to the balance of supply and demand in a market. If we attempt to interpret Soviet reality in the light of a simple dichotomy between money and labour certificates (without any other notion of s-money) we would have to conclude that money and commodities existed in the USSR. Actually the common orthodox opinion in the Soviet Union was that commodities and money remained. This view was based on a strong interpretation of Marxs statement that only the products of mutually independent acts of labour performed in isolation, can confront each other as commodities (Marx 1976: 132). As a corollary there was a tendency to believe that commodities could only be transcended when all production was carried out in integrated and unified state owned rms. Stalin, for example, pointed to the co-existence of remaining co-operatives, kolkhoz types of collective farms and rms beside nationalised enterprises as the reason for the continued existence of commodities in the Soviet economy. This left unexplained why transactions between state firms were also conducted in roubles and sprices. To meet this

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Capital & Class #60 objection it was subsequently asserted (in the Soviet Union and by supporters of Soviet orthodoxy) that the relative separation and independence of state owned rms accounted for the continued existence of commodities, price form and money. Even if there was a certain degree of relative separation and independence among state-owned firms in the Soviet economy, those rms were not able to purchase the necessary materials and labour force or to sell their products in a free market. Therefore it is highly questionable to assert that commodities and money existed in the true sense of the terms. Nevertheless the mechanical dichotomy between labour certicates and money as well as Marxs somewhat problematic notion of mutually independent acts of labour as the sole preconditions for commodities were applied to the Soviet economy. After Stalin, the framework of official interpretation became improperly narrow. It became obligatory to dene the rouble as money interlinking commodities. If there really were commodities and money it would also be quite difficult to understand why the transition to a market economy is now so hard to achieve.

The Nature of Money and SMoney in Socialist Economies

As we saw above the forms of commodity economy were originally external to the socio-economic life of various societies. Once this is clearly understood then we can conceive of socialism as a socialist market economy with public ownership but to some extent incorporating real forms of commodity relations and money. In Soviet type economies, however, s-prices and s-money were not real prices or money due to their socially limited function and role. But nor did they represent a system of labour certificates. Efforts to analyse its real social functions and transformed conditions of existence tended to be held back by the mechanical dichotomy in which they were conceptualised. We need to clarify the special forms and functions of s-money in Soviet type centrally planned economies together with the socio-economic conditions for its existence. As s-money the rouble had at least the following functions and characteristics. It worked as a means of purchase and a means of payment for goods and services with officially xed prices. It gave individuals and households freedom of choice in buying consumer goods and services (within the constraints of their incomes and a large socialised sector of consumption.)

Money and credit in Socialist economies However its functions were narrowly limited in comparison to those of true moneythe general equivalent in a free market. Firms could not purchase raw materials selectively from other rms but received allocations of them through the state supply agency (GOSSNAB). Even if they had roubles to pay for raw materials they could not have purchased them on a free market. Nor could consumers with roubles always obtain those goods and services that they wanted in the Soviet economy of shortage.10 They had to spend a lot of time queuing, searching on foot and frequently still failing. Therefore it can be said that in its functions as a means of purchase the rouble was very restricted. Correspondingly, adjustments of allocations of labour and other resources as well as the readjustment of public prices of goods in line with the trend of purchases was very slow (if ever). Prices of goods and services were determined by the state planning commission (GOSPLAN) basically on cost principles, together with the scale of wages for various jobs. Therefore, while the results of various heterogeneous labour were given the homogeneous form of rouble prices and transacted in terms of these prices, the evaluation mechanism was quite different from that in a free market where anarchic and subjective prices are repeatedly corrected by the function of money as a means of purchase and then of measurement of values. The functions of the rouble wage were also quite different from that of price of the commodity labour-power in a capitalist market economy. Roubles represented no more than the distribution of claims to the social product in accordance with individual labour contributed to society. In the Soviet type of society wages were basically paid by the state (even if through rms) and returned to the state being paid for goods and services offered by the state or state firms. Individual persons or firms could hoard some portion of rouble income but they could not use rouble s-money for private prot making or private capital investment. Nor could they use s-money roubles directly as world money. These social restrictions meant that the rouble was different in nature from true money in a market economy while, as we have seen, it could not be regarded as labour certicates or labour-money. It should be interpreted as a sort of socialist quasi-money (s-money) with limited social functions. Its special nature corresponded to the centrally controlled

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Capital & Class #60 character of prices in the Soviet economy. Although the forms of market economy such as commodities and money can form external articulations with various social relations of production, they must be transformed into socially restricted quasiforms once they are incorporated into a centrally planned economy. We should recognise that such a social system can be managed through these quasi-forms with neither labour money nor free market. The officially xed prices can be used for economic calculation. By somewhat conventionally assuming the same composition of national production, they can measure, for example, the annual growth of national products in deated macro-data just as deated market prices in capitalist countries do. Economic accounting in terms of labour time could not replace the function of s-prices or prices in measuring economic growth and hence in measuring also a change in labour productivity at the level of national or industrial aggregates The social nature and functions of prices and money as the forms of circulation can be transformed under certain sociopolitical conditions. Already in capitalist societies the controlled economies in war periods or the managed currency systems have demonstrated certain tendencies towards the socialisation of money. Again, some experimental attempts to implement local money as a form of mutual aid for child and elderly care show other possibilities for realising socialised forms of money with certain similarities with the idea of labour money. Attempts to create a unied EU currency also imply yet further possibilities for socialisation of money on a larger scale and at an international regional level. The restricted nature and functions of the money form in Soviet-type economies was comparable with other varied attempts to socialise money. In a less centralised market socialism money will appear on one hand as real money with the original nature and complete functions of money in a market economy. However, money in a socialist economy must also have a socialised character (like s-money) so long as the market is socially regulated and more or less controlled and economic areas outside the market order are secured for socialist purposes. It would therefore serve as an important frame of reference for market socialism to study and clarify the nature and functions of s-money in Soviet-type socialismnot just those of real money in the capitalist market economy.

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5. The Credit System and Interest under Socialism

In his analysis of the basic operation of the credit system and Socialist interest in a capitalist economy, Marx presented two different Foundation for a Credit System approaches. The rst approach attempts to clarify the credit system as the internal mechanism of the modern industrial and commercial capitals. In the second volume of Capital Marx points out that there are various forms of idle money capital such as the depreciation funds of fixed capital, the accumulation fund from surplus value, a reserve fund for unexpected price uctuations and a fund to continue production during the circulation period of a part of capital. These funds are repeatedly formed during the turnover of capital and constitute the capitalist foundations for the credit system. Actually, a basic function of the capitalist credit system (composed of commercial credit and bank credit) is to increase efficiency in the motion of capitals in raising protability as well as in equalising the rate of profit across industries by means of mutual utilisation of such idle funds between capitals (and so readjusting for anarchic disequilibrium). In this context interest paid to commercial and bank credit is nothing but a redistribution of a part of surplus value within industrial and commercial capitals. However, Marx sets out another approach to the theory of interest in the third volume of Capital. Here he followed the traditional view of the classical school which dened interest basically as a payment of a part of profit of the industrial capitalist class for the loan given by an external moneyed capitalist class. In this second approach the credit system is seen as an intermediary social mechanism to handle loans between the moneyed capitalist class and the industrial capitalist class.11 In neither approach in Marx is there a determinant theory of the general rate of interest. The rate of prot is derived from given technologies and real wages, while the rate of interest can usually vary between zero and the average rate of prot at a level determined by the the social demand for and supply of loanable money capital. Marx further species that the rate of interest moves in the opposite direction to the rate of prot in certain phases of the business cycle. This suggest theoretical space for an interventionist state to strategically manipulate

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Capital & Class #60 the interest rate in order to inuence the overall movement of a capitalist economy. A socialist economy can be imagined to abolish the leisured nancial capitalist class as well as a monetary market mechanism at least in a complete socialist planned economy. Abolition of parasitic rentier and landlord classes has been a long standing traditional demand of every trend in socialism. There cannot be any kind of socialism with nancial capitalists. Now, if we base our understanding on the second of Marxs approachescredit as intermediary between classesit might be rather difficult to conceive of a socialism with interest and a credit system. However, Marxs rst approach, focusing on the deployment of idle funds, opens other theoretical possibilities. Even in a socialist economy without a market, rms, provided that they enjoyed a degree of autonomy, would hold reserves of labour certificates or s-money in order to expand their operations, cover depreciation and hold reserves against accidents or unpredictable changes. Marx noted that in an associational socialist society, these items would have to be deducted from the incomes of individual producers. What applies to society as a whole must also be applicable to individual rms insofar as they are to be able to continue their operations. In addition to these funds, individual workers may also store some of their income in the form of labour certicates or s-money for future use, such as holidays, marriage, insurance against reduction of income caused by illness or old age. Generation of funds may be more or less balanced by usage of stored funds. (Marx assumed that this would be the case in his analysis of reproduction schema.) It is unlikely, however, that they would balance in the short run particularly within each industrial sector. There would usually be surplus funds, especially in personal income, as well as in various reserves held by firms. A socialist credit mechanism could be constructed to use these balances of idle funds.

The Role of a Credit System in a Socialist Economy.

In a perfect system of rationing there would be no room for credit, except perhaps for certain functions of the state and public debt. If the state borrows idle funds through public banks or in the form of bonds, and operates directly or indirectly to reduce the real value of s-money or the labour certicate, then

Money and credit in Socialist economies stored funds would also lose their value. This could be effected for example by over-issue of s-money; essentially the same as inflation in a market economy. Further, if the real rate of interest is negative, then the state debt would act as an additional hidden levy on rms and individuals. Provided that not all goods are rationed and a proportion of the means of production are exchanged between rms, then inter-rm credit transactions will emergethrough bills for labour certicates or s-money. If a rm in receipt of a bill does not have sufficient idle funds to continue operations it could perhaps exchange the bill for labour certicates or smoney from public banks where other idle funds have been deposited. Some rms may ask banks for loans if additional expansion is required to meet social demands. Individuals may need to borrow in order to improve the exibility of expenditure, e.g. to even out future payments. Mutual utilisation of idle funds would facilitate more exible allocation of economic resources to meet changing social needsa exility enhanced by being able to anticipate the return of funds in the future. Just as we saw with the forms of commodities and money, credit and interest originated externally to inter-social commercial transactions. They may therefore be usable under socialised production relations as s-credit and s-interest. As the strategically important price for loanable funds the rate How interest of interest could be determined by a central planning board. would operate Alternatively it might be given a range within which it could move, reecting the general balance of supply and demand for credit. Or, nally, it could be allowed to move freely without any general limitation. However even if the interest rate moves freely or within a range, it can be much inuenced by the attitude of public banks and the central planning board, as well as by the operations of the public debt. Here again, it is not just the nominal rate but the real rate of interest that matters. In general this rate should be positive in order to promote saving for social accumulation as well as to restrict reckless borrowing. The rate of interest would regulate the pace of accumulation and expansion of firms. Enterprises would borrow only when the marginal surplus or s-prot obtainable by additional expansion of operations would be expected to exceed the rate of interest. Thus manipulation of the interest rate could be a powerful instrument for macro-economic

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Capital & Class #60 policy in a socialist economy which allowed individual rms a measure of individual decision making. The greater the extent to which quasi or real markets are incorporated into a socialist economy the more important will be the role of credit and interest. Therefore credit mechanisms should not be regarded as inherently anti-socialistas no more than mechanisms for making nancial capitalists richer. Credit and interest can positively serve to promote more exible adjustment of production and consumption. Interest rates could also provide a powerful soft policy devicei.e. one that does not rely on direct commandto control the pace of economic growth in a socialist economy just as monetary policy aims to do in a capitalist economy. The function of credit and interest can be made rational and fair without that element of speculative profit-making which promotes bubbles and their collapse in capitalist economies. In a socialist economy, interest will thus no longer be the foundation of a class of financial capitalists but could represent just a redistribution of economic surplus among individuals and associational rms. As we have seen it would also facilitate the mutual use of idle funds. The collapse of the Soviet type of centrally planned economies was at least partly due to their inefficiency, their lack of exible adjustment and the absence of incentives to innovate. It is now apparent that it is no longer sufficient just to criticise the historically limited and contradictory nature of capitalism. We also have to study in greater detail the possibilities for transforming, rearranging and socialising the forms and mechanisms of a capitalist market economy in combination with a variety of socialist innovations. Through a reconsideration of the possible forms of money, s-money and credit in socialist economies, this essay has suggested a broader approach to a renewed socialist political economy capable of drawing lessons for the future from the bitter historical experience of our age.

Notes

1. Marx presents a model of such an economy as follows. We shall assume, but only for the sake of a parallel with the production of commodities, that the share of each individual producer in the means of subsistence is determined by his labour time. Labour time would, in that case, play a double part. Its apportionment in accordance with a denite social plan maintains the correct proportion between the different functions of labour and the various needs of the associations. On the other hand,

Money and credit in Socialist economies

labour-time also serves as a measure of the part taken by each individual in the common labour, and his share in the part in the total product destined for individual consumption. The social relations of the individual producers, both towards their labour and the products of their labour, are here transparent in their simplicity, in production as well as in distribution. (Marx 1976: 172). This theoretical reconstruction was initially set out in Uno (1950, 1952). See also Itoh (1988, chapter 4). It is worth noting that that Unos critique of Stalin predated the process of de-Stalinisation which began in 1956. See Uno (1953). A central point in the critique of socialism put forward by L.E.von Mises and F.A. Hayek and others since the 1920s was the alleged inability to calculate and therefore minimise costs of production in a centralised planned economy without a market for the means of productionthe socialist economic calculation debate. It is apparent now, on the basis of reconstructions of neo-Ricardian and Marxian objective theories of value, that economic cost calculation and minimisation need not assume the neo-classical subjective theory of price. However, in the course of the original debate some representative supporters of socialisme.g. F.M. Taylor and O. Langealso depended upon the general equilibrium theory of prices to counter the critiques. For more detail, see Itoh (1995). J.M. Buchanan (and others), pointing to the dangers scal decit brought about by Keynesian policies, criticised Keynes neglect of real politics, inuenced by the conict of various interests. Keynes assumption that economic policies would be controlled by just, rational, intellectual specialists they called the premise of Harvey Road (where Keynes was born and lived). Grays theory of labour-money is weaker in his later book (Gray 1848) where determination of prices is assumed to be given into the free hands of merchants. For a recent paper on Grays theory of labour-money and Marxs critique of it see Saad-Filho (1993). For a more detailed discussion of the theoretical problems of skilled or complex labour and a possible solution, see Itoh (1988, chapter 6). Assume that n kinds of products are produced in n sectors of production. In order to produce the i th product, a ij units of the jth product and l i hours of living labour are technically necessary. Let the total of past and living labour embodied in a unit of i th product be t i hours. Then we have, a 11 t 1 a 12 t 2 a 1 n t n l 1 = t 1 a 21 t 1 a 22 t 2 a 2 n t n l 2 = t 2 a n 1 t 1 a n 2 t 2 a nn t n l n = t n 0, l i 0, i = 1, 2, , n ) There are n simultaneous equations which can determine n unknowns (ti) upon the basis of given technical conditions. ( a ij

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9. For more detail on the social function of a full s-wage model, to make prices proportional to embodied labour-time in products, see Itoh (1995: 52-53). 10. For further discussion of Soviet-type economies as economies of shortage, see Kornai (1980). 11. These two different approaches to the theory of credit and interest in Marxs writings are discussed in Itoh (1988: 259).

References

Gray, J. (1831) The Social System. W. Tait, Edinburgh. __________ (1848) Lectures on the Nature and Use of Money. Edinburgh. Itoh, M. (1988) The Basic Theory of Capitalism. Macmillan, London; Barnes & Noble Books, Totawa. __________ (1995) Political Economy for Socialism. Macmillan, London. Kornai, J. (1980) Economics of Shortage. North Holland, Amsterdam. Lange, O. (1936-1937) On the Economic Theory of Socialism. Reprinted in B.E. Lippincott (ed.) On the Economic Theory of Socialism. University of Minnesota Press, 1938. Lenin, V.I. (1921) The Importance of Gold Now and After the Complete Victory of Socialism. Collected Works 33. Progress Publishers, Moscow: 1966. Marx, K. (1976) Capital, vol. I. Penguin Books, Harmondsworth. Owen, R. (1821) Report to the County of Lanark, Glasgow. Rubin, I.I. (1972) Essays on Marxs Theory of Value. Translated by M. Samardziga and F. Perlman. Black and Red, Detroit: (1928). Saad-Filho, A. (1993) Labour, Money and Labour-Money. History of Political Economy, 25-1. Taylor, F.M. (1929) The Guidance of Production in a Socialist State. Reprinted in B.E. Lippincott (ed.) On the Economic Theory of Socialism, University of Minnesota Press, 1938. Uno, K. (1950, 1952) [Principles of Political Economy] (two volumes). Iwanami-shoten, Tokyo; condensed version, 1964, translated into English by T. Sekine. Humanities Press, Atlantic Highlands. 1980. __________(1953) [The Economic Law and Socialism. Shiso] October. Square brackets signify titles which are translated from Japanese.