Many will say that the price system allows people to make the allocation decisions themselves by seeing how much other people want different things. Unfortunately, prices can only reflect the wants of those who can afford to actually buy what economists call ‘effective demand’ and not real demand for something from those without the wherewithal – the purchasing power – to buy the product (or even to express a preference for one product over another. I may want a sirloin steak but i can only afford a hamburger.)
The function of cost/pricing is to enable a business enterprise to calculate its costs, to fix its profit expectations within a structure of prices, to regulate income against expenditure and, ultimately, to regulate the exploitation of its workers.
Socialist determination of needs begins with consumer needs and then flows throughout distribution and on to each required part of the structure of production. But with a capitalist system, the information is a contra-flow of information. It flows from producers, through distributors, to the consumer. This information is the prices of goods determined by the accumulating costs of production and distribution plus profit. Prices are increased in each part of production, from mining through industrial processing, manufacture and assembly, then accumulating further through distribution until the final price is passed on to the consumer.
It is indeed very questionable that prices can represent the social costs of allocation of resources – put a monetary value on a beauty spot to be ravaged by an open-cast mine? Once again it is the subjective judgement of a points based cost-benefit analysis of the pros and cons that will be the more accurate deciding factor, not the $ or £.
Nor does prices effective solve the dilemma of calculating opportunity costs. Prices simply are accounting costs.
Decisions involving making choices of a general nature, such as what forms of energy to use, which of two or more materials to use to produce a particular item, whether and where to build a new factory. There is a technique already in use under capitalism that could be adapted for use in socialism: cost-benefit analysis and its variants. Naturally, under capitalism the balance sheet of the relevant benefits and costs advantages and disadvantages of a particular scheme or rival schemes is drawn up in money terms, but in socialism a points system for attributing relative importance to the various relevant considerations could be used instead. The points attributed to these considerations would be subjective, in the sense that this would depend on a deliberate social decision rather than on some objective standard. In the sense that one of the aims of socialism is precisely to rescue humankind from the capitalist fixation with production time/money, cost-benefit type analyses, as a means of taking into account other factors, could therefore be said to be more appropriate for use in socialism than under capitalism. Using points systems to attribute relative importance in this way would not be to recreate some universal unit of evaluation and calculation, but simply to employ a technique to facilitate decision-making in particular concrete cases.
The advantages/disadvantages and even the points attributed to them can, and normally would, differ from case to case. So what we are talking about is not a new abstract universal unit of measurement to replace money and economic value but one technique among others for reaching rational decisions in a society where the criterion of rationality is human welfare.
Planning is central to the idea of socialism, but socialism is the planned (consciously coordinated we mean, and not to be confused with central planning command economy concept) production of useful things to satisfy human needs precisely instead of the production, planned or otherwise, of wealth as exchange value, commodities and capital. In socialism wealth would have simply a specific use value (which would be different under different conditions and for different individuals and groups of individuals) but it would not have any exchange, or economic, value.
Socialism does presuppose that productive resources (materials, instruments of production, sources of energy) and technological knowledge are sufficient to allow the population of the world to produce enough food, clothing, shelter and other useful things, to satisfy all their material needs.
Planning in socialism is essentially a question of industrial organisation, by which we mean the structure for organising the actual production and distribution of wealth) of organising productive units into a productive system functioning smoothly to supply the useful things which people had indicated they needed, both for their individual and for their collective consumption. What socialism would establish would be a rationalised network of planned links between users and suppliers; between final users and their immediate suppliers, between these latter and their suppliers, and so on down the line to those who extract the raw materials from nature.
What socialism would establish would be a rationalised network of planned links between users and suppliers; between final users and their immediate suppliers, between these latter and their suppliers, and so on down the line to those who extract the raw materials from nature. There is no point in drawing up in advance the sort of detailed blueprint of industrial organisation that the old Industrial Workers of the World and the syndicalists used to, but it is still reasonable to assume that productive activity would be divided into branches and that production in these branches would be organised by a delegate body. The responsibility of these industries would be to ensure the supply of a particular kind of product either, in the case of consumer goods, to distribution centres or, in the case of goods used to produce other goods, to productive units or other industries.
Since the needs of consumers are always needs for a specific product at a specific time in a specific locality, we will assume that socialist society would leave the initial assessment of likely needs to a delegate body under the control of the local community (although, other arrangements are possible if that were what the members of socialist society wanted). In a stable society such as socialism, needs would change relatively slowly. Hence it is reasonable to surmise that an efficient system of stock control, recording what individuals actually chose to take under conditions of free access from local distribution centres over a given period, would enable the local distribution committee to estimate what the need for food, drink, clothes and household goods would be over a similar future period. Some needs would be able to be met locally: local transport, restaurants, builders, repairs and some food are examples as well as services such as street-lighting, libraries and refuse collection. The local distribution committee would then communicate needs that could not be met locally to the bodies charged with coordinating supplies to local communities.
The individual would have free access to the goods on the shelves of the local distribution centres; the local distribution centres free access to the goods they required to be always adequately stocked with what people needed; their suppliers free access to the goods they required from the factories which supplied them; industries and factories free access to the materials, equipment and energy they needed to produce their products; and so on. Production and distribution in socialism would thus be a question of organising a coordinated and more or less self-regulating system of linkages between users and suppliers, enabling resources and materials to flow smoothly from one productive unit to another, and ultimately to the final user, in response to information flowing in the opposite direction originating from final users. The productive system would thus be set in motion from the consumer end, as individuals and communities took steps to satisfy their self-defined needs. Socialist production is self-regulating production for use.
To ensure the smooth functioning of the system, a central statistical offices would be needed to provide estimates of what would have to be produced to meet peoples likely individual and collective needs. These could be calculated in the light of consumer wants as indicated by returns from local distribution committees and of technical data (productive capacity, production methods, productivity, etc) incorporated in input-output tables. For, at any given level of technology (reflected in the input-output tables), a given mix of final goods (consumer wants) requires for its production a given mix of intermediate goods and raw materials; it is this latter mix that the central statistical office would be calculating in broad terms. Such calculations would also indicate whether or not productive capacity would need to be expanded and in what branches. The centre (or rather centres for each world-region) would thus be essentially an information clearing house, processing information communicated to it about production and distribution and passing on the results to industries for them to draw up their production plans so as to be in a position to meet the requests for their products coming from other industries and from local communities. The only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other side the amount of the good produced, together with any by-products.
Stock or inventory control systems employing calculation in kind are, as was suggested earlier, absolutely indispensable to any kind of modern production system. While it is true that they operate within a price environment today, that is not the same thing as saying they need such an environment in order to operate. The key to good stock management is the stock turnover rate – how rapidly stock is removed from the shelves – and the point at which it may need to be re-ordered. This will also be affected by considerations such as lead times – how long it takes for fresh stock to arrive – and the need to anticipate possible changes in demand.
A typical sequence of information flows in a socialist economy might be as follows. Assume a distribution point (shop) stocks a certain consumer good – say, cans of beans. From past experience it knows that it will need to re-order approximately 1000 cans from its suppliers at the start of every month or, by the end of the month, supplies will be low. Assume that, for whatever reason, the rate of stock turnover increases sharply to say 2000 tins per month. This will require either more frequent deliveries or, alternatively, larger deliveries. Possibly the capacity of the distribution point may not be large enough to accommodate the extra quantity of cans required in which case it will have to opt for more frequent deliveries. It could also add to its storage capacity but this would probably take a bit more time. In any event, this information will be communicated to its suppliers. These suppliers, in turn, may require additional tin plate (steel sheet coated with tin), to make cans for beans to be processed and this information can similarly be communicated in the form of new orders to suppliers of those items further down the production chain. And so on and so forth. The whole process is, to a large extent, automatic – or self regulating – being driven by dispersed information signals from producers and consumers concerning the supply and demand for goods and, as such, is far removed from the gross caricature of a centrally planned economy.
It may be argued that this overlooks the problem of opportunity costs. For example, if the supplier of baked beans orders more tin plate from the manufacturers of tin plate then that will mean other uses for this material being deprived by that amount. However, it must be born in mind in the first place that the systematic overproduction of goods that Marx talked of – i.e. buffer stock – applies to all goods, consumption goods as well as production goods. So increased demand from one consumer/producer, need not necessarily entail a cut in supply to another – or at least, not immediately. The existence of buffer stocks provides for a period of re-adjustment.
Sufficiency is enough for comfort and security. First we have to define what scarcity is. Orthodox economics tells us it is limited supply – versus – boundless demand. Our wants are essentially “infinite” and the resources to meet them, finite. Economists claim that without the guidance of prices, socialism would sink into inefficiency . According to the argument, scarcity is an unavoidable fact of life and applies to all goods which entails giving up some other potential use. In other words, ‘opportunity cost’.
However in the real world of people and not academic textbooks, abundance is not a situation where an infinite amount of every good could be produced. Similarly, scarcity is not the situation which exists in the absence of this impossible total or sheer abundance. Abundance is a situation where productive resources are sufficient to produce enough wealth to satisfy human needs, while scarcity is a situation where productive resources are insufficient for this purpose. Abundance is a relationship between supply and demand, where the former exceeds the latter. In socialism, a buffer of surplus stock for any particular item, whether a consumer or a producer good, can be produced, to allow for future fluctuations in the demand for that item, and to provide an adequate response time for any necessary adjustments.Thus achieving abundance can be understood as the maintenance of an adequate buffer of stock in the light of extrapolated trends in demand. The relative abundance or scarcity of a good would be indicated by how easy or difficult it was to maintain such an adequate buffer stock in the face of a demand trend (upward, static, or downward). It will thus be possible to choose how to combine different factors for production, and whether to use one rather than another, on the basis of their relative abundance versus scarcity.
Liebig’s Law of the Minimum – states is that plant growth is controlled not by the total amount of resources available to a plant but by the particular factor that is scarcest. This factor is called the limiting factor. It is only by increasing the supply of the limiting factor in question – eg nitrogen fertiliser – that you promote plant growth. Liebig’s Law can be applied equally to the problem of resource allocation in any economy. It makes sense from an economic point of view to economise most on those things that are scarcest and to make the greatest use of those things that are abundant. To claim that all factors are scarce (because the use of any factor entails an opportunity cost) and, consequently, need to be economised is actually not a very sensible approach to adopt. You cannot treat every factor equally – that is, as equally scarce – or, if you do, this will result in gross misallocation of resources and economic inefficiency. The most sensible basis on which to make such discrimination is the relative availability of different factors and this is precisely what the law of the minimum is all about. When a particular factor is limited in relation to the multifarious demands placed on it, the only way in which it can be ‘inefficiently allocated’ (although this is ultimately a value judgement) is in choosing ‘incorrectly’ to which particular end-use it should be allocated. Beyond that, you cannot misuse or misallocate a resource if it simply isn’t available to misallocate (that is, where there are inadequate or no buffer stocks on the shelf, so to speak.) Of necessity, one is compelled to seek out a more abundant alternative or substitute.
To determine priorities Maslow’s ‘hierarchy of needs’ would be a guide to action. It would seem reasonable to suppose that needs that were most pressing and upon which the satisfaction of others needs was contingent, would take priority over those other needs. We are talking here about our basic physiological needs for food, water, adequate sanitation and housing and so on. This would be reflected in the allocation of resources: high priority end goals would take precedence over low priority end goals where resources common to both are revealed using the earlier discussed ‘points’ system of cost-benefit analysis.
To sum up, a steady-state equilibrium will have been reached. Gradual change, growth, will be simple and painless. The task of planning becomes one of simple routine; the role of economics is virtually eliminated.
Prices are indeed superfluous when society is organised on the basis of production for need and exchange-values are replaced by use-values to employ Marxian terms