Duncan Farley

Books in Review

“Marginal Utility” Socialism

From New International, Vol. XVI No. 6, November–December 1950, pp. 378–381.
Transcribed & marked up up by Einde O’Callaghan for ETOL.

The Economic Theory of a Socialist Economy
by Burnham P. Beckwith
Stanford University Press. 1949. 444 pp., $5.00.

Needless to say, the economic theory of a socialist economy is still to be written. And when it is, it will not draw very heavily on Mr. Beckwith’s effusion, despite the publisher’s blurb that, “It is the first scientific treatise on Socialist economy to be published in book form in any language.” It is also rather doubtful that future socialist economists will be impressed with the author’s self-appraisal, contained in his preface, that:

“There will be more articles and books written on Socialist economics than have ever been written on Capitalist economics, and in that long series the present work will still rank as a pioneer study.”

The interesting thing about the book is not that it found a publisher given its title, or that it carries nonsensical marginal utility theory to absurd lengths, but that it is written by an admitted Social Democrat (author of The Modern Case for Socialism under the pseudonym of John Putnam) who applies marginal utility theory to socialism in the interests of “individual freedom in a Socialist state” and winds up erecting a system that fairly blossoms with bureaucratism. It is therefore not accidental that Beckwith joins other marginal utility “socialists,” such as Oscar Lange, in exhibiting marked Stalinoid and Stalinist traits.

That Beckwith identifies Stalinism with socialism, or at least a form of socialism, may be seen from the very first page of his introduction where he pontifically states:

“Not only is there need for a comprehensive and acceptable statement of economic theory which may serve as a basis for the management of the U.S.S.R. and the other states apt to come under the control of the Socialist movement in the course of this century, but there is also a need for an outline of the new society to aid propaganda for Socialism.”

Or, still better: “By its success the Soviet Union has greatly strengthened the case for State Socialism.” In discussing economic planning (to which he is opposed), the author shows how little he knows about the reality of Stalinland and its economy of slavery and peonage when he writes:

“The fourth and least undesirable form of arbitrary planning is one in which both rationing and military control of labor have been abandoned and national planning of goods to be produced alone remains. At this stage, both workers and consumers are free individuals, controlled only by wage and price changes, the effect of which upon profits and losses is disregarded. It is this fourth type of arbitrary planning that exists in the U.S.S.R. today.” (My italics – D.F.)

To be sure, Beckwith’s random remarks on Soviet Russia are not germane to his analysis, but the bureaucratic features of the system he proposes are. This is not to say that economic planning (so long as commodity production dominates) should not be assisted by properly constituted market relations, but socialism cannot exist if the economy is controlled by the necessarily haphazard and bureaucratic forces of the market place. The following concepts are basic and indicative of the morass into which the author’s fundamental approach leads:

Wherever possible prices (fixed by the seller) are to be used as “the ideal instruments of economic control.” Good, but there is an important exception: “In the case of labor, however, the general principle that all prices should be quoted by the seller is inapplicable. The price of labor cannot be fixed by the workers ... It is important to note that wages ought not to be determined by a bargaining process between representatives of labor and representatives of the employing organization. The entire power to fix wages should be entrusted to the employing trust, and the latter should follow precisely the same procedure in fixing wages that it follows in fixing other prices.” That is, “experts” in each industry will carefully measure the supply of and demand for labor (labor power) and fix wages in such a manner as to bring about that delicate balance dear to the hearts of the marginal utility school. Clearly, the bureaucrats are to have a field day and the necessity of the workers having organizations, both trade union and political, to defend them from “their own” experts under socialism has not occurred to Beckwith. But that is precisely one of the important lessons of the degeneration of the Russian Revolution and was so recognized by Lenin in the famous debate on the role of the trade unions.
While “pure democracy” is advocated as one of the “five basic principles of Socialist organization,” the others being “perfect monopoly,” “complete centralization,” “authority from above,” and “functional organization,” there is a startling bit of genuflection to the intellectual snobbery characteristic of the true bureaucrat. In the midst of his exposition of the superiority of majority rule, universal suffrage, proportional representation, initiative and referendum, unicameral legislature and other attributes of socialist political life, there suddenly intrudes this classical statement: “No measure should be adopted which does not have popular approval, but it would be highly desirable to fix educational and native intelligence requirements for all candidates for public office at such a level as to eliminate up to 90 per cent of the population.” (My italics – D.F.) Of course, “an aristocracy of ability must be subject to popular control; otherwise it will be liable to favor its own material interests at the expense of the remainder of the nation.” (sic!) And who will decide the requirements that are to permit 10 per cent of the population to rule the remaining 90 per cent (under socialism, be it remembered!)? Shades of all the exponents of the theory of the elite and the super-race! No wonder, therefore, that the very valid concept that democracy requires an educated electorate is carried to the preposterous conclusion that: “It is as ridiculous to say that a nation like China or India or Russia or Mexico should be democratic as it is to say that a child should display the intelligence of an adult.” It must be admitted, however, that not all adults display intelligence superior to a child’s, especially Beckwith when he attaches to the above-quoted sentence the following footnote: “This was one of the great errors of the Russian minority Social Democrats (Mensheviks) in 1917.”
Again, in his discussion of the advantages of centralization of control (which are hardly debatable), there is an outcropping of the bureaucratic mind. For example, “Popular election,” says our pundit, “is a much less efficient method of selecting capable executives than appointment from above.” Hence, keep the list of candidates on the ballot to an absolute minimum. The national legislature of the United States (under socialism) should consist of “not more than 100.” It is therefore not surprising that Beckwith calls for “the elimination of all local self-government.”
It is in his argumentation for “authority from above,” which turns out to be neither more nor less than a broadside against shop democracy, that our “democratic socialist” reveals the authoritarian limits to which his bureaucratic approach inevitably leads. “... the election of executives by their immediate subordinates is likely to destroy or dangerously weaken the discipline necessary in all organizations.” The second objection really sounds like a brochure from the N.A.M., with a bow to Stalin. We quote in full: “A second objection is that industrial democracy of this sort may result in the workers’ spending too large a portion of their time in committee meetings, election campaigns, and other activities incident to shop politics. Soviet Russia tried shop democracy and found that it consumed too much of the workers’ time and attention.” Comment would be entirely superfluous. Then, of course, shop democracy may result in the election of less capable men “with a personality pleasing to others,” or it may “make more difficult the centralization of control advisable in a Socialist economy.” Lastly, shop democracy may tempt a small group to place its welfare against the “working class as a whole.” As a concession to popular demand, however, “If a large group of workers and Socialist theorists continue to desire shop democracy after the revolution, every effort should be made to experiment with it on a large enough scale and over a long enough time to determine its real merits.”
As a final illustration of how easy it is to succumb to the current bureaucratic mores, let us take the question of leadership. After emphasizing the importance of wise leadership and controlling that leadership (factory managers) through “the principle of measurement and publicity,” executives are admonished to concentrate their time and efforts “upon the most important problems of the unit under their control” and to delegate responsibilities to subordinates wherever possible. It follows, therefore, that leading executives must have plenty of time in which to reach “unhurried and carefully-thought-out decisions.” All of this is sound and is meant in a constructive manner. Then comes the crusher! “Visitors must be ruthlessly denied the privilege of seeing him (the important executive).” Is it any wonder then that Beckwith’s “socialism” brings visions of a secret police and, in its own way, no doubt against the best intentions of the author, provides a theoretical justification for a form of bureaucratic collectivism?

Unfortunately, lack of space prevents a detailed exposition of the absurdities inherent in applying marginal utility economics to a socialist economy or in the author’s own contradictions in applying this worn-out bourgeois theory. Some basic theoretical points, however, require some comment, however brief.

Naturally, the author, as an avowed socialist, has to justify his abandonment of the Marxian labor theory of value which he does in two ways: (1) the labor theory of value is unsound and unnecessary and of no “help in the solution of the practical problems of a Socialist economy”; and (2) the marginal utility theory is the perfect tool for developing the operational principles governing the administration of a Socialist economy. Thus:

“... a Socialist government,” says Beckwith, “does not need a new system of economic theory to justify or guide its conduct. In large part, it merely needs to adopt orthodox economy theory and take positive steps to change this grossly inaccurate description of Capitalism into a living Socialist reality. This involves changing facts to fit a theory, not changing theories to fit facts. Socialism is inevitable because only a Socialist state can change economic facts as it will, because it alone can assume full control over all economic activity and make it conform with the ideal pictured by the great neoclassical economists.” (My italics – D.F.)

From this gibberish it is only logical to state that “Marx will be replaced by Marshall as the chief guide to the solution of the economic problems of a Socialist economy.”

Apparently, therefore, Alfred Marshall did not apply his own theories properly when he was engaged in his lengthy defense of the capitalist system. Beckwith will apply them, as they should be, to a socialist system. But Beckwith is still an admirer of Marx, or at least of his “theory of economic evolution.” If, by this expression is meant Marx’s materialist method or his interpretation of history, Beckwith is guilty of ignoring one of Marx’s basic contributions to economic science, expressed in innumerable works and very succinctly in the preface to the second edition of Das Kapital, where he states:

“... Political Economy can remain a science only so long as the class struggle is latent or manifests itself only in isolated and sporadic phenomena.”

The marginal utility theory was developed in the latter part of the nineteenth century when it was no longer possible for bourgeois economists to permit any vestige of classical theory to weaken their apologia in defense of capitalism. It has been totally useless in solving any of the practical problems of capitalism and it cannot be applied to any of the problems of socialism, even if one believes that market prices will have a function to play under socialism – as they should until production has been so increased as to permit the direct distribution of free goods.

The labor theory of value, of course, was developed by Marx as an analysis of capitalism and permitted discovery of the basic laws of motion governing capitalist society. It has general validity, however, in analyzing any society in which the production of commodities is predominant. It will therefore be applicable in the early period of socialism to the extent that production and exchange of commodities prevails. This is in a sense unconsciously admitted by Beckwith when, in advocating unequal wages, he points out that “they enter into costs and help to determine the volume of production and the demand for each good.” This thought follows by more than 200 pages the notion that:

“The basic defect of Marxian value theory is that it does not prescribe any technique for deriving prices from labor time.”

As for the subjective theory of value, on which marginal utility theory is based, this is hardly salvaged as a workable tool by coining the concepts “utilitum” and “disutilitum,” i.e., the use value obtained by an individual in the process of consumption. This, too, is implicitly recognized by Beckwith when he states:

“... individuals vary widely in their capacity to enjoy life and feel pain. This means that the same price would represent different amounts of marginal utilitum for different individuals ... This is a defect in market prices which it is impossible to eliminate since it is impossible to discover the exact amount of pleasure or pain experienced by different individuals. However, sound prices always represent average marginal utilitum and disutilitum since among any large number of people the variations tend to cancel out.”

And how will “sound” prices be determined? Naturally, by equating supply and demand.

There is, therefore, really nothing new in Beckwith’s approach, except his emphasis on controlling production (of price goods) through equating marginal profits and losses. This is admittedly something that cannot be done under capitalism because prices clearly cannot be based on marginal costs. If they were, then in industries producing at decreasing costs (which covers most manufacturing industries) only losses would result. Why, then, marginal costs should control production under socialism is not at all clear, nor how prices can at the same time be governed by supply and demand.

We are also at a loss to see how the right to demand work (although a good socialist principle) is consistent with Beckwith’s schema for determining prices and controlling production. In fact, one of the few worthwhile thoughts in the book is the notion that under socialism a worker should have the right to go to any factory or place of work and demand a job (for which he is fitted) which management would be forced to give at the prevailing wage rate. This, however, does not flow from any possible application of marginal utility theory. There are, of course, other interesting ideas in the book. It is rather difficult to write over 400 pages, even if they are in the constipated style usually associated with doctoral dissertations, without an occasional constructive idea. But such ideas as merit further study are totally unrelated to the marginal utility theory.

Perhaps the explanation for this discrepancy is to be found in the fact that for all of his definitions, many of them quite acceptable, the author really does not understand the essence of socialism. If he did, how could he picture (as he does on more than one occasion) the possibility of war under socialism? A workers state, of course, might find itself engaged in a war with capitalist countries, but a workers state is not socialism, but only a step on the road to socialism. Socialism can exist only on an international scale. Nationalization of the basic means of production is, of course, a prerequisite to the establishment of socialism. But the socialist movement, in addition to stressing the fact that genuine democracy is a sine qua non of socialism, must also now emphasize that socialism requires establishment of a true international division of labor, for only in this manner can poverty and ignorance be eliminated. In other words, there are three essential ingredients of socialism – nationalization of the basic or decisive means of production, democratic control of the economy, and a high standard of living throughout the world.

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Last updated on 18 October 2018