On ‘The Fundamental Principles of Communist Production and Distribution’ [transcript]

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The “Group of International Communists”, based in the Netherlands, wrote a book, published in 1930, called “On the fundamental principles of communist production and distribution”. It was immediately confiscated and destroyed. The group published a revised and updated edition between 1931 and 1935. But this second version was translated into English only very recently, in 2020, which has led to renewed interest in it.

I will give a very brief summary of the main propositions of the book, followed by some comments.

Abolition of wage system

The authors state fundamental principles that must be upheld in order for a system to in fact be communist. They don’t aim to give a detailed design for a communist system. 

The book examines the earliest stages of communist society, as it first emerges from capitalism. This is not a future utopia without scarcity or material constraint. Society remains subject to objective resource constraints, both the size of the working population, the level of technology, and the availability of natural resources. 

The authors state that: “We are still of the opinion that an economic system is based on economic laws and not on some kind of inspiring principle”. In other words, communism cannot rely upon or assume good intentions. That’s not robust.

A fundamental aim of communism is the abolition of classes, where the capitalist class exploits the working class. And this means abolishing the wage system, where capitalists own both the means and the results of production, hire workers in a rental market, and then get their hands on the profits.

Instead, in a communist society, private property, that is capitalists owning large sums of capital and owning and controlling firms, is abolished. Of course, personal property, that is the goods and services that we all individually consume, continue to exist. But in communism, the working population collectively owns the means of production, and has the right of disposal over their own products. 

The authors therefore aim to specify fundamental principles of production without a wage system. How can workers lead and control production themselves in a democratic, collective and decentralised manner?

Failures of Soviet communism

To help answer this question, the authors draw two main lessons from the early Soviet experiment.

State capitalism

First, they claim that, in the Soviet System, the workers did not have the right of disposal over their own product. Instead their product was immediately the property of the State. 

The authors therefore characterise the Soviet system as State Capitalist, where the State, in effect, owns all the enterprises and employs workers at a politically determined wage level. In the Soviet system, workers therefore still struggled with the State over the distribution of surplus-value.

The Soviet state, in practice, aimed for high productivity and a high rate of capital accumulation, while the workers aimed for decent wages and safe working conditions. The authors point to the large number of strikes in the 1920s. In effect, the State decided on the level of the wage, and then workers organised against that level.

The authors therefore reject this arrangement as fundamentally anti-communist — even if the political struggle is able to take a democratic form. The fact that workers have to struggle politically already means that workers aren’t leading and controlling production. They’ve already given up their power.

In other words, common ownership of society’s capital isn’t sufficient for communism. Just  nationalising industries and putting them under State control will not do. Because common ownership, in itself, doesn’t guarantee that workers have the right, and power, of disposal over their own products.

Need for a unit of account

The second lesson the authors draw from the Soviet experiment is the necessity for a universal unit of economic accounting.

Initially, the Bolsheviks aimed to abolish money by printing so much that it was inflated out of existence, forcing commodity producers to exchange goods “in kind” and without any general unit of account. Production and distribution would then be directly measured in heterogeneous commodity units.

But this policy, adopted between 1917 to 1921, quickly led to economic chaos, and was abruptly reversed. The authors reject that the economic chaos was entirely due to civil war, backwardness in agriculture, or the lack of world revolution. Instead, without a unit of account to compare social costs, then planning is impossible.

The attempt to immediately abolish money was scrapped and economic planning was conducted in terms of rubles, which required maintaining its stability. The authors therefore conclude that, “It was perfectly clear that the chaos of capitalist production was an orderly system compared to the ‘production of goods’ without a unit of account.”

So the authors draw two lessons from the early Soviet experience: state ownership isn’t communism, because it doesn’t abolish the wage system, and communism requires an economic unit of account.

The unit of account in communism

So what should be the unit of account?

The authors reject money, because they view money as an alienated expression of social labour, which makes the private accumulation of capital possible, and therefore the re-emergence of a capitalist class.

Instead we should measure economic costs in terms of quantities of the “socially average working hour”.

For example, say that the working population is 1 million and everyone works 8 hours a day. Then the total daily output is 8 million “socially average working hours”. 

But the net output, produced during that day, is a heterogeneous collection of goods and services. We need to know how many average hours are used-up to produce individual commodity-types.

The authors propose that each firm calculates the number of employee-hours required to produce their output. Say that a shoe-producing factory, for example, produces 100 shoes in one day. It employs 10 people for 8 hours, and uses-up raw materials, delivered from other firms, that are worth 50 labour-hours in total. A simple calculation gives a cost of 1.3 average working hours per pair of shoes.

Upstream firms perform this local calculation and pass on the labour-value of their output to downstream firms. So commodities have prices, as in capitalism, except prices are directly in labour hours. In this way, the total vertically-integrated labour-cost of goods and services are computed in a local and distributed way.

The authors recognise that different firms that produce the same commodity-types produce in different conditions, and therefore differ in their productivity of labour. A different firm might require 2 labour-hours to produce a pair of shoes. So the labour-cost computations need to be horizontally aggregated, and then averaged, across all producers of the same commodity-type.

Firms transfer goods and services between themselves but, according to the authors, this is not market exchange because the “price of goods is not determined by supply and demand but moves on the basis of their production time”.

They point out that exchange is a transfer of private property. But here there isn’t private property, only personal property. Products are owned in common. So although there is movement of goods this is a transfer, rather than an exchange, of goods.

So everything has a labour-cost, calculated in a distributed, bottom-up manner. And this serves as the unit of account, and forms the basis of economic planning.

The principle of distribution in communism

Now let’s turn to the authors’ proposal to abolish wage labour.

Since only personal property exists then no one owns money-capital that they can advance to production and then claim interest. Instead, everyone is a free and equal producer, who can only supply their working time.

The fundamental principle of distribution is equality of working time. So if a person supplies X hours of labour to society then they have the right to withdraw X hours in the form of goods and services. if I supply 160 hours of my time in 1 month, then I can withdraw 160 hours-worth of consumption goods.

Workers receive labour vouchers, as per Marx’s suggestion in the Critique of the Gotha Program, which they can exchange for consumption goods. These vouchers do not function as money because they cannot be transferred and do not circulate. Workers continue to freely decide what they wish to consume, subject to society’s resource constraints as represented by their limited quantity of labour vouchers.

In capitalism, workers get paid a rental wage, and the surplus-value goes to capitalists. In state capitalism, workers get paid a predetermined wage, and the surplus-value goes to the State for later political redistribution. Both are wage systems. But in this system, the authors claim, workers immediately lay claim to all the surplus-value they create. 

Hence labour is no longer a commodity because it’s not exchanged in the market at a minimised pre-determined price. Rather labour gets all the ex post surplus-value it creates.

Also, this principle of distribution ensures that the benefits of any labour-saving technological improvements, which lower the labour-value of consumption goods, are immediately and equally distributed to workers.

The free sector

However, what about people who can’t work? And what about the communist aim of “from each according to their abilities, to each according to their needs”?

A family with 5 kids has more needs than a family with none. So this principle of distribution is not fair (and never can be). And the authors accept this. They state: “this principle … is not just, that is not its basis. Its basis is a political one: it is the only way for workers to maintain control over operational life. It is on the ‘injustice’ of equal rights that communist society begins to develop”.

Some economic sectors – for example basic needs such as food, shelter and health – should be provided free of charge, without the need for labour-tokens. These services can then be taken according to individual needs. Hence there are two kinds of firms: productive firms that supply non-free goods, and public firms that supply free goods. 

But nothing is really free. All goods and services use-up labour-time and other resources. So the labour costs of the free sector are deducted directly from the consumption fund.

In consequence, workers don’t receive labour tokens equal to the labour they supplied. Instead, there is a “payout factor” that controls the fraction of the total surplus-value they receive. For example, the payout factor might be 0.9 meaning that 10% of consumption is provided on a free basis. This is like a redistributive tax.

An aim of communist society should be to continually expand the free sector to satisfy more and more “general needs”. To quote the authors: “Although working time plays the role of being the measure for individual distribution, this measure will be destroyed in the course of development!”

Growth

However, just producing consumption goods is insufficient. Some of society’s working time must be allocated to R&D and investment in additional productive capital. This, in the longer run, will reduce the amount of labour-time needed to produce consumption goods.

Then, this freed-up time can either be devoted to additional production, to grow the economy, or devoted to more leisure time, so everyone can work less.

Hence, a viable communist system must collectively decide on a growth rate.

The authors give a very simple example. Say that all firms are allowed to expand at, say, 10%. So they can devote 10% of their labour-hours to capital investment. Hence, the payout factor to workers is less than 1 depending on the cost of the free sector, and the growth-rate of the system.

Planning

OK, so we’ve very briefly explained the unit of account, the principle of distribution, the free sector, and how the economy can grow.

But we haven’t explained the principle of adaptation. In other words, how do the producers change how much they produce, and what they produce, in cooperation with each other and with what society demands in terms of consumption goods?

The authors state that coordination is achieved by economic planning. But they state that planning “falls outside of the fundamental principles” and therefore they do not address this issue.

There’s a lot more in this book, and so those interested should read it. But I think I’ve pretty much summarised the main propositions. Also the From Alpha to Omega podcast currently has a discussion series, chapter by chapter, which is worth listening to.

So I will now turn to some critical remarks, which I hope are useful.

Critical remarks

I’m ignoring many detailed questions and concerns that this proposal throws up. I think a book that proposes fundamental principles, rather than detailed recipes, should be evaluated at the same, high level of abstraction. 

A fundamental principle, according to the authors, is that workers have full right of disposal over the value they create. At a high level of abstraction, this principle of distribution makes a lot of sense.

The authors classify the Soviet System as State Capitalist because workers are paid a wage that isn’t the full value they create. They assert that the Soviet system would remain State Capitalist even if workers could democratically set the wage level. However, their proposed fundamental principle of distribution is essentially identical. In both systems, workers don’t get the full value they create. And in both systems, social deliberation of some kind decides the wage level. The only difference is that in the Soviet case the distribution of consumer goods is achieved with money, whereas in the authors’ system the distribution is achieved with labour tokens and a payout factor. By the authors’ own logic it seems that either both systems are State Capitalist, or neither are. We must acknowledge that individual workers cannot get the full value of what they create in any viable economic system. The more important issue is whether workers themselves collectively control the distribution of surplus-value, and how this is achieved.

Every good in a capitalist economy has a price. In the proposed communist economy, every good instead has a labour-value. Let’s put aside some of the real, and perhaps insurmountable, difficulties in calculating labour-values for the purpose of global planning. I think that, if a society really wanted to calculate such labour-values, then it perhaps could overcome the difficulties. So I will assume this proposal is viable.

In a capitalist economy, there is no plan. Nonetheless, the capitalist economy coordinates an enormous system of independent production processes on a global scale to meet effective demand. This is achieved through the price system and money flows. Putting aside the distortions introduced by capitalist exploitation, then the price system is a method to forward-propagate vertically-integrated costs. And the payment system, where money flows in the opposite direction, is a method to backward-propagate vertically-integrated demands. This is a distributed, feedback control system. Profits, before they are grabbed by capitalists, have informational content. Any accounting unit, within the interconnected system, that makes a profit essentially receives a monetary reward that is a signal, and a capability, to continue or expand its local plan. Any unit that makes a loss receives a monetary punishment that is a signal to change its local plan. The capitalist system coordinates its economic activity by the backward flow of money and the local pursuit of profit and local planning. And this coordination is established and re-established, in a distributed and unplanned manner, in response to all kinds of changing circumstances. The system is highly adaptive, continually allocating both labour and non-labour resources.

Yes, capitalism is an exploitative system that cannot fulfil real needs. Production takes place in mini dictatorships controlled by the minority who own capital. The rate of growth, and hence the length of the working day, is not subject to democratic control. Global income inequality is so high that millions starve despite the abundance of food. Yet, there is nothing radical or revolutionary in denying, or downplaying, the remarkable coordination achieved by money and  markets. The globally interconnected economy is one of the major historical achievements of human civilisation.

The communist economy must be adaptive; ideally, much more so. It must respond to changing demands, and changes in the conditions of production, including the availability of non-produced resources. It needs to non-wastefully allocate and reallocate the world’s resources, including making the best use of our time in order to maximally free us from production, if we so wish. This is a fundamental requirement for communist production. And it requires a corresponding fundamental principle.

This requirement, in the authors’ system, is met by economic planning. But the authors do not specify how planning might work, and instead state that it “falls outside of the fundamental principles”.

So, at the end of the day, we’re merely told that the communist system must track heterogeneous kinds of costs by adopting a homogeneous measure, must put control of the surplus directly in the hands of workers, and must adopt the goal of expanding the free sector in order to achieve the vision of “from each according to their abilities, to each according to their needs.” This is fine, as far as it goes. Unfortunately, it doesn’t go very far at all. It doesn’t get beyond the vision of a static system of production that tracks its own costs. Lacking a feedback mechanism, which enables the economy to adapt, we have a clock without a spring. Nothing moves. All the principal and fundamental challenges of communist production are swept under the carpet.

The essential principle of “free and equal” coordination of production to meet social goals is not clearly stated and not adequately addressed. This is like specifying the principles for a car without discussing the engine. Hence we are given a highly inadequate theoretical basis upon which to construct a new mode of production. A more accurate title for the book would be, “Fundamentally Incomplete Principles of Communist Production and Distribution”.