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DOI: 10.1177/0309816896060001051996 20: 95Capital & Class

Makoto ItohMoney and Credit in Socialist Economies: a Reconsideration

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argued in this paper that there is no single model of therelationship between money form and socialist economies.

The functions and significance of money or quasi-moneyin socialist societies must vary in accordance with different

modes of social organisation of the economy. Theoretically wecan conceive of three different cases.In the first case an associational society completely

dissolves the capitalist market order and realises socialrelations in which both the social allocation of labour time andthe distribution of the means of subsistence to individuals areperformed transparent in their simplicity by directly usinglabour time as a unit of accounting.1 In this case an hour oflabour 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 personalconsumption could be, say, 40 roubles after deducting thecontribution to a social fund. At the same time, all theproducts are priced in terms of accounting roublespriceswhich are directly proportional to the amount of labour timeembodied in them.

Although certificates signifying roubles are used both fordistributing the means of subsistence and for allocating means

of production and labour to firms, the certificate is just alabour certificate representing the consciously planneddistribution of social labour. Marx held that these labourcertificates were not to be thought of as money but wereanalogous to theatre tickets. However as long as the certificatefor 80 roubles of personal income is used either as a means ofexchange to obtain selected (non-rationed) means of subsist-ence or hoarded or lent and borrowed, it has features incommon with money and may be termed labour money.Although there is not a free market economy there isconceptual room for treating labour certificates as socialistquasi-money (s-money) and for correspondingly referring tosocialist prices (s-prices) based on a conscious measurementof labour time. We assume of course that not all goods andservices are rationed.

In the second type of social organisation the labour timeembodied in each product is either not calculated or prices are

determined by plan at levels which for various reasons differfrom those directly proportional to embodied labour time.The Soviet rouble for example was used officially to determine

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prices in the planned economy but without calculatingamounts of labour time embodied in products. The roublecould not be regarded as a labour certificate, as in the first casewe have considered, but nevertheless it was very different from

money and prices in a market economy. Money in the Sovieteconomy was used as a means of purchasing those goods andservices for consumption which were not rationed. It was alsodeposited and borrowed by the state and firms. Althoughmoney and prices cannot perform their essential comprehens-ive function without a free market, socialist quasi-money(smoney) and socialist quasi-prices can be used in both thefirst and second cases of socialist economy. It follows thatthere can be two different sorts of s-money.

The third case we shall consider is market socialism whichincorporates and utilizes the market. Here the originalfunctions of money would remain. Market socialism pre-supposes public ownership of the means of production or offirms, unlike social democracy which stresses incomeredistribution through welfare and tax policies within thelimits of private ownership. In a market socialist economy,planned distribution of goods and services and price controlcan be incorporated to various degrees in the areas where

socially conscious management of economic activities isdesirable. The function of money in these restricted areas ofthe economy would be somewhat similar to s-money. At thesame time the state under market socialism would seek tocontrol money supply, interest rates and the rate of inflationand deflation of the aggregate level of prices as an importantpart of macro-economic management. Thus market socialismwould certainly differ from a comprehensive system of freemarket relations. The nature and functions of money would bemore restricted and subject to greater social control.

In retrospect money in capitalist market economies hasalso been greatly transformed during the twentieth centuryfrom the form of commodity (gold) money arisinganarchically from within the private market economy into theform of inconvertible bank notes under the strong control ofthe state. Money in a capitalist market economy has thereforealready become much more subject to social control. The

system of managed currency in the form of inconvertible banknotes realises to a certain degree the socialisation of money byimposing some control over the core nexus of the capitalist

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economy. However there are fundamental difficulties in thesocial control of a capitalist economy grounded in essentiallyanarchic market relations. These are well exemplified by theprocesses of transforming the economic crisis of basic capital

accumulation into explosive inflation, wild speculativefluctuations in exchange rates or the swell and collapse ofbubbles which result from the anarchic pursuit of speculativeprofits. To the extent that socialism is able to expand thepossibilities for the socialisation of money, it will be able toovercome these forms of instability.

2. Abolition or Socialisation of Money?

Should socialism abolish money or, approving of its continuedexistence, endeavour socially to control it? This is basically anexpression of another question: Should socialism abolish orutilise the market? My own position on the issue is that eitherstrategy is theoretically possible but the outcome would haveto be determined in each country by democratic decisionatleast in the medium term.

The classical Marxist view was somewhat narrower. Marx

and his immediate followers assumed that a socialist societymust abolish both money and markets so as to emancipatepeople from the domination of money fetishism. Labour time,in their vision of an associational socialist society was usuallysupposed to serve as a unit of economic account which wouldmake transparent the necessary social allocation of labour aswell as the principle of distributing consumption goods andservices to societys members in accordance with individualcontributions of labour time. The reason why commoditiesand money were supposed to disappear in an associationalsociety must be related to Marxs notion that only theproducts of mutually independent acts of labour, performed inisolation, can confront each other as commodities. (Marx1976: 132). If this is true and production in an associationalcommunity is not carried out by independent and isolatedproducers, it follows that both commodities and money (astheir general equivalent) would have little place in this kind of

society.Lenin agreed. When we are victorious on a world scale, hewrote, I think we shall use gold for the purpose of building

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The ClassicalMarxist View

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public lavatories in the streets of some of the largest cities ofthe world (Lenin 1921: 113). This was a typical expression ofthe classical Marxist ambition to abolish money. It also pre-dated the discovery of new uses for gold as in terminals for

sophisticated electronic equipment and other manufacturedgoods. At the risk of labouring Lenins joke, gold is usednowadays in many useful goods: it would of course be wastedas raw material for building lavatories.

Marx had other insights into the social preconditions ofcommodity production. Discussing its origins, he stated thatthe exchange of commodities begins where communities havetheir 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 betweendifferent societies; historically exogenous to the internalrelations which organise the labour processes in various socialformations. Indeed before capitalism, the forms of commodityeconomy functioned for long periods as mainly inter-socialeconomic relations or as forms of trade between differentcommunities which organise their own relations of productionoutside the market economic order.

The Uno school of Japanese Marxist political economy,starting from this historical observation by Marx has putforward the view that the forms of market economy such ascommodities, money and some kinds of capital, can theoretic-ally be studied aspure forms of circulation without referring tothe substance of value or the social relations that structurelabour processes.2 This theoretical starting point whichseparates the external origin of the forms of market economyfrom the intra-social labour process can be developed in twoways. In one line of argument this analysis does not contradictthe project to abolish money in a socialist economy. If theforms of commodities and money are in origin external formsof circulation as against internal socio-economic life thensocialism can aim to push these out again from the basic sociallabour process and finally realise an associational consciouscontrol of the metabolism between human beings and nature byaltogether excluding market relations and money. Kozo Uno

seems to have endorsed this view when he criticised Stalinsnotion 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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law of value just like the laws of physics. Uno replied thatsocialism should aim at abolishing the law of value together withthe anarchic forms of market economy which give rise to it. Aswe have seen, this view of socialism would not necessarily negate

the use of s-money either in the initial process of constructionof 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 forthe possibility of market socialism in which the forms ofmarket economy are functionally utilised as a co-ordinatingmechanism among decentralised communities, firms andconsumers upon foundations of socially owned means ofproduction and the democratic organisation of the labour

process. This is precisely because the forms of marketeconomy were originally inter-social trading relations amongcommunal societies of various characters.

Realising the total associational planning of the global economywould be difficult to achieve in the medium term. The SovietUnion, which domestically realised a type of centralisedplanned economy on foundations of state ownership of majormeans of production had to depend on foreign trade in a

capitalist world market. Even with strict state control of theinternal economy, gold and dollars as world money had to beused by the Soviet government to settle trade balances withcountries of the capitalist world. The historical fact that theSoviet Union happened to be one of the worlds greatestproducers of gold considerably eased access to suchinternational means of settlement, serving as a hiddenfoundation of economic growth for decades and consolidatingsocialism in a single country.

On the other hand the Soviet Union could not use labourtime as a domestic unit of account. The rouble, a sort ofsmoney different from both free market money and labourcertificates, was used as a unit of economic account for incomedistribution as well as a means of settlement for and by firmsand kolkhozes (collective farms). So long as the composition ofnecessary goods and services varied among consumers or wherefree choice was allowed for those goods and services (albeit in a

restricted range) some sort of s-money had to be distributed tohouseholds and individuals to choose them. In addition therouble as a kind of s-money with corresponding prices enabled

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economic calculation by the central planning board and firmsincluding the calculation of production costs. These weretheoretically to be minimised (although not in the same way asenvisaged by neo-classical Hayekian price theory.)4

The Soviet s-money rouble was also used as an inter-national means of settlement between nations within theCOMECOM (Council for Mutual Economic Assistance). In asocialist economy under comprehensive economic planning,foreign trade must be controlled and planned too, so as not todisrupt domestic economic plans. The international means ofsettlement therefore needed to be controlled according toplan. The socialist planned economies in the USSR and easternEurope were actually run on the premise of central control of

the international economy as well as of international means ofpayment.

These experiences illustrate how an economic unit ofaccount and settlement can be converted into s-moneydomestically by restricting its functions in comparison withthose of real money and how international currency can besocialised even though in a particular statist way.

In a market socialist economy which combines a wide range of

co-ordination through the market with various forms of publicownership, essential functions of money must still remain.Note however that money in the market socialist economywould act as s-money in some respectsin socially controlledareas of economic life. At the same time, as inconvertiblecentral bank notes, its supply can be subject to social controland manipulation by fiscal and monetary policies. In the yearssince the 1930s, capitalist economies have developed asophisticated policy mechanism socially to control andmanipulate money. Market socialism would have to learn howto adapt this mechanism to its own social purposes.

Should a market socialist country keep foreign trade openand free for its firms, while trying to secure the necessary stockof world money by means of fiscal and monetary policies amidfluctuating exchange rates in the world market? Or should itallocate and control international currency and thereby exert ameasure of control over foreign trade? There is no hard and

fast rule. Strategies can vary and might change according tointernational competitive strength and the correspondingnecessity to control foreign trade.

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Money in Market

Socialism

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Thus while various functions of money would continue toexist in a market socialist economy there would also beopportunities to control its supply and accessibility bothdomestically and internationally. Keynesianism assumes that

the necessary control of money should be carried out by elitespecialists informed by a national point of view and inspiredby Keynes own rational and liberal assumptionswhich havebeen called the premise of Harvey Road.5 If the regionalintegration of nation states such as the EU realise integrationof financial systems then the control of money supply wouldbecome subject to unified macroeconomic management, but itwould still be in the hands of centralised specialist authoritiesat least for the time being. In the Soviet model, the supply

and control of s-money clearly took a more statist form withdecisions and directions coming from above.

Money is the core and central nexus of commodityrelations. Its control therefore cannot be decentralised like themanagement of individual firms. If monetary policy is to becarried out in a democratic way it requires fairness beyondpartial interests, a wide knowledge, discretionary intelligence,democratic representativeness and flexible rapidity of decisionmaking. These objectives may seem rather difficult to achieve.

We need not fear failure, however. Highly elitist political andbureaucratic management of money in capitalist economieshas not been marked by either wisdom or outstanding success.Although informed by some theories it has been characterisedin the main by trial and error. With the expansion of economicplanning under market socialism, we could expect thatmonetary management and control would become somewhateasier than under capitalism.

In any case it is both necessary and desirable for a marketsocialist economy to secure a social mechanism adequately tocontrol money supply. This would entail politically adjudicat-ing conflicting demands and taking into consideration the sideeffects of inflation and deflation in ways that democraticallyreflect what people want. It follows that it cannot be sufficientto call for a weakened State. When it comes to the necessarydiscretionary decision making in monetary management weneed to think of socialist alternatives to the premise of Harvey

Road. We need to open paths of free access to economicinformation, free opportunities to acquire wide economicknowledge and to enhance the general intelligence of working

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people throughout their whole lives. These are necessary andsignificant steps forwardif not by themselves sufficient, formore democratic social control of money.

3. Reconsideration of Labour Money.

Marx advocated the use of labour time as a unit of economicaccount for allocating labour to various needs and fordistributing social products to individuals in an associationalsociety of free persons. But he criticised the theory of labourmoney 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 onlybe achieved by reforming the monetary system. Everyproducer would receive a certain amount of labour money,equating, say, 72 hours of labour time a week with a poundsterling. This would be in exchange for the amount of labour-time embodied in his or her products which are delivered tostorehouses of a national bank or its branches. Such labour-money would serve as a sort of bill to order enabling a bearer

to receive any products in the same storehouses at equivalentprices. These would be directly proportional to the labour timenecessary to produce them (Gray 1831).6

Marx opposed Gray on the following grounds. It is not atall clear in Grays theory why there has to be another externalmeasure of the value of commodities besides labour-time (theimmanent measure of value), and why all values have to beestimated exclusively in terms of the money commodity. Graybypasses this problem and assumes that the private labour

contained in commodities is directly social labour. While Graypresupposes continuing commodity production on the basisof private, individual exchange, he proposes a labour-moneyscheme in which a national bank would treat private labourdirectly as socialised labour. He therefore fails to recognisethat the basis of the bourgeois mode of production are theanarchic social relations specific to commodity production.(Actually Gray also suggested the necessity of controlling

production itself when he suggested that the national bankshould transform capital into national capital and privateproperty in land into national property). A bank which naively

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Marxs Critiqueof Labour- Money

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believed in Grays theory of labour-money and tried toimplement it in practicewithout social reform of the basis ofreproductionwould certainly be criticised by the bitterexperience of actual bankruptcy!

There are three aspects of Marxs critique which call forconsideration here.Firstly, when Marx criticises Grays lack of an explanation

for the necessity of money, Marx asks why all values come to beassessed in terms of a single, exclusive commodity (money).Here Marx seems to suggest that the social relations of labour-time in commodity production give rise to the external measureof values in money. Marx seems to argue the necessity of moneyfrom the intra-social relations of private production of com-

modities. From the point of view of the Uno school such ananalysis could not result in a correct understanding of theexternal nature of money and commodities as forms of circula-tion which have externally connected various systems of socialproduction over long periods of human history. Marxs viewwould then make it difficult to conceive of a socialist systemwithout private production but using money or s-money.

Secondly, Marx dismisses as utopian Grays notion that anational bank could recognise and directly treat private labour

as social labour-time while keeping the social basis of privatecommodity production unchanged. This suggests a converselyrelated problem. Would it be similarly utopian to conceive ofcommodity circulation and money in a society of socialistfirms under public ownership? In my view it would not.

Thirdly, Marxs critique of Gray can be read to suggest thatlabour money or labour certificates could be practicable as soonas the social relations of commodity production are reformed soas to transfer capital and land ownership into national property,making labour directly social. Actually Marx appreciated ratherhighly Owens idea of labour certificates as going far beyond theutopian limitations of Grays theory since Owens idea assumeda reformed associational economy organising agriculture andmanufacturing in co-operative firms (Owen 1821).

Here Marx suggests that once socialised labour is realised withpublic ownership of the means of production, labour money

would become the certificate of labour performed but it wouldnot be real money. The labour certificates would either directlyexpress certain hours of labour time or certain units of quasi-

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Labour Money orLabour

CertificatesUnrealised.

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price (pounds sterling for example) but assuming directproportionality between hours of labour time and pounds.Thus if an hour of labour-time is equated to ten pounds, a dayslabour of 8 hours would be expressed as 80 pounds and 2,000

hours a year as 20,000 pounds. This would show his or herindividual average contribution to associational production interms of quasi-prices and simultaneously his or her claim onthe common product. In so far as each unit of labour certificatethus expresses a unit of quasi-price it would maintain theappearance of quasi-money or a sort of s-money. Therefore itmay be termed labour-money.

Marxs image of an association of free persons waspresented only for the sake of a parallel with the production of

commodities, but he assumed that such a society would uselabour-time as a measure for the allocation of labour in thecorrect proportion between various activities as well as for thedistribution of the common store of products to individuals.This simple economic order therefore relies on both labourcertificates as well as directly accounted labour hours.Assuming homogeneous labour, if the results of eight hourslabour is expressed as 80 pounds and if the individual claim tothe common product for 8 hours of labour is to be the same 80

pounds, then there cannot be any social surplus beyonddistributed individual income. (Actually the idea of labourmoney put forward by Robert Owen and others was originallyintended to abolish unearned incomes and to redistribute thewhole results of labour to the producers). Compared withcommodity production this image of associational societysubstantially parallels a society of small commodity producersworking with their own means of production and withouthired labour.

Marx may have had this simple economic order withlabour money in mind when he suggested the use of labour-time as a double measurefor allocation of labour anddistribution of products. But elsewhere Marx suggests thatindividual workers may contribute, say, 8 hours a day butreceive 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 commodityproduction but with capitalism. This image of the socialtreatment of labour-time intends to transform the content and

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functions of capitalist economythe regulation of labour-time and appropriation of surplus labourinto a socialisteconomic 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 orher individual consumption 40 pounds in terms of labour-money representing a claim to products of 4 hours of labour-time while he or she contributes 80 pounds to society.

There are therefore two different models for accountinglabour costs for the economy. If the gap of 40 pounds between aworkers labour contribution and consumption income directlybelongs to a firm or to society, the socialist wage (swage) andlabour cost for the firm would be counted as 40 pounds for a

days work (5 pounds an hour). Alternatively, swages or labourcosts can be counted as 80 pounds for a days work (10 poundsan hour) from which the individual worker pays his or her ownsocial contribution (40 pounds a day). In the latter model, firmsmay collect such contributions by deducting it from s-wages inadvance. Although the substantial result is quite similar, therecan be differences between the two models in their implicationsfor the relationship of the individual to society and theirinfluence on the price system as a whole.

Despite public declarations that socialism (the first stage ofcommunism) had been achieved in the USSR the system failedto realise labour certificates or labour money or to achieve asociety based on economy of labour time. It is important toestablish the nature of s-money in the Soviet modela problemwhich can only be examined together with s-prices, or rather aquasi-commodity form of production with s-prices therein.

4. Socialist Forms of Money (S-Money)

Stalins Constitutional Law (1936) claimed that the Soviet Unionhad already established socialist public ownership of the meansof production and eliminated antagonistic classes and was there-fore a socialist society. Nevertheless Soviet economic planningcould not form transparent and simple social and economicrelations measured by labour time. Correspondingly the nature

and functions of the rouble as smoney could not be identicalwith Owens labour certificates or so-called labour money.(Marx clearly refused to regard labour certificates as money).

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Why did the Soviet Union fail to realise transparent andsimple economic relations measured by labour time? Onepossible explanation ascribes the reason to temporary back-wardness of Soviet society, still developing towards socialism.

However this view ignores the theoretical and practicalobstacles later in the more developed USSR of the 1950s andthe 1960s.

Theoretically there was a basic problem as to how to reduceheterogeneous and complex labour to homogeneousquantities of abstract human labour.This relates to one aspectof a long standing controversy around the labour theory of

value. If reduction of heterogeneous concrete labour toabstract labour were performed only through the market as I.I.

Rubin asserts, then a third concept, such as socially equalisedlabour, needs to be introduced into a socialist plannedeconomy (Rubin 1992: chs. 13 and 14). But there was not astrong theoretical foundation for equalising different sorts ofcomplex or skilled labour. As a result, grading of labour in theSoviet-type societies became arbitrary, allowed bureaucraticstratification of jobs and as a result gave apparent legitimacy tothe 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. Thisguarantees the generational reproduction of socially necessarylabour power through private family income. However in theMarx-Ricardo tradition there is a basic theoretical differencebetween the value of labour-power on one hand and theamount of labour-time expended as the use-value of labour-power on the other. They should be theoretically disconnected.In a socialist society where costs of education and training are acharge against societys common fund there is no reason toguarantee higher levels of distribution, or higher wages to skilledworkers on the grounds of their special costs of education andtraining. Abstracting from these costs, complex skilled labouris expenditure of universal human ability to work in concreteforms just as simple labour is. It cannot be seen as condensedor intensified labour, expending more labour time than simplelabour in the same period of time. Actually even simple labourembodies different ways of using human capacity. Only when

we see in these different forms the common universal ability towork in various ways can we reduce them to homogeneousabstract human labour which does not depend upon

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commensuration of products in the form of prices in a market.From this point of view we can count the amount of labourtime 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 responsiblecomplex labour should be considered separately whilerecognising the basically egalitarian nature of human labour.7

Once we assume homogeneous labour and a single productfor each industrial process, the quantities of labour-timeembodied in a unit of any product can be determined bysolving simultaneous equations representing a technicallygiven input-output system of reproduction.8

Although the feasibility of this device is theoretically

proved it could not be realised practically. Firstly, reliabletechnical information on input-output relations betweenmillions of products is difficult to collect. Secondly it wouldtake too much time and labour to solve millions ofsimultaneous equationsa similar objection to that raised byHayek on the practical calculability of equilibrium prices onthe assumptions of general equilibrium theory.

The recent development since the 1970s of micro-electronicinformation technology with high computer capacity promises

to solve these problems in calculating embodied labour timeto a certain extent, especially if we start from strategicallyimportant goods and services. Conversely, a great number offinal products can be excluded from the initial process ofcalculation as they do not go into the means of production ofother goods. Their labour costs can easily be calculated ifamounts of labour-time embodied in their means ofproduction are known.

An alternative way to measure the amount of labour-timeembodied in each unit of production involves a trial and errormethod, by using full s-wages which measure the maximumaverage 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 fullypaid out in average s-wages. From this total each individualworker pays,say, 40 pounds to the common fund. Without anysocial surplus or with zero profit, prices which enable

reproduction of all the existing branches of production mustbecome directly proportional to the amounts of embodiedlabour-time in their products.

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Therefore, equilibrium prices which are reached by trialand errorthrough either the simulation of a market ortransactions in a market with full s-wagesmust reveal theamount of labour-time embodied in various products in direct

proportionality with their prices. Interestingly the same trialand error method which was employed by Taylor and Lange inthe socialist economic calculation debate to reachequilibrium prices on the premise of general equilibriumtheory can be symmetrically used for measuring embodiedlabour-time in a full s-wages model (Taylor 1929; Lange19361937).9

In the Soviet type of planned economy the lack of proper

theoretical, technological and practical preparation made itimpossible to calculate the amount of labour time embodied ingoods and services and therefore could not realise labourcertificates or labour money. A type of s-price (officiallydetermined by the central planning board) was given to eachproduct and a kind of s-money rouble was used to distributeincome as well as for transactions between the central organson the one side and the individual firms, collective farms andconsumers on the other. Those prices were measured neither

in terms of embodied labour time nor subject to the balance ofsupply and demand in a market.

If we attempt to interpret Soviet reality in the light of asimple dichotomy between money and labour certificates(without any other notion of s-money) we would have toconclude that money and commodities existed in the USSR.Actually the common orthodox opinion in the Soviet Unionwas that commodities and money remained. This view wasbased on a strong interpretation of Marxs statement that onlythe products of mutually independent acts of labourperformed in isolation, can confront each other as commod-ities (Marx 1976: 132). As a corollary there was a tendency tobelieve that commodities could only be transcended when allproduction was carried out in integrated and unified stateowned firms. Stalin, for example, pointed to the co-existenceof remaining co-operatives, kolkhoz types of collective farmsand firms beside nationalised enterprises as the reason for the

continued existence of commodities in the Soviet economy.This left unexplained why transactions between state firmswere also conducted in roubles and sprices. To meet this

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A False

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objection it was subsequently asserted (in the Soviet Unionand by supporters of Soviet orthodoxy) that the relativeseparation and independence of state owned firms accountedfor the continued existence of commodities, price form and

money. Even if there was a certain degree of relative separationand independence among state-owned firms in the Sovieteconomy, those firms were not able to purchase the necessarymaterials and labour force or to sell their products in a freemarket. Therefore it is highly questionable to assert thatcommodities and money existed in the true sense of the terms.Nevertheless the mechanical dichotomy between labourcertificates and money as well as Marxs somewhat problematicnotion of mutually independent acts of labour as the sole pre-

conditions for commodities were applied to the Sovieteconomy. After Stalin, the framework of official interpretationbecame improperly narrow. It became obligatory to define therouble as money interlinking commodities. If there really werecommodities and money it would also be quite difficult tounderstand why the transition to a market economy is now sohard to achieve.

As we saw above the forms of commodity economy were

originally external to the socio-economic life of varioussocieties. Once this is clearly understood then we can conceiveof socialism as a socialist market economy with publicownership but to some extent incorporating real forms ofcommodity relations and money.

In Soviet type economies, however, s-prices and s-moneywere not real prices or money due to their socially limitedfunction and role. But nor did they represent a system of labourcertificates. Efforts to analyse its real social functions andtransformed conditions of existence tended to be held back bythe mechanical dichotomy in which they were conceptualised.We need to clarify the special forms and functions of s-moneyin Soviet type centrally planned economies together with thesocio-economic conditions for its existence.

As s-money the rouble had at least the following functionsand characteristics. It worked as a means of purchase and ameans of payment for goods and services with officially fixed

prices. It gave individuals and households freedom of choicein buying consumer goods and services (within the constraintsof their incomes and a large socialised sector of consumption.)

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However its functions were narrowly limited in comparison tothose of true moneythe general equivalent in a free market.Firms could not purchase raw materials selectively from otherfirms but received allocations of them through the state supply

agency (GOSSNAB). Even if they had roubles to pay for rawmaterials they could not have purchased them on a freemarket. Nor could consumers with roubles always obtainthose goods and services that they wanted in the Sovieteconomy of shortage.10 They had to spend a lot of timequeuing, searching on foot and frequently still failing.Therefore it can be said that in its functions as a means ofpurchase 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 withthe trend of purchases was very slow (if ever). Prices of goodsand services were determined by the state planning commis-sion (GOSPLAN) basically on cost principles, together withthe scale of wages for various jobs.

Therefore, while the results of various heterogeneouslabour were given the homogeneous form of rouble prices andtransacted in terms of these prices, the evaluation mechanismwas quite different from that in a free market where anarchic

and subjective prices are repeatedly corrected by the functionof money as a means of purchase and then of measurement of

values. The functions of the rouble wage were also quitedifferent from that of price of the commodity labour-powerin a capitalist market economy. Roubles represented no morethan the distribution of claims to the social product inaccordance with individual labour contributed to society. Inthe Soviet type of society wages were basically paid by the state(even if through firms) and returned to the state being paid forgoods and services offered by the state or state firms.Individual persons or firms could hoard some portion ofrouble income but they could not use rouble s-money forprivate profit making or private capital investment. Nor couldthey use s-money roubles directly as world money.

These social restrictions meant that the rouble was differentin nature from true money in a market economy while, as wehave seen, it could not be regarded as labour certificates or

labour-money. It should be interpreted as a sort of socialistquasi-money (s-money) with limited social functions. Itsspecial nature corresponded to the centrally controlled

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character of prices in the Soviet economy. Although the formsof market economy such as commodities and money can formexternal articulations with various social relations of produc-tion, they must be transformed into socially restricted quasi-

forms once they are incorporated into a centrally plannedeconomy. We should recognise that such a social system canbe managed through these quasi-forms with neither labourmoney nor free market. The officially fixed prices can be usedfor economic calculation. By somewhat conventionallyassuming the same composition of national production, theycan measure, for example, the annual growth of nationalproducts in deflated macro-data just as deflated market pricesin capitalist countries do. Economic accounting in terms of

labour time could not replace the function of s-prices or pricesin measuring economic growth and hence in measuring also achange in labour productivity at the level of national orindustrial aggregates

The social nature and functions of prices and money as theforms of circulation can be transformed under certain socio-political conditions. Already in capitalist societies thecontrolled economies in war periods or the managed currencysystems have demonstrated certain tendencies towards the

socialisation of money. Again, some experimental attempts toimplement local money as a form of mutual aid for child andelderly care show other possibilities for realising socialisedforms of money with certain similarities with the idea of labourmoney. Attempts to create a unified EU currency also imply yetfurther possibilities for socialisation of money on a larger scaleand at an international regional level. The restricted nature andfunctions of the money form in Soviet-type economies wascomparable with other varied attempts to socialise money.

In a less centralised market socialism money will appear onone hand as real money with the original nature and completefunctions of money in a market economy. However, money ina socialist economy must also have a socialised character (likes-money) so long as the market is socially regulated and moreor less controlled and economic areas outside the marketorder are secured for socialist purposes. It would thereforeserve as an important frame of reference for market socialism

to study and clarify the nature and functions of s-money inSoviet-type socialismnot just those of real money in thecapitalist 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 andinterest in a capitalist economy, Marx presented two different

approaches.The first approach attempts to clarify the credit system as theinternal mechanism of the modern industrial and commercialcapitals. In the second volume of CapitalMarx points out thatthere are various forms of idle money capital such as thedepreciation funds of fixed capital, the accumulation fundfrom surplus value, a reserve fund for unexpected pricefluctuations and a fund to continue production during thecirculation period of a part of capital. These funds are

repeatedly formed during the turnover of capital andconstitute 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 increaseefficiency in the motion of capitals in raising profitability aswell as in equalising the rate of profit across industries bymeans of mutual utilisation of such idle funds between capitals(and so readjusting for anarchic disequilibrium). In thiscontext interest paid to commercial and bank credit is nothing

but a redistribution of a part of surplus value within industrialand commercial capitals.

However, Marx sets out another approach to the theory ofinterest in the third volume of Capital. Here he followed thetraditional view of the classical school which defined interestbasically as a payment of a part of profit of the industrialcapitalist class for the loan given by an external moneyedcapitalist class. In this second approach the credit system isseen as an intermediary social mechanism to handle loansbetween the moneyed capitalist class and the industrialcapitalist class.11

In neither approach in Marx is there a determinant theoryof the general rate of interest. The rate of profit is derived fromgiven technologies and real wages, while the rate of interestcan usually vary between zero and the average rate of profit ata level determined by the the social demand for and supply ofloanable money capital. Marx further specifies that the rate of

interest moves in the opposite direction to the rate of profit incertain phases of the business cycle. This suggest theoreticalspace for an interventionist state to strategically manipulate

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the interest rate in order to influence the overall movement ofa capitalist economy.

A socialist economy can be imagined to abolish the leisuredfinancial capitalist class as well as a monetary market mechanism

at least in a complete socialist planned economy. Abolition ofparasitic rentier and landlord classes has been a long standingtraditional demand of every trend in socialism. There cannot beany kind of socialism with financial capitalists. Now, if we baseour understanding on the second of Marxs approachescreditas intermediary between classesit might be rather difficult toconceive of a socialism with interest and a credit system.

However, Marxs first approach, focusing on the deploy-ment of idle funds, opens other theoretical possibilities. Even

in a socialist economy without a market, firms, provided thatthey enjoyed a degree of autonomy, would hold reserves oflabour certificates or s-money in order to expand theiroperations, cover depreciation and hold reserves againstaccidents or unpredictable changes.

Marx noted that in an associational socialist society, theseitems would have to be deducted from the incomes ofindividual producers. What applies to society as a whole mustalso be applicable to individual firms 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 theform of labour certificates or s-money for future use, such asholidays, marriage, insurance against reduction of incomecaused by illness or old age.

Generation of funds may be more or less balanced by usageof stored funds. (Marx assumed that this would be the case inhis analysis of reproduction schema.) It is unlikely, however,that they would balance in the short run particularly withineach industrial sector. There would usually be surplus funds,especially in personal income, as well as in various reservesheld by firms. A socialist credit mechanism could beconstructed to use these balances of idle funds.

In a perfect system of rationing there would be no room forcredit, except perhaps for certain functions of the state andpublic debt.

If the state borrows idle funds through public banks or inthe form of bonds, and operates directly or indirectly toreduce the real value of s-money or the labour certificate, then

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stored funds would also lose their value. This could be effectedfor example by over-issue of s-money; essentially the same asinflation in a market economy. Further, if the real rate ofinterest is negative, then the state debt would act as an

additional hidden levy on firms and individuals.Provided that not all goods are rationed and a proportion ofthe means of production are exchanged between firms, theninter-firm credit transactions will emergethrough bills forlabour certificates or s-money. If a firm in receipt of a bill doesnot have sufficient idle funds to continue operations it couldperhaps exchange the bill for labour certificates or smoneyfrom public banks where other idle funds have been deposited.

Some firms may ask banks for loans if additional expansion

is required to meet social demands. Individuals may need toborrow in order to improve the flexibility of expenditure, e.g.to even out future payments. Mutual utilisation of idle fundswould facilitate more flexible allocation of economic resourcesto meet changing social needsa flexility enhanced by beingable 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-socialcommercial 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 rateof interest could be determined by a central planning board.Alternatively it might be given a range within which it couldmove, reflecting the general balance of supply and demand forcredit. Or, finally, it could be allowed to move freely withoutany general limitation. However even if the interest rate movesfreely or within a range, it can be much influenced by theattitude of public banks and the central planning board, as wellas by the operations of the public debt. Here again, it is not justthe nominal rate but the real rate of interest that matters.

In general this rate should be positive in order to promotesaving for social accumulation as well as to restrict recklessborrowing. The rate of interest would regulate the pace ofaccumulation and expansion of firms. Enterprises wouldborrow only when the marginal surplus or s-profit obtainable

by additional expansion of operations would be expected toexceed the rate of interest. Thus manipulation of the interestrate could be a powerful instrument for macro-economic

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policy in a socialist economy which allowed individual firms ameasure of individual decision making.

The greater the extent to which quasi or real markets areincorporated into a socialist economy the more important will

be the role of credit and interest. Therefore credit mechanismsshould not be regarded as inherently anti-socialistas nomore than mechanisms for making financial capitalists richer.Credit and interest can positively serve to promote moreflexible adjustment of production and consumption. Interestrates could also provide a powerful soft policy devicei.e.one that does not rely on direct commandto control thepace of economic growth in a socialist economy just asmonetary policy aims to do in a capitalist economy. The

function of credit and interest can be made rational and fairwithout that element of speculative profit-making whichpromotes bubbles and their collapse in capitalist economies.

In a socialist economy, interest will thus no longer be thefoundation of a class of financial capitalists but couldrepresent just a redistribution of economic surplus amongindividuals and associational firms. As we have seen it wouldalso facilitate the mutual use of idle funds.

The collapse of the Soviet type of centrally planned eco-

nomies was at least partly due to their inefficiency, their lack offlexible adjustment and the absence of incentives to innovate. Itis now apparent that it is no longer sufficient just to criticise thehistorically limited and contradictory nature of capitalism. Wealso have to study in greater detail the possibilities for trans-forming, rearranging and socialising the forms and mechanismsof a capitalist market economy in combination with a variety ofsocialist innovations. Through a reconsideration of the possibleforms of money, s-money and credit in socialist economies, thisessay has suggested a broader approach to a renewed socialistpolitical economy capable of drawing lessons for the futurefrom the bitter historical experience of our age.

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 isdetermined by his labour time. Labour time would, in that case, play a

double part. Its apportionment in accordance with a definite social planmaintains the correct proportion between the different functions oflabour and the various needs of the associations. On the other hand,

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labour-time also serves as a measure of the part taken by each individualin the common labour, and his share in the part in the total productdestined for individual consumption. The social relations of theindividual producers, both towards their labour and the products of theirlabour, are here transparent in their simplicity, in production as well as

in distribution. (Marx 1976: 172).2. This theoretical reconstruction was initially set out in Uno (1950, 1952).

See also Itoh (1988, chapter 4).3. It is worth noting that that Unos critique of Stalin predated the process

of de-Stalinisation which began in 1956. See Uno (1953).4. 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 tocalculate and therefore minimise costs of production in a centralisedplanned economy without a market for the means of productionthesocialist economic calculation debate. It is apparent now, on the basis ofreconstructions of neo-Ricardian and Marxian objective theories ofvalue, that economic cost calculation and minimisation need not assumethe neo-classical subjective theory of price. However, in the course of theoriginal debate some representative supporters of socialisme.g. F.M.Taylor and O. Langealso depended upon the general equilibriumtheory of prices to counter the critiques. For more detail, see Itoh (1995).

5. J.M. Buchanan (and others), pointing to the dangers fiscal deficit broughtabout by Keynesian policies, criticised Keynes neglect of real politics,influenced by the conflict of various interests. Keynes assumption that

economic policies would be controlled by just, rational, intellectualspecialists they called the premise of Harvey Road (where Keynes wasborn and lived).

6. 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 handsof merchants. For a recent paper on Grays theory of labour-money andMarxs critique of it see Saad-Filho (1993).

7. For a more detailed discussion of the theoretical problems of skilled orcomplex labour and a possible solution, see Itoh (1988, chapter 6).

8. Assume that n kinds of products are produced in n sectors of

production. In order to produce the ith product, aij units of the jthproduct and li hours of living labour are technically necessary. Let thetotal of past and living labour embodied in a unit of ith product be tihours. Then we have,

a11t1 a12t2 a1ntn l1 = t1a21t1 a22t2 a2ntn l2 = t2

an1t1 an2t2 anntn ln = tn

(a

ij

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.

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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 inMarxs writings are discussed in Itoh (1988: 259).

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 ofMinnesota 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 ofPolitical 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.

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References