John Riddell: Socialist planning and the bureaucratic economy

By John Riddell

May 17, 2015 – Johnriddell.wordpress.com, posted at Links International Journal of Socialist Renewal with permission – The following previously unpublished position paper, pulled from my archives, was written in 1992. I am posting it in conjunction with my review of Michael Lebowitz’s Contradictions of "Real Socialism". My comments raised many of the themes found in Lebowitz’s writings of that time, of which I was then quite unaware. My approach, however, gives more emphasis to the problem of economic allocation and the role of non-capitalist markets.

My text responded to writings by leaders of the US Socialist Workers’ Party, of which I was then a member, on Che Guevara, Cuba and the road to socialism (see New International no. 8, April 1991). Their articles drew on discussions in Cuba in the late 1980s during the process of “rectification”, which sought to remedy bureaucratic distortions brought on by attempts to implement Soviet-style planning.

The issue of New International in question contained articles by Cuban revolutionists Che Guevara, Carlos Rafael Rodriguez and Carlos Tablada, alongside a text by Mary-Alice Waters and another by Steve Clark and Jack Barnes, all leaders of the SWP.

I considered the SWP collection a step forward in discussion of transition to socialism, but the Clark-Barnes article troubled me. While insisting on workers’ democracy as a crucial element of a transition to socialism, it appeared to undercut or deny this concept by its practical recommendations. I responded by writing the text that follows, and forwarded it to the SWP leadership. The text received no response and was not circulated.

I found no way to re-engage with this topic until a decade later, when some themes of my text re-emerged in the statements of Hugo Chávez and other socialists in Latin America on 21st Century Socialism and also in the writings of Michael Lebowitz, the foremost English-language interpreter of this concept.

My text quotes from articles by Leon Trotsky in 1932 and 1933, which I have posted separately.

Does Che Guevara’s program resemble early Stalinism?

May 1992

In recent years our international movement has campaigned to reassert the genuine positions of communism on how workers and farmers, after taking state power, will set about the building of a planned economy and a socialist society. An important achievement along this road was the publication in 1991 of “Che Guevara, Cuba, and the Road to Socialism,” in English and Spanish editions of New International.

Our position has elicited no reply from the neo-Stalinists, left-wing social democrats, and academic specialists presently debating the “future of socialism.” Nonetheless, their answer, in general terms, has been clearly stated. A planned economy, they claim, because of its centrally directed character, requires a massive and autocratic ruling bureaucracy of the Stalinist type, with all its attendant evils.

This notion also seems to be implied by Carlos Rafael Rodriguez in his article, “Che’s Contribution to the Cuban Economy,” reprinted in New International no. 8. The budgetary finance system advocated by Che Guevara, Rafael Rodriguez states, “came from the socialist countries. In the Soviet Union itself for a time, the budgetary finance system regulated many aspects of the economy.”

In their response, “The Politics of Economics: Che Guevara and Marxist Continuity,” Steve Clark and Jack Barnes point out that this is an allusion “to the period of the first several Five-Year Plans under Stalin and his heirs in the Soviet Union (from the late 1920s to the early 1960s).”

The claim that planning leads to Stalinism, made by reformists and outright reactionaries alike, weighs heavily today on the thinking of many working-class fighters around the world. In fact, as the article by Clark and Barnes explains, the budgetary finance system proposed by Che Guevara is the polar opposite of the early Stalinist system of economic organization. It is true, they concede, that “particular organizational aspects of this system bear a formal likeness to elements of the budgetary finance system advocated by Guevara.

State enterprises, for example, had no investment funds of their own and were allocated financing from the state budget with no interest charges.” But proletarian centralism, they write, “is the opposite of the use of administrative, command-style methods of organization where clear lines of responsibility for decisions and their implementation disappear into a maze of bureaus.”

The key to economic planning, they continue, lies not “in social engineering, in developing planning bureaus staffed by growing numbers of technocrats and administrators, no matter how well meaning,” who stand outside the plan and administer it from above. Rather the plan is “the totality of the ways … that the working class takes growing, conscious control over the priorities, organization, and administration of economic and social life,” operating from within the plan itself.

Although the Clark-Barnes article does no more than reassert what in the days of Marx, Engels, and Lenin was the recognized view of Marxism, it outlines the Marxist view much more fully than anything communists have written in recent decades.

The key force for planning has been widely presented in the workers’ movement as being the central planning office or government ministry. But communists, Jack and Steve point out, understand that the creative power for planning resides in the industrial work force itself, which takes responsibility for political leadership and economic management both for a multitude of individual work places and for the economy and society as a whole.

Their article provides a good foundation for examining key problems often asserted to be insoluble in a centrally planned economy – such as allocating resources efficiently, setting prices by flexible and politically sound criteria, and organizing production to meet consumers’ needs. It provides a basis to explain more fully how the communist program differs from all Stalinist models for economic planning and socialist construction.

The present notes aim to encourage the SWP National Committee to return to the questions discussed in Jack’s article and further develop our views on Stalinist-led economies and on the policies needed to enable working people to build a socialist society.

Did planned economies develop under Stalinism?

Pro-capitalist commentators harp on the theme that the economic collapse of the Soviet Union proves the bankruptcy of centralized planning. But centralized planning in the USSR rotted out long before perestroika. In fact Soviet planning, after promising beginnings, was deformed and stalemated by the rise of Stalinism in the late 1920s and early 1930s. Given the exclusion of working people from political activity and from control over the economy and social life, no other outcome was possible.

Studies of Brezhnev-era “planning” in the Soviet economy testify “that plans are often (usually) unfulfilled.” Historian A. Nove writes, “that information flows are distorted, that plan-instructions are the subject of bargaining,… that plans are frequently altered within the period to which they are supposed to apply … to justify the claim to 100 per cent fulfillment.” Such studies show that “the economy was not planned in any meaningful sense,” Nove continues, “Planning agencies, ministries and managers adapt as best they can to circumstances … the economy was not planned but managed.” (The Economics of Feasible Socialism, p. 80)

This judgment was made when the Stalinist order was in deep decay. What of the achievements of Soviet planning in Stalinism’s heyday, the 1930s? Leon Trotsky hailed the gains of Soviet industry in these years in the opening pages of The Revolution Betrayed, and the SWP’s 1990 political resolution noted that similar progress was visible in the early years of many other bureaucratized workers states.

Trotsky’s view of Stalinist planning

The key factor making these gains possible, however, was the revolutionary consciousness and spirit of self-sacrifice of working people, aroused by the revolution itself and strong enough still to outweigh the negative effects of the bureaucratic system of command.

The bureaucracy, however, drew a much different conclusion from these early successes. As Trotsky wrote in 1932, assessing the results of the first Soviet Five-Year Plan, “the genuine and unquestionable successes of the centralized efforts of the proletariat were identified by the bureaucracy with the successes of its a priori planning” (Writings, 1932, p. 275). This “a priori” system of planning, in Trotsky’s view, was that of “a universal mind … a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their interreactions.”

Such a mind, Trotsky added, “could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy.” In reality, even by combining available information in the most correct way, he concluded, the bureaucrats could obtain “only a most imperfect framework of a plan, not more” (pp. 273-74).

“The Soviet economy today is neither a monetary nor a planned one,” Trotsky pointed out six months later. “It is an almost purely bureaucratic economy.” Freed from control by the producers, industry “took on a supersocial, that is, bureaucratic character,” he continued. “As a result it lost the ability to satisfy human wants even to the degree to which it had been accomplished by the less-developed capitalist industry.” (Writings, 1932-33, p. 224.)

Characteristics of bureaucratic management

In this bureaucratic economy, management was a function reserved to a caste of petty-bourgeois technocrats; working people were forcibly excluded from either formulating or correcting the plan. The plan, supplemented by the decisions of government ministries, aimed to specify not only all investments but all products, all production targets, and all prices throughout the economy. It also detailed inputs and outputs down to the level of the factory and collective farm. Office-bound officials banned initiatives from below to challenge their dictates, presuming even to instruct collective farmers on which crops to plant and when to sow and reap.

Even when a designated supplier failed to deliver, state-owned enterprises were forbidden to turn to an alternative source of supply. Instead, the shortcomings of the plan were made good by a pervasive system of graft and black marketeering among managers. Rewards to managers were based not on success in meeting social needs but on fulfillment of plan targets laid down from above. These targets, in turn, expressed not so much a centralized will as a negotiated compromise among bureaucrats at different levels of the hierarchy.

A chronic shortage of consumer goods eliminated the functioning of the market as a corrective to the plan, destroying the linkage between production and use. Independent peasants and other independent producers, who could have to some extent made up for the plan’s departures from reality, or at least shown up these failures, were ruthlessly eliminated from the economy. All inadequacies and failures were covered over by brutal coercion directed against the toilers.

During the 1950s, as the Stalinist system matured and its failures grew more grotesque, a series of changes were introduced known as the “economic accounting system.” A state enterprise was now permitted to establish its own investment fund, drawn in the main from its profits – a large part of which were retained – and from bank loans, on which interest was paid. A firm’s “profitability” became the measure of its success. The whip of coercion was supplemented by a more sophisticated system of monetary rewards and punishments based on achievement of production targets laid down from above.

But these changes altered none of the basic characteristics of the bureaucratic management system just described.

Although the changes were called market reforms, no genuine market developed either among state enterprises or in the sale of consumer goods. “Profits” and “losses” of state firms were a fraudulent calculation based in the main not on the functioning of a market but on prices and production targets set arbitrarily. Monetary rewards to managers, doled out on this rigged basis, did not correspond to meeting the needs of users as expressed through a market or in any other way.

The outcome of this great experiment in bureaucratic command was an economy that was centralized only in form. In reality no power existed that could direct the actions of economic managers, and as the economy advanced beyond its years of initial construction, it increasing drifted beyond any human control.

This system of management inherently demanded a Stalinist bureaucracy as the only instrument capable of administering it. For if all products, inputs, users, and prices are to be designated by a central authority, this authority must be large enough to replicate internally the entire structure of the economy. The entire profusion of industries and factories, in all their interrelationships, must be reproduced within the planning structures in a complex web of committees staffed by an army of technical and managerial specialists. Regardless of the possible working-class backgrounds and communist intentions of those who staff these structures, they make up a layer that is petty bourgeois by virtue of its social position. It is cut off from the one great historic source of solidarity, of objectivity, of cooperation, and of production according to plan: proletarian labor.

All human labor proceeds according to a mental preconception, a plan, that is adjusted and refined during the process of production. Planning develops qualitatively through the practice of modern industrial workers. Under both capitalism and workers’ rule, proletarian labor displays a tendency to innovate, to continually discover and introduce new tools, methods, and products.

Proletarian labor instills flexibility in adapting the basic skills of work to a wide variety of new tasks. It demands precise calculation and the careful testing of quality. It introduces a wide division of labor in performing highly complex tasks. It teaches mutual reliance and mutual confidence among co-workers. It teaches objectivity, measuring every product of labor by the criterion of its usefulness. It requires that each worker plan precisely and in detail, thinking through every aspect of the job in advance, assembling necessary materials and acquiring or creating tools, before the job is begun.

The bourgeoisie has imposed a division of labor whose purpose is to split the labor process in two, divorcing planning from execution. Capitalist factories are thus divided into the front office that plans and the shop floor that executes. As a rule, this schema functions badly, and workers must often devise their own “plans” and techniques behind the backs of the “experts.” The bourgeoisie clings to this dichotomy, however, as its best guarantee of labor discipline. Stalinists go them one better in elevating the “front-office” monopoly of planning into the governing principle of society as a whole. They propagate a petty-bourgeois utopia: governmental technocrats, they believe, can run society better than the capitalist class – or the workers.

Working-class planning

Under capitalism, production is increasingly carried out on a social basis, in great factories and enterprises based on cooperative labor. Giant international corporations grow up, which depend on a complex division of labor among hundreds of thousands of workers. Within these industrial giants, diverse branches that produce for each other’s use, exchanging goods without payment, without transfer of ownership. This trend toward socialized production comes into increasing conflict with the outmoded system of appropriation and accumulation, which is based on private property.

This contradiction is ultimately resolved when the working class takes political power and brings the mode of production, appropriation and exchange into harmony with the socialized character of the productive forces. The means of production become state property. As far as goods produced for use in the state sector are concerned, production is organized for use and not for sale. The state sector is set up on the model of a single, coordinated factory. Commodity production subsists only because of the existence of independent and cooperative producers and for sale to final consumers, and even there, it is progressively replaced by direct distribution without payment.

On taking power, the working class moves to do away with the dichotomy between front office and shop floor. The functions of preconception and production are reunited by drawing working people in their millions into the planning of production, economic administration, and government.

The principles of administration of nationalized property are those summarized by Guevara as the Budgetary Finance System. The enterprise has no income of its own; it retains no profits; it has no investment fund. Prices diverge from value by decision of planning bodies. Investments and the allocation of resources are decided socially according to an economic plan. More and more, control is exerted not through coercion or money incentives but directly, through political means. (See NI no. 8, page 211)

A necessary component of this line of march is the alliance of the proletariat with independent producers. Although the most important expression of this policy is the working-class alliance with farmers, it has a broader application. In his report on the 1985 Political Resolution, Barnes explained that “the proletariat’s goal is not the expropriation of craftsmen, individual proprietors, small masters, and so on. For years following a revolutionary victory, a workers’ and farmers’ government will make use of entrepreneurial initiative among working people to carry out a range of otherwise inadequately fulfilled economic tasks and functions as part of a system of nationalized industry and planning.” (New International no. 4, page 161)

A centralized economy

A capitalist economy is ruled by concealed, uncontrollable forces; a planned economy, on the other hand, is consciously shaped and oriented by the democratically expressed will of the producers. The government of the toilers aims to ensure that decisions at all levels express this common will. In other words, it strives to centralize the economy.

Centralism does not mean, however, that all significant decisions pass across a single desk or are approved in advance by a single authority. Centralism requires that a hierarchy of decision-making bodies function with a single common purpose. Authority to decide is delegated to a multitude of posts of command in various fields and at various levels. An inability to delegate responsibility in this way, the inevitable mark of bureaucratism, reveals a paralysis of the high command and its abdication from real responsibility for what is done in the field. It reflects a failure of common purpose and the abolition of centralism.

These characteristics of centralism apply equally to a great capitalist corporation, a bourgeois army, a planned economy under workers rule, or a proletarian party such as our own. But bourgeois centralism rests on the suppression of the ranks, whose interests are contrary to those of the top command. Proletarian centralism, on the other hand, finds its strongest base of support in the class consciousness of the ranks, and thus make possible a much freer delegation of authority and utilization of initiatives from below.

Marxism rejects the anarchist notion of an economy made up of autonomous self-governing cooperatives, a system that restricts workers’ field of action to the self-interest of their firm. Marxism challenges workers who help administer state enterprises to act on behalf not merely of workers in that productive unit but of all toilers internationally. Workers’ management committees, set up on this basis, will be composed so as to cut across the division of workers into different branches of production; these committees will form part of the planning mechanism. Such committees may initially lack a sense of the broader picture. They are subordinate to higher bodies and, when explanation fails, their decisions may be overruled. But there is no presumption that the proletarian judgement or spirit of self-sacrifice of a workers’ management committee at the factory level should be in any way inferior to that of a central planning bureau. The planning structure must function to maximize these committees’ authority and capacity for initiative.

The key force that centralizes and unifies the efforts of working people around common goals is their shared revolutionary consciousness, and the chief instrument to build such consciousness and shape it to common goals is a revolutionary political party.

Centralism requires a diversity of approaches

The working class stands opposed to limits on free expression and free exchange of ideas – limits that can only restrict the exercise of its power. But contending ideas of economic development must be not only debated but subjected to the test of practice. Without the evidence of such experience, discussion will be robbed of content and centralized decision-making will ultimately break down.

A workers’ and farmers’ government will therefore seek to test conflicting conceptions by permitting different organs of government and economic management to implement divergent conceptions and varying priorities. Such a diversity must be restricted, of course, since resources are limited and the interests of working people in their totality must be defended. Nonetheless, a society on the road to socialism, both in its debates and its economic practice, will be characterized by a diversity of approach.

Working people must have considerable latitude to apply a novel approach or a policy supported only by a minority if society as a whole is to be capable of centralized functioning.

Is “a priori” allocation equivalent to planning?

In his recent criticism of the theorists of “market socialism,” Ernest Mandel states that planning “simply means ‘direct’ allocation, ex ante [or a priori]. As such, it is the opposite of market allocation, which is ex post.” Planning, he continues, means that needs “are assessed ex ante by whatever is the dominant social body, and output is organized to satisfy them.” (New Left Review no. 159, p. 8) The generalization of this principle, Mandel maintains, is the only way to eliminate the anarchy and waste of the capitalist market system, where production takes place on the basis of hunch and forecast, and real needs are revealed only when goods are sold, or when they cannot be sold and must be discarded.

Mandel’s definition of planning is too narrow, focusing attention on a secondary problem. Planning is the conscious shaping of production as a whole to meet the needs and goals of the dominant class – a process that necessarily involves tolerance of some waste.

It is quite true that socialist planning will enable production as a whole to be shaped to human needs, rather than to the power of the dollar, and that foresight and planning will eliminate most of the waste that characterizes capitalism. This does not mean, however, that inputs and outputs across the whole economy should be (or can be) reconciled in advance before production can take place. To demand such precision would pose a formidable barrier to workers’ effective control of the economy.

Mandel suggests, for example, that under socialism workers will order their shoes far in advance, to ensure that production will match up precisely with demand and that shoes will not be left unused on the shelf (p. 28). Workers in both capitalist and transitional economies, however, prefer to choose goods in well-stocked outlets – when the need arises and after a comparison of different varieties.

In a planned economy, this is not only more convenient; it also represents an essential form of workers’ control over production, one far more powerful than workers’ attempts to estimate their needs in advance. Some goods will be rejected and left unused, if only because thoughtful foresight can never entirely replace the test of experience.

Complete a priori planning is incompatible with genuine voluntary labor. When workers decide on a voluntary work project, neither their decision nor the scope and direction of their project can be entirely foreseen. The more successful a voluntary work campaign, the more it will diverge from the plan. Unexpected demands by volunteer brigades will strain supplies of raw materials, transportation, and equipment, leading to some dislocation and some waste – a small price to pay for the social and economic gain brought by successful voluntary initiatives.

Even apart from voluntary labor, workers who initiate changes in an enterprise’s line of products or production methods, change the mix of inputs, or change from one supplier to another, will generate some disequilibrium and waste – however much they may try to coordinate such moves on a broader basis in advance.

Under capitalism, disequilibrium spirals uncontrollably into an boom-bust cycle across the entire economy. In a planned economy, disequilibrium is curbed and controlled through measured response. Rather than a rampaging scourge devastating the lives of working people, it becomes a creative force, prompting workers and farmers to improvements in production and planning.

Commodity relations among state enterprises?

“Even after the expropriation of capitalist industry and banking,” Clark and Barnes warn in NI 8, “it is still possible for blindly determined prices of production … to determine … economic and social investment priorities.” This will be unavoidable, the article correctly notes, “if relations among state enterprises are conducted on a commodity basis.”

Commodity relations will prevail, it continues, “if state enterprises (1) are forced into competitive markets to purchase needed raw materials, machinery, semi-finished products, and other inputs, and (2) set the prices and find their own markets for the finished goods they produce” (page 117).

The warning regarding competitive markets for imports is well taken. A planned economy must succeed in allocating inputs in the interests of working people as a whole rather than through the operation of the law of value and the survival of the fittest. To this end, decisions will be made through an interplay of central planning boards and the planning bodies responsible for individual enterprises. Nonetheless, Clark and Barnes’s assertion in NI 8 needs some qualification.

It is not possible to subject every aspect of production plans, every decision to allocate scarce resources, to a process of centralized discussion. To do so would drown the planning process in a torrent of routine, chaining it to the patterns of the past. A mechanism is needed that enables the vast majority of decisions to be made by those immediately responsible for production, while linking their investment decisions to gains in productivity.

This mechanism is that of budgetary controls. The plan will specify the budget available for production costs and investment, but the enterprise determines, subject to review, how the budget is utilized. An enterprise seeking new and costly equipment will have to back up its request through savings equivalent to its price elsewhere in its budget or through a corresponding increase in productivity. Prices will serve to ration scarce and costly equipment. The criterion of “ability to pay” will thus play a role, tending to channel inputs to those who can use them most productively.

In this way of a rough-and-ready initial framework for distribution is established that enables consciousness and planning to focus on a manageable range of decisions. These decisions include setting the enterprises’ budget, finalizing the prices of investment goods, and determining when to override and alter the distribution of inputs established by the budgetary allocation process.

In this sense, therefore, enterprises will be “forced into competitive markets” to acquire inputs. But the law of value will hardly prevail in a situation where budgetary resources do not depend on income; where prices reflect social priorities as well as costs of production; where goods are exchanged, not sold; and where budgetary “expenses” are mere bookkeeping entries in the unified accounting of state industry.

Increased effort to find users and meet needs

“Che Guevara and Marxist Continuity” warns against forcing state enterprises to “set the prices and find their own markets for the finished goods they produce.” If this occurs, it tells us, production will take place on the basis of “profitability” rather than of social priorities. This statement could be misleading, however. It will not be possible, in a planned economy, for workers managing state enterprises to stand aside while higher bodies make the decisions on prices and allocation of their production.

In an economy advancing toward socialism, production is organized not for private profit but to meet social needs. This will be reflected in close and responsible relations between workers as producers and the consumers of their products. Such relations are the polar opposite of the counterposed interests of capitalist corporations and their working-class prey who buy their goods. In a planned economy, the price gouging, the planned obsolescence, the degradation of quality, the fraudulent sales pitches, and all the other forms of assault on the consumer that characterize capitalist commodity production will be banished, as goal of production shifts from sale to use.

Productive units in a planned economy will strive to match their products to social needs. They will work with more energy and more success to meet new needs, to link up with new users, to demonstrate to broader layers the usefulness of their products. Advertising and what is today called marketing, freed from their subjugation to profits, will come into their own as skills necessary to production for use. The success of an enterprise will lie not merely in what it can produce but how well it can link up with users. Lenin’s injunction to communists in Russia to learn to trade therefore retains its validity, even under the vastly different conditions of an advanced, industrialized workers’ state.

Not only must producers seek and find users; users must have a choice among alternative products. The absence of such choice in Stalinized economies expresses not merely their poverty but, more fundamentally, the bureaucrats’ fear of according workers even the minimal power of choice that they exercise under capitalism in spending their meager wages. A planned economy, on the contrary, aims to maximize the leverage working people exercise when they choose the products they need.

Such a choice carries an overhead cost: unwanted goods will be wasted; productive units that cannot adapt to changing needs will close down; workers will be displaced. Under a planned economy, the cost of such adjustments can be minimized, affected workers can be compensated and utilized, and this cost will be accepted as a necessary part of the transition away from commodity production.

How should prices be set?

Our small example of a budgetary finance system, the SWP national apparatus, gives clues to the functioning of a planned economy. How do the different departments of 408 Printing and Publishing set their prices? In a general political framework set by the National Committee, each department works out prices for its products, based on a close study of its costs and its markets. This holds true even for internal exchanges among divisions, such as the prices charged Pathfinder by Photocomp Press. If errors crop up in this process, the solution does not lie in establishing a “408 Prices Commission” to set prices for everyone from on high. It lies in stronger leadership and stronger collective understanding in each division of the political framework for these prices.

The same principle will hold true on the vastly larger stage of a planned economy. Leading bodies of the plan as a whole will decide on the general framework for prices, including the proportions by which prices of different categories of goods will diverge from value. But the prices of individual goods will then be set by enterprise-level planning committees, making use of their intimate knowledge of the conditions of production and of the product’s users. Such a committee, including representatives of users as well as producers, has a better chance of making the right price decision than a supreme planning body insulated from contact with production and charged with simultaneously setting millions of prices.

In fact, to “centralize” the determination of all prices in the hands of a single body leads only to paralysis, to price inflexibility, indeed to discarding prices as a planning tool. That is the lesson of Stalinism, where “centralized” control of prices led to effectively frozen prices, contributing greatly to the chaotic decentralization that is one of these economies’ most characteristic features.

Working people acting through the plan in its entirety will have effective means to insure that individual price-setting decisions do not stray far from optimum levels. Average unit costs for every product of a state enterprise will be a matter of public record, easily available to all buyers. Price changes will be made known in advance and will be subject to discussion with other producers of the same product and with users.

Producers will have no material stake in whether prices are high or low, since all proceeds flow to the nationalized sector as a whole. The overall plan will specify mark-ups or mark-downs by which prices for each category of product diverge from production costs. And all price decisions can be overruled by supervisory bodies within the planning structure.

But this still leaves latitude for an enterprise management body to adjust prices downward if it notices a fall of its production costs; to offer specially reduced prices in order to reach a new layer of users; to remainder an outmoded product; or to try to achieve economies of scale by selling an increased volume at a lower price. Under capitalism, cost reduction is an imperative that ravages the working class; in a planned economy it is one among several targets for emulation among productive units.

Within the state-owned sector of the economy, goods are not bought and sold but exchanged, with no transfer of ownership. Nonetheless, these exchanges require clearly established price levels, which serve as the basis for calculating costs and achieving the most rational distribution of economic resources among state enterprises. These prices will be set in the same way as those of consumer goods.

As the planned economy evolves toward socialism, the use of prices will wither away for an increasingly large range of products and services (just as prices have already disappeared for medical services and education in Cuba). But prices will survive longest as a tool for exchanges among state enterprises, particularly those in the investment goods industries – the very industries that are the first to throw aside commodity production.

What role for markets in a planned economy?

“No state or party institution can ‘steer the market’ (the experience with the ‘free farmers’ market’ in Cuba confirms the results of such an illusion),” we read in “Marxist Continuity.” And further, “No matter how revolutionary the intentions of the leadership, the market will assert its own laws that increasingly ‘steer’ the evolution of social relations toward capitalism and away from socialism” (p. 145).

This statement requires some qualification. A planned economy is the antithesis of the market system. But markets of various types will be utilized as necessary although subordinate tools in building a socialist society.

To take an obvious example, most farm products in Cuba today are still sold in a market, one in which the state acts as marketing agency and sets prices. More generally, during the entire initial development of planned economies, consumer goods are produced to be sold on a market. Not only is this market “steered” in the direction of socialism, but it plays a constructive role in facilitating workers’ control of the economy. This role was explained by Trotsky immediately following the passage from his 1932 article quoted earlier:

“The innumerable living participants in the economy,” he wrote, “state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realized through the market. The regulation of the market itself must depend upon the tendencies that are brought out through its mechanism. The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation. The system of the transitional economy is unthinkable without the control of the ruble.” (Writings, 1932, p. 274)

This and similar passages by Trotsky have been advanced by some as evidence that he stood for building socialism by capitalist methods. Yet only two pages later Trotsky denounces Stalin’s introduction of a “free farmers’ market” something like that tried out in Cuba. Peasants forced into collective farms were permitted small private plots, whose produce they marketed on their own as best they were able. In Trotsky’s view, this could lead only to wild gyration of prices, economic chaos, social differentiation, and the enrichment of the minority. He linked the two sides of Stalinist policy, accusing the bureaucracy of “eliminating the market and … installing Asiatic bazaars in its place.” (P. 276)

Clearly, Trotsky is far from condemning every form of market as the antithesis of the plan. He differentiates among different kinds of markets, and points with repeated emphasis to the need for a stable currency. In condemning the chronic shortages of goods and uncontrolled inflation fostered by the bureaucracy, he defends the rights of workers as consumers to choose among a variety of available products.

Trotsky states that not only workers as consumers but publicly owned enterprises, state and private alike, must “serve notice of their needs and of their relative strength … by the direct pressure of supply and demand.” How is this pressure to be applied? Exchanges among state enterprises in a planned economy do not involve buying or selling.

Nonetheless, the decision to acquire goods will be made by the user, not by some remote supreme agency. Freed from monopolistic price fixing and market sharing, fraudulent advertising, and profiteering, enterprises will engage in emulation in their capacity to meet users’ needs in the most efficient manner.

The much-heralded virtues of the capitalist market – consumer choice, an abundance of goods, and so on – are mostly a lie, as far as the world’s toilers are concerned. But in a planned economy, even as the market itself is abolished within the state sector and restricted elsewhere, the positive features claimed for the market under capitalism will flourish and come into their own.