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Is socialism economicallyfeasible? An analysis intermsof historical materialismM.C. Howard a & J.E. King ba University of Waterloo , Canadab La Trobe University , AustraliaPublished online: 28 Jul 2006.

To cite this article: M.C. Howard & J.E. King (1994) Is socialism economicallyfeasible? An analysis interms of historical materialism , Review of Political Economy,6:2, 133-152, DOI: 10.1080/09538259400000007

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Review of Political Economy, 6.2(1994), pp. 133-152

Is socialism economically feasible? An analysis in terms of historical materialism* M.C. Howard University of Waterloo, Canada J.E. King La Trobe University, Australia

The argument of this article is easily stated: if the propositions of historical materialism are true, the feasibility of socialism is seriously in doubt. Section 1 outlines what is meant by historial materialism, and Section I1 considers the work of Marx on the development of socialism. The following three sections analyse the work of socialist economists and their critics during the twentieth century. In the conclusion, our overall argument is summarized.

I Is socialism feasible?

There are at least two problems with this question: it is large, and the terms are not well-defined. Consequently, in order to reduce the matter to more manageable proportions, this article will adopt a particular outlook, that of the economics of historical materialism. Its thesis is easily stated: if the propositions of historical materialism are true, the feasiblity of socialism is seriously in doubt. It follows that readers who are unpersuaded of the validity of the materialist conception of history will not find the argument convincing with regard t o the substantive issue of whether o r not an actual socialist economy can survive. Furthermore, since there are multiple interpretations of historical materialism, those who favour an alternative understanding to our own may reasonably claim that the Marxian case for socialism is not addressed.

By the term historial materialism, we understand the theory Marx summarized in the preface to A Contribution to the Critique of Political Economy (Marx, 1971b: 20-22). However, our argument does not utilize all of the claims of this summary; nor does it require that any of Marx's propositions be considered universally valid (Cohen, 1978; 1988; Elster, 1985; Callinicos, 1989; and Wright et al . , 1992 provide comprehensive evaluations). What we d o maintain is that, in the 'struggle between two irreconcilably hostile social systems-capitalism and socialism-the out-

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* Our purpose in publishing this article is to provoke effective counter-arguments rather than to demoralize socialists. We wish to thank two anonymous referees for their perceptive comments on an earlier draft of the paper.

0 Edward Arnold 1994

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134 Is socialism economically feasible?

come will be determined in the fast analysis by the relative productivity of labour under each system' (Trotsky, 1980: 334-35). In other words, we evaluate the feasibility of socialism in a context where socialism is understood to be a postcapitalist society, and we argue that it may not be feasible because it may not be able to achieve, or sustain, the labour productivity associated with advanced capitalisms.'

Naturally, this claim runs into the charge that any simple mono-causality must be erroneous since it cannot capture the complexity of such a large issue. Nevertheless, we would defend it as follows. Labour productivity is the variable crucial to the long-run viability of socialism because it is associated with two properties. First, it governs the set of material choices which economic agents face. Second, it determines the ability of a socialist system to defend itself against external threats. Thus, in a context where people 'prefer more to less', popular sentiments will favour the system with the greater productive power. Of course, there may be particular groups who do not do so because the social relations of the superior system inhibit their ability to capture goods of at least equal value to those they would receive in the inferior system. However, even if they could successfully resist internal opposition, their power to ensure the survival of the less productive system would be undermined as the technology of warfare progressively turned against them (Bertram, 1990; North, 1981; Kennedy, 1989).

This elaboration on why relative labour productivity is pivotal implies nothing about the mechanism of systemic change. The less productive system may be overthrown through internal revolution, metamorphose in a process of reform, be subject to military defeat and externally imposed restructuring, or simply collapse. But, so far as our treatment of the feasibility of socialism is concerned, the exact historial trajectory experienced by any actually existing socialism is not an issue. Our argument rests upon an understanding of the human condition in general, and human motivations conceived transhistorically, not on the way in which history works itself

This, in turn, serves to highlight another area of possible misunderstand- ing. Our argument does not imply that the more productive type of economic system will be free of problems. The sources of anxieties and antagonisms are manifold, and even the system with the most productive power might succumb to systemic transformation. However, our argument

' The environment in which socialism would exist has been treated circumspectly by socialists. Much discussion makes sense only on the condition that socialism is an isolated system. By contrast. we assume not only that the most likely circumstance would involve the co-existence and competition with capitalist economies, but also that socialist relations of production would be continually under threat of capitalist reorganization. ' The general issue of the validity of 'explanations without mechanisms' was central to the

debate between Cohen and Elster over the functional nature of causation inherent in historial materialism. See Howard and King (1992: 223, n. 42; 355 n. 61).

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M. C. Howard and J . E. King 135

does entail that, lacking the ability to attain, or retain, superiority in productivity, the new system will prove unsustainable. This forms the basis on which we draw the distinction between 'irrationalities' and 'contradictions' in Section V below. Irrationalities refer to any aspect of socioeconomic phenomena which appear problematic when perceived in terms of the values of socialist humanism. Contradictions pertain to the issue of sustainable systemic configurations, and come down to the question of whether or not the prevailing relations of production fetter the productive forces. Historial materialism maintains that only contradictions count when it comes to assessing the feasibility of socia~ism.~

Our argument, however, is genuinely problematic in one significant respect. Labour productivity relates to productive power in general and can be measured only through an index. Since perfect aggregation is generally impossible, an important ambiguity enters the d iscu~s ion .~ But this matter is inherently unresolvable and the only way of proceeding is to 'simplify and exaggerate' at the level of general argument, leaving the exact operationalization of such complex categories to empirical applica- tion. We now proceed with the general argument.

Section I1 claims that classical Marxism approached the issue of socialism in the most appropriate way methodologically. Its weaknesses lay in the substantive arguments made for the feasibility of socialism. Partly because of this, since the 1920s, socialists have sought support for their project in neoclassical theory. Section 111 documents this development, and shows how this type of economics has a structure that facilitated arguments for the superiority of a particular form of socialist economic ~rganiza t ion .~ Anti-socialists like Friedrich von Hayek (Hayek, 1988; Lavoie, 1985) have therefore been moved to criticize orthodox economics

. ' ~ a r x tended to identify contradictions and irrationalities; see Howard and King (1985: Chapter 2). Russian revisionists in the 18905, notably M. Tugan-Baranovsky, were the first to separate them; see Howard and King (1989: Chapter 10). What, it may reasonably be asked, do historial materialists claim when they consider a set of production relations to be fettering the productive forces and, conversely, when they argue that the production relations are optimal in connection with the productive forces? Do the concepts of optimality and fettering pertain to the level of production, the growth of production, the level of productive capacity, or the growth of productive capacity? On these and similar conceptual problems see Cohen (1978; 1988), Elster (1985), Callinicos (1989) and Wright er al. (1992). A strong case can be made for adopting the notion of efficiency implicit in Cohen's idea of 'net fettering': a set of production relations is efficient when it brings about a trajectory of used productive capacity which is superior to that associated with alternative sets of relations. However, this does not eliminate all problems with the concept, since it leaves open the terminal date of the paths and the 'discount rate' to be used in aggregation. Nevertheless, our argument avoids these general difficulties because it implies that, for any set of productive forces, both their utilization and their development may be inhibited by socialist economic relations. More specifically, this statement is true of neoclassical economics before the 'informational revolution' of the last 30 years, which has substantially modified traditional neoclassical propositions. See, for example, J. Stiglitz (1975; 1986).

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as part of their attack on soc ia~ism.~ Section IV shows that in doing so they have, in effect, restated, elucidated and extended important strands of historical materialism, and thereby exposed the limitations of traditional neoclassical theory in dealing with the question of the feasibility of socialism. Of course, arguments for socialism have been made on other grounds, but as is demonstrated in Section V, historical materialism can also reveal their weaknesses. Consequently, the case for the feasibility of a postcapitalist economy can be seriously questioned on Marxian grounds.

I1 Classical Marxism and socialism

The central methodological contribution of Marx and Engels was the idea of 'scientific socialism'. Socialism was conceived not simply as the ideal of a free, egalitarian, planned and marketless society, but also as inevitable (and thus feasible7) because it arose embryonically within capitalism as a result of its own maturation. Bourgeois individualism, private property and market organization, Marx and Engels argued, were increasingly becoming a fetter on the productive forces, and were therefore destined to wither away or be replaced.

The expanding socialization of production-the eradication of the isolation, independence and separateness of different productive activities-led to a growing interdependence which made bourgeois individualism anachronistic (Marx, 1973: 163ff). At the same time the concentration and centralization of capital progressively replaced market organization with planning (Marx, 1970b: Chapter 25), while the separation of ownership and control inherent in the joint stock company reduced the positive functions of private property (Marx, 1971a: 437-38). Associated with these phenomena, an extensive social intervention in civil society proved neces- sary as the collective catastrophes arising from the interaction of particular interests became ever more evident (Marx, 1970b: Chapter 10). These developments were, in turn, reflected in severe crises of various kinds as capitalist social relations came increasingly into conflict with the functional need for new socialist relations of production (Howard and King, 1985).

Before considering the limitations of these arguments, it is advisable to acknowledge the strength of the perspective of scientific socialism from which they derive. Central here is the attempt to marry ideals and practicalities: in Marx's and Engels's own terminology, to be non-utopian. This is the enduring merit of their approach to the assessment of socialism,

' Undoubtedly this has been one of the influcnces modifying neoclassical theory; see note 5 above. ' Classical Marxists did not use the term 'feasible'. Instead, they expressed their ideas in the

concepts of 'necessity' and 'inevitability'. However, given the nature of historial materialism as they understood it, these expressions implied that socialism would be feasible only when optimal with regard to the productive forces.

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M . C. Howard and J . E. King 137

quite aside from the validity of the specific arguments they employed to make their case. The materialist conception of history relates the feasibility of socialism to the question of efficiency, measured by the ability to operate the productive forces optimally. For Marx and Engels, socialist relations of production would be sustained only if they could, on this criterion, out-compete those of capitalism. Because they saw socialist forms arising within capitalism, Marx and Engels reasonably took this as evidence that capitalism was beginning to fetter the productive forces, and that the balance of advantage had begun to swing in favour of socialism. If they were incorrect on these factual issues-and, as we will argue in a moment, they appear to have been wrong in some crucial respects-the way in which they approached the issue nevertheless remains robust. In other words, on the perspective of historical materialism, to argue for the feasibility of socialism requires an argument for the efficiency of socialism.

Until the 1920s, both the methodology and the substantive arguments of Marx and Engels were not effectively challenged. Moreover, socialists had little need to employ dogmatism in defending their position because the Marxian narrative did not appear obviously at variance with the facts. There was increased socialization of production, further concentration and centralization of capital and growing social intervention in the economy, while crises remained very evident. In addition, new phenomena appeared to reinforce the Marxian vision. Especially important here were the emergence of finance capital and state capitalism, the militarization of the capitalist 'great powers', and the rapid acceleration of the 'organization' of production in the economies of the belligerent countries during the first world war (Howard and King, 1989: Chapters 5, 13 and 14).

Nevertheless, with hindsight, it is now possible to see crucially important flaws. Note first that part of Marx's original argument may be irrelevant to the feasibility of socialism. Even if it were true that capitalism was ever more crisis-prone, as Marx maintained-with secular tendencies to rising unemployment, falling rates of profit and increasingly severe problems of underconsumption-this would not preclude capitalist relations of production from being re-established on the morrow of any anti-capitalist revolution. These crises are systemic; they arise from the whole matrix of socioeconomic relations of capitalism and do not directly bear upon the efficiency of the capital-labour relation which constitutes their micro- foundation. Thus, unless socialism proved to be more efficient in each and every activity, only coercion or self-restraint could prevent the re- emergence of 'capitalist acts between consenting adults'.' But coercion conflicts with the enhanced freedom that socialists have usually supposed

This phrase comes from Nozick (1974). The point was appreciated by leading Marxian theorists prior to the second world war: see, for example, Lenin (19f3-70: 24) and Trotsky (1980: 334-35).

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138 1s socialism economically feasible?

socialism would provide, while the relevant kind of self-restraint would seem to presume the prior existence of a fully formed socialist culture, and he,nce to be utopian.'

This explains the pivotal importance of Marx's and Engels's argument that capitalist economic development ultimately makes a planned, socialized and marketless economy everywhere more efficient than relations of commodity production and commodity circulation. At the heart of this claim is the belief that technical change under capitalism concentrates and centralizes the means of production. Some indices do indeed show that this has occurred over the long run in individual economies (Baran and Sweezy, 1970). But Marx and Engels presumed, and necessarily had to presume, that concentration and centralization went hand-in-hand with vertical integration. In other words, their argument required innovations to have a market-eradication bias. Only then could they argue that 'direct administration' was replacing commodity production, and that socialist economic organization was being shown to be more efficient by capitalist development itself. But a decline in the importance of markets is much less evident: concentration and centralization of capital coupled to a more pronounced density of market relations is possible, and appears actually to be occurring in the most advanced capitalisms. The increasing commod- ification of production and the tendency for economic activity to be organized in larger and fewer units do not exclude each other, and both have occurred simultaneously in important sectors of the wealthiest capitalist economies. Furthermore, the internal organization of the largest corporations is often founded on quasi-market principles, as is that of so-called nonmarket institutions: relations between subdivisions within large firms and other institutions frequently involve a cash nexus, as well as elements of hierarchy and co-operation (Howard and King, 1992: 215-19, 356-6 1).

There could be a oroblem for historical materialism here because the argument would also - seem to apply when capitalist relations did fetter the productive forces in the sense of note 4 above. This would imply a tendency for capitalist relations to form, irrespective of their effect upon productive power, and the leitrnori~j of the Marxian theory of economic systems would be undercut. However, the materialist conception of history itsclf suggests a resolution of this difficulty, by claiming that political systems and cultural norms are dependent on productive relations whenever these superstructural elements are of economic significance. If this is true then, in the event that capitalist relations of production did fetter the productive forces, it could be expected that the level of restraint required to inhibit them would be minimal. Coercion need not imply anything approaching Stalinist or Maoist terror. and might be effective if it involved nothing morc drastic than general community disapproval coupled with a reluctance to provide complete protcction for the offending property rights. Nozick's born-again capitalists could then be marginalized. somewhat like petty criminals today; while thcy would not be legitimized, neither would they be stamped out because they were not much of a danger. Only if the efficiency gains wcre very large, which implies that, on balance, capitalist relations of production were not restraining the productive forces, would one expect there to be substantial support for bourgeois property rights, that the full force of state power would be required to contain it, and that the endeavour to d o so would ultimately fail.

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111 Socialism and neoclassical economics

Some of these considerations were alluded to by Marxian revisionists at the turn of the century (Howard and King, 1989: Chapter 4). But what proved to be a more influential line of criticism took a very different form. Neoclassical economists treated the issue of socialism in a rationalist, nonempirical and 'ahistorical' manner, and one reason why this approach eventually predominated was that socialist economists themselves began to respond in the same terms. In other words, socialists started to accept the frame of reference, if not the specific propositions, of their critics. Moreover, this was no accident. Not only did neoclassical economists make some telling arguments against Marx's conception of socialism, but, as we shall see, neoclassical theory has a perspective and an analytic structure which facilitates a positive answer to the question of the feasibility of a different type of socialism, when judged by its own (Paretian) conception of what constitutes efficiency.

In the 1880s, Friedrich von Wieser and Eugen von Bohm-Bawerk argued that the categories of marginalist theory were of universal significance. Prices and profits could not be eradicated from decision-making in any economic system which valued efficiency. Prices were rates of substitution which reflected opportunity costs, while profits represented the extra productivity of roundabout techniques of production and compensated economic agents for deferring consumption (Wieser, 1956; Bohm-Bawerk, 1959). These considerations were buttressed by Enrico Barone in 1908. Conditions of Pareto efficiency, he admitted, were independent of institutional structure, so that a socialized, planned and marketless economy could, in principle, be efficient. However, Barone also maintained, the complexity of the Paretian marginal conditions made it practically impossible to meet them without the use of a market system1' (Barone, 1972: 52-74).

In 1920 Ludwig von Mises sought to take these criticisms a crucial stage further by raising explicitly the role of private property (Mises, 1972). His argument was poorly structured and has been the object of diverse interpretations. At the time, and for many years thereafter, it was understood in neoclassical terms. More recently it has been read in ways that bring it in line with modern Austrian ideas (Lavoie, 1985: Murrell, 1983: 92-105). However, irrespective of the exact construction put upon Mises's text, the bare bones of his polemic can be outlined as follows. Mises claimed that without private property there could be no exchange, and, in the absence of exchange, the rational valuation of different resources would be impossible, so that they could not be used economically, and only chaos would result from the establishment of socialism. In the

l o This was also argued later by 'optimal planners', who pioneered the use of programming methods for planning in the Soviet Union.

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140 Is socialism ecorzomicully feasible?

early 1920s this conclusion seemed to be confirmed by the collapse of War Communism and the move to the New Economic Policy in the Soviet Union, so that Mises's writings proved to be a watershed in the analysis of socialism.

Beginning in the interwar years, the dominant response among socialist economists involved two fundamental changes in their approach to the problem of the feasibility of postcapitalist society. First, they accepted allocation through markets. Secondly, they acknowledged neoclassical theory as the appropriate conceptualization of how markets could function under socialism, and as providing the most relevant criterion of efficiency in terms of which they should be judged. The first sentiment was more widespread than the second, but both became very evident among western socialist academics. Separately or together, however, they represented a major break with the theory of socialism as it had been previously understood. "

The acceptance of markets was bound to cause problems for the integrity of socialist values. Even when it is recognized that there is no such thing as the 'market', and that all markets are institutionally dependent (Hodgson, 1988; Elson, 1988: 3-44), market organization per se must be in tension with socialist ideals. All markets require the existence of property rights which are particularistic and possessive, and promise the continuation of a connection between reward and performance. More generally-and in the terms of Marx-markets necessarily involve bourgeois right (Marx, 1970a: 9-30), and thereby entail that alienation cannot bc transcended. A socialism which retains markets, therefore, cannot be regarded as the complete solution to the problems of social philosophy that the young Marx had proposed (Avineri, 1968).

The limitations inherent in the notion of market socialism were, however, disguised by the simultaneous acceptance of neoclassical theory, especially as employed by Oscar Lange in the 1930s. Lange's essential insight was his recognition that neoclassical theory allowed the use of the price mechanism to plan the economy in the context of public ownership of the means of production. His blueprint permits the private ownership of consumption goods, over which there is free market choice. Workers also have choice of occupation, but all other property is socially owned. A central planning board fixes prices, and guarantees production units that they can buy and sell as much as they choose at these prices. Managements are instructed to maximize profits, taking prices as given. If there are excess demands or excess supplies, the central planners alter the prices in a manner similar to that of a Walrasian auctioneer until markets clear. Since external effects and the provision of public goods can be easily incorpo- rated into the process, Lange was thus able to claim that prices would be

" This applies to many non-Marxian socialists as well as Marxians: see Beilharz (1992).

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'rational' and resource allocation efficient. No 'real world' capitalism could ensure this, he argued, because of the existence of disequilibrium, market power and inadequate policies with respect to externalities. Moreover, Lange pointed out that planners could also fix the interest rate to bring about any desired rate of accumulation, which would be financed from renting public property to producing units, and from taxes. In addition, these resources might be used to offset income inequalities arising from the operation of a free labour market (Lange, 1972: 92-110).

Lange's scheme had great strengths. It provided a refutation of Mises, since private property was not needed for exchange, and there was no obvious reason to suppose that coercion would increase. Furthermore, Lange's system is not utopian; it does not require an elevation of tastes and motivations, and is, for example, quite compatible with consumerism even on a Californian scale. Yet it clearly realizes the important socialist values of equality, rationality, planning and the elimination of waste. Since Lange left unspecified the exact nature of socialist management, his model could also incorporate workers' participation, or even workers' self- management. Both liberation and efficiency were served.

Not surprisingly, Lange's ideas have become the prototype for all subsequent versions of market socialism. However, he was able to bring about this revitalization of socialist ideas only by making three major breaks with the tenets of historical materialism. First, he treated ownership as a set of powers, or rights, the elements of which could be separately varied and allocated. Marx, like Mises, took a different view, regarding the ideal-typical property relations of capitalism as highly interdependent, and not amenable to radical rec~mbina t ion . '~ Secondly, in Lange's framework socialism ceased to be a postcapitalist society, in the sense that it arose from the contradictory development of capitalism; instead, market socialism was viewed as an ever-present alternative form of economic organization.13 Thirdly, socialism was to be judged by a new standard of efficiency to which historical materialism makes no reference: resource allocation in relation to consumer preferences, not the development of productive power, took centre stage.

None of these qualities of Lange's work was arbitrary: each follows from his neoclassicism. Neoclassical economics is universalistic. It makes no concession to the principle of historical specificity, according to which all the principal elements of a socioeconomic system are joined together in noncontingent ways. Furthermore, the elements of the analysis developed

l2 See, for example, Marx (1971~) where he attacks Proudhon for failing to recognize this. l 3 Not surprisingly; given the depression of the 1930s, and the emphasis which orthodox

economists began to place on the importance of monopolistic power in contemporary capitalisms, Lange's argument appeared to retain a close affinity to the claim of historical materialism that socialism is a post-capitalist society. But the logic of his model implies that his conception of socialism would never be less efficient than capitalism, and was therefore always feasible.

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by neoclassicals are separated into two categories-exogenous and endogenous-and it is presumed that the exogenous elements are separable, so that 'one-at-a-time' comparative static thought-experiments are legitimate (Howard and King, 1992: Chapter 17). At the same time strong assump- tions are made about the 'noneconomic' areas of social life, while the institutional structures that might underpin them are unspecified. Neutral, honest and efficient administrations facilitate the exercise of political power; cultural values accommodate individualism without threatening communal order; rationalism pervades human consciousness, yet economic agents maximize as passive automatons within the prevailing rules of the game (Hodgson 1988; North, 1990).

Of special importance for the question of market socialism as Lange envisaged it is the neoclassical conception of endowments as exogenous, and the treatment of equilibrium prices as the principal explanandum. On this perspective the key neoclassical theorems are insensitive to what is assumed about asset distribution, and endogenous variables are not systematically related to different class structures (e.g., Debreu, 1959; Arrow and Hahn, 1971). Thus, neoclassical theory attaches no significance to the existence of a capital-labour relation. It does not matter whether 'workers rent capital' or 'capital hires workers'.14 Consequently, while the theory can make a case for market allocation, this case does not extend to capitalist markets. It was precisely Lange's recognition of this, together with the dominance of neoclassical thought patterns within orthodox economics, which explains why he won the day during the 1930s.

IV The Austrian counter-revolution and the return of historical materialism

Austrian theorists, notably Friedrich von Hayek, conceded virtually nothing to the socialists. Instead they reformulated and extended Mises's original argument. In the process they broke with neoclassical theory and emphasized that capitalist property rights form an integral whole, which is especially conducive to the development of the productive forces. At the same time, the Austrian theorists reasserted other basic themes of historical materialism, themes which had been long forgotten because of the dominance of neoclassicism as the discourse in terms of which the economics of socialism was assessed. In short, while it would be too strong to claim that Lange and the market socialists had to abandon Marxism to defend socialism, and Hayek and the Austrians embraced Marx to attack it, to say this is to emphasize an ironic quality in the intellectual history of

l4 On this see Wicksell (1934: Vol 1, 109). and Samuelson (1957: 884-912). However. it is important to stress that more modern versions of neoclassical theory have begun to ask why it matters who employs whom; see Demsetz (1988: 141-61).

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the socialist project. I t has often been from the opponents of socialism that the arguments of historical materialism have been heard, and these are of crucial importance for assessing the feasibility of socialism.

Disregarding the differences in language, Marx and Hayek are in agreement on two fundamental matters concerning the nature of capitalist social relations. First, the strength of capitalism lies in its dynamic transformative power, not in its ability to engender allocations which satisfy static utilitarian welfare criteria. Secondly, capitalism is especially effective in raising productivity, and this is so for three reasons. Capitalist relations provide relatively open access to the means of production for those willing to undertake innovation; they permit great flexibility in implementing technical change through the institutionalization of contrac- tual freedom and wage labour; this, in turn, removes constraints on competing against those attached to existing technologies. Taken together, these three qualities ensure a tendency for technology to change, and, also, that this tendency is one of technical progress.

This last point is crucial t o the question of the feasibility of socialism, including market socialism, and has been spelled out more fully by the Austrians than by Marxian exponents of historical m a t e r i a l i ~ m . ' ~ Technic- al change induced by capitalism will have a pronounced bias to be genuinely productive, because production is for the market, and the receipt of profit and the costs of loss ensure that competence is rewarded and that mistakes are penalized (Lavoie, 1985). Frequently denounced as n o more than a statement of bourgeois prejudice, this argument is generally misunderstood. Its force lies as much in the negative as in the positive, and can be illustrated by considering an argument of Jon Elster in favour of the feasibility of socialism.

Elster writes as follows:

According to the view of human nature worked out in the Economic and Philosophical Manuscripts, innovative and creative activity is natural for man. Contrary to the usual approach in political economy, the problem is not one of creating incentives to innovation, but of removing the obstacles to the natural creative urge of the individual 'in whom his own realization exists as an inner necessity'. Special incentives are needed only under conditions of scarcity and poverty, in which the needs of the individual are twisted and his capacities developed only in a one-sided way. In the early stages of capitalism

Hayek can be criticized for failing to recognize the historical significance of very different forms of capitalism, which reflect institutional substitutions resulting from uneven development, alternative methods of labour control, varying positions within the world economy, and diverse cultural heritages. But much the same can be said of Marx, despite the attention given to these issues by Marxian political economy in the twentieth century. We are concerned here only with the similarity between Hayek's and Marx's ideas on the productivity effect of 'ideal-typical' capitalist relations, and not their views as to how far particular concrete manifestations of these relations are sustainable. Even Robert Brenner, in his excellent account of the effects of the introduction of capitalism in agriculture, fails to make the point explicitly; see Aston and Philpin (1985).

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there was indeed a great deal of scarcity and poverty. and unavoidably so, since the material conditions for a high level of want satisfaction were not yet created. Under those conditions, capitalism was the best and most progres- sive arrangement, even though it subordinated progress to profits. The system, however, created the conditions for its own demise. In later phases of capitalism there is still a great deal of poverty, but avoidably so. Given the technology developed by capitalism itself, it is materially feasible to install a regime in which the level of want satisfaction is so high that innovation as a spontaneous activity comes into its own-as part of the general self- actualization of individuals. The result will be a rate of innovation far in excess of anything seen before (Elster. 1985; 261-62).

Even if we accept this claim, there is a grave problem." Outside the context of capitalist social relations the issue may not be one of an insufficient supply of innovations due to an absence of rewards to inventiveness, but of an inordinate demand for resources to implement new ideas which arise from the reduced penalties for making mistakes, and result in a misallocation of investments.'' Thus, even if socialist relations of production encouraged inventiveness, this would not ensure more rapid technical progress. The demand for resources to experiment could outstrip supplies and, by the very nature of the case, any mechanism used to allocate resources would find it difficult to discover in advance what would prove to be genuinely productive, so that much that was invested would turn out to be wasted. Capitalism 'solves' this problem precisely by concentrating the costs of mistakes on those who invest in projects that are not validated by the market. Of course, under capitalism mistakes occur precisely because uncertainty cannot be eliminated. But, because these mistakes are borne primarily by those who make them, they are likely to be less pronounced than in a system which socializes losses. Even advanced capitalisms have exacerbated the problem, however, by incorporating limited liability, providing state guarantees for financial institutions, and allocating subsidies to activities which are believed to have positive externalities. This is not meant to suggest that capitalism would either utilize, o r develop, the productive forces more effectively without these institutional modifications, only that any efficiency effects which result from them are qualified by the moral hazard problems they involve. It remains broadly true under capitalism that economic agents have a strong incentive to form rational expectations and show prudence in the allocation of resources, not only because of the gains which accrue to those who make the 'right' decisions, but because of the losses experienced by those who d o not. Concentrating the costs of failure on those responsible, however, conflicts with socialist values of equity. More importantly, socialist econo-

17 Elster himself recognizes other difficulties. '"he evidence from what were then 'actually existing socialisms' in Eastern Europe is fully

in accord with this (Kornai 1980).

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mic organization, whether based on markets or planning, cannot implement the penalties on the scale of capitalism because these penalties necessarily require private property in the means of production.

V Post-Langean arguments for socialism

The eastern European experience has had a noticeable impact on many socialists. Since the late 1970s there has emerged a considerable literature criticizing the views of earlier Marxists, reviewing the evidence on non- capitalist forms of economic organization, providing blueprints for types of socialism which are thought to be both desirable and practical, and indicating how they might be attained. Moreover, the revolutions of 1989 posed, with some force, two questions: whether a 'Third Way' exists between Stalinism and capitalism, and, if so, precisely what i t consists of.

There are those who still proclaim the integrity of the classical Marxian conception (e.g., Mandel, 1986: 5-37; Callinicos, 1991). More typical, however, has been the view that the feasibility of any socialism requires the acceptance of markets, hard budget constraints, and some private property in the means of production.'9 From the perspective of historical materialism, to be convincing, these argument must hinge on the claim that a socialization of markets will accelerate the development of productive power. Applied to specific activities such as health care, insurance and informational services the logic is often compelling. As dissertations on the feasibility of a postcapitalist mode of production, however, these arguments are inadequate. In this section we examine a sample of the l i terat~re.~ ' We begin, though, with an argument which abstracts from economics altogether, so as to restate forcibly the position of historical materialism.

Andrew Levine, to take one example, has recently maintained that the values of freedom, equality and community+ven as understood by liberal theorists-will be more adequately realized under socialism (Levine, 1988). Perhaps this is so; Levine's case is sophisticated and the logic impeccable. But historical materialism teaches-and should by now have taught convincingly-that unless new forms of economic organization are both allied to powerful material interests, which reflect enhanced productive power, and historically immanent, ethical arguments are unlikely to be

" Alec Nove's Feasible Socialism is the best known work. We do not discuss it explicitly in this section, but our response to the arguments we do consider also constitutes a critique of Nove's thesis.

'" The sample is neither fully representative nor random. We have sought to evaluate the arguments of the 'intellectual heavyweights' rather than consider the views of contemporary socialists more generally.

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binding on anyone other than phi~osophers .~ ' Less overtly idealistic is the claim made by Michael Harrington, and

many others, that tendencies toward crises remain endemic in capitalism. In addition to the traditional forms of economic malfunctioning, new catastrophes also threaten, notably environmental destruction and the extermination of the species in a nuclear holocaust (Harrington, 1989; Thompson, 1982; Hecht and Cockburn, 1989). Thus, it is maintained, humanity as a whole has a collective interest in transcending the status quo. As an argument for the feasibility of socialism, however, this is equally flawed. It confuses the irrationalities of a social system with the contradictions of a mode of production.22 Socialist norms may condemn capitalist developments as dehumanizing and dangerous, but by the standards of historical materialism it is the contradictions that inhibit extended reproduction of the capitalist system which ultimately count. Moreover, Har- rington's argument does not touch upon the economic efficiency of the capital-labour relation in any particular branch of production, but relates only to the overall effects which he associates with capitalism as a system. For the reasons outlined in Section I1 above, crises that are purely systemic may carry little force with regard to the viability of sustainable socioeconomic transformation^.^^

One might expect the argument of Gerry Cohen to be more robust, since it appears in the final chapter of Karl Marx's theory of history, which is widely regarded as the Magna Carta of exact thought in the field of historial materialism (Cohen, 1978: Chapter XI). But appearances are deceptive. Despite the claim that his argument for the feasibility of socialism hinges on the 'distinctive contradiction' of advanced capitalism, Cohen, in fact, identifies no contradiction in the sense employed by the type of historical materialism he so brilliantly defends. Instead, the core of his analysis is the charge that capitalist relations of production preclude the fulfilment of people's needs for self-realization, as a result of the artificial

" Douglass North states the point as follows: 'The evidence we have with respect to ideologies, altruism and self-imposed standards of conduct suggests that the trade-off between wealth and these other values is a negatively sloped function. That is, where the price to individuals of being able to express their own values and interests is low, they will loom large in the choices made; but where the price one pays for expressing one's own ideology, o r norms, o r preferences is extremely high, they will account much less for human behavior' (North, 1990: 22). It is unclear what Levine's views are on the role which ethical evaluations of capitalism can play in attempts to bring about socialism. Our purpose is not to attack his arguments-which are in fact admirable-but instead to reassert the difference between the materialist and utopian positions on this matter. Whatever his intentions, Levine's book can certainly be regarded as one of the more sophisticated cases for socialism within the tradition of utopianism.

22 See Section I , where this distinction is defined. 23 Environmental destruction or nuclear war may terminate capitalism because they end

human life. but this does not make socialism feasible.

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bias that these relations lend to consumerism and routinized Cohen's argument thus focuses upon a maldistribution of the productive forces, not a fettering of their development, and, moreover, it is a misallocation only when evaluated by a set of preferences which reflect socialist humanism. Thus, like Harrington, Cohen's concern is really with the irrationalities of capitalism, not with the contradictions as understood by historical materialists. Judged by this latter standard, he accepts that capitalist relations do indeed develop productive power most rapidly. On the criteria set by his own work, then, Cohen's argument fails.

By the very same token the thesis of Samuel Bowles and Herbert Gintis is much superior. Socialist forms, they argue, are both immanent and efficient. Since the eighteenth century there has been a discernable trend for political mobilization to centre on the 'rights of persons' rather than the 'rights of property'. In particular, the extension of the franchise has involved recognizing rights of citizenship that conflict with those of property, and property owners have had limitations placed on their legal title to use their assets as they deem appropriate. Moreover, Bowles and Gintis argue, economic development has now reached a stage where participatory organizational structures can increase labour productivity (Bowles and Gintis, 1987; Hodgson, 1984; Marshall, 1950).

But there are two grave weaknesses in this argument. The 'rights of persons' are not ipso facto anti-capitalist; they have often purified and strengthened capitalist relations by weakening forms of oppression and patriarchy, as in the case of extending civil rights to minorities and women. Of course, if this 'tendency' now involves the democratization of the economy, and the new relations of production can out-compete authorita- rian forms of organization, historical materialism suggests that this version of socialism does offer a viable postcapitalist society. The doubt arises from the fact that such new forms of participatory organization are not much in e~ idence .~ ' After all, capitalism is founded on contract, with both incentives and compulsions to develop the productive forces. Thus, if participatory forms proved effective, they should have developed endogenously

24 The implication of Cohen's argument seems to be that a capitalist system endogenizes preferences in a way that systematically inhibits human fulfilment. Consequently, the only way forward to socialism is for socialist intellectuals to attain a Gramscian hegemony. which would facilitate the emergence of a consciousness of needs for self-realization and thereby generate anti-capitalist political movements. However, Cohen does not elaborate on his argument in this way.

2"here are other grounds for doubt, which have been highlighted by the literature on worker-owned firms. Equity problems aside, employee-owners would have a tendency to undervalue the revenues that accrue beyond their term of employment, so generating suboptimal investments and a proclivity to cannibalize assets. At the same time, the concentration of workers' assets in the firm which they own will bias their choices owing to risk aversion, and, insofar as profits are maximized, they will favour those projects with the highest profits per worker. Again, this can result in nonoptimal patterns of resource allocation. See Vanek (1970); Meade (1986); Putterman (1990).

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148 1s socialism economically feasible?

within capitalism.26 Furthermore, as is suggested by Schumpeter (1942) in Capitalism, socialism and democracy, democratization must be constrained if the 'creative destruction' of innovation is to be allowed to do its work. Those whose lives are disrupted can hardly be expected to refrain from the rent-seeking potentialities which their political power provides. Even those theorists who argue for extended participation in an otherwise hard- headed fashion have not resolved this problem (see, for example, Bur- nheim, 1985).

Not surprisingly, other modern-day socialist economists take a position which is almost the direct opposite to that of Bowles and Gintis: if socialism is to be feasible, it must confine democracy in much the same way as capitalism does. This, for example, is the view of Bardhan and Roerner (1992: 101-16), who, in addition to recognizing possible conflicts between popular control and economic efficiency ,27 also attempt to provide a model of market socialism that takes account of the information and incentive problems inherent in principal-agent relationships. Their work seeks to incorporate the 'informational revolution' of neoclassical theory,2x and in consequence their 'blueprint' is very much more complex than that of Lange (which we discussed in Section 111). The heart of their scheme might reasonably be summarized by saying that i t represents 'Japanese capitalism without private property'. This, they claim, can be expected to combine efficiency with equity by rendering the distribution of profits less unequal. The overriding deficiency of this argument stems from a failure to recognize that innovations affect institutions as much as production processes. This means that organizational arrangements must be regarded as transient, as can be seen from the very Japanese example from which Bardhan and Roemer draw their inspiration. It appears that the keiretsu system has been unravelling in recent years, due largely to the financial innovations originating in Anglo-American capitalism that have made

26 Bowles and Gintis do address this issue, suggesting that imperfections in capital and labour markets, and opposition by property owners, may inhibit the development of participatory forms of economic organization. However, from the viewpoint of historical materialism the effect can only be temporary if economic democratization does indeed bring about productivity gains. According to the materialist conception of history, neither the form of productive relations, nor ideologies, are independent variables; insofar as they have economic significance, each is ultimately determined by the requirements of the productive forces. Nevertheless, there is a problem for historical materialism here, since the time dimension involved is unspecified.

'' Bardhan and Roemer's (1992) treatment of democracy affirms it as a value, but their discussion of its role approximates the view of Woodrow Wilson. who, it is alleged, once remarked, 'if this thing is to be democratically run, I must have complete control'. Any 'blueprint' of market socialism which also seeks a popular sovereignty runs into the charge of incorporating a similar contradiction. Supporters of capitalism and liberal democracy avoid this problem because they also recognize the legitimacy of the institutions and culture of a private property system, which necessarily constrains democracy.

ZH See note 5.

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securitization cheaper than bank-centred finance.29 There is nothing in these developments which is inconsistent with the perspective of historical materia~isrn.~' Thus, any model of socialism designed in the detailed manner of Bardhan and Roemer must fail on the grounds that, whatever its efficiency at any specific date, the probability is that, relative to capitalism, it will ultimately fetter the productive forces because it lacks the flexibility of institutional adaption.

VI Conclusion

To paraphrase Ernest Gellner (1992): Marx's message combined bad news with good. The bad news was that capitalism was a dehumanizing system which could not be transcended until it had run its course. The good news was that its life-span was finite, and its own development would provide the foundation for the realization of human freedom. The trouble for socialists is that the bad news is true and the good news may not be. Marx's economics provides a convincing explanation as to why capitalist modes of production thrive, and an unconvincing explanation as to why this will be temporary. He recognized that the capital-labour relation is highly functional for the development of the productive forces by comparison with precapitalist economic formations. Because his argument hinges on the absence of conscious social control, its continued acceptance need imply nothing Panglossian. Inequalities, instabilities and injustices do characte- rize capitalist systems, even when they have been extensively modified by communitarian political forces. However, this does not support Marx's view that capitalism would be superceded by socialism because this belief rested ultimately upon the materialist conception of history, and there is no foundation for the claim that a qualitative leap in social control will facilitate a more efficient utilization, or a more rapid advance, of the productive forces.31 Hence, Marx's own economics, read from the vantage point of the late twentieth century, provides no firm support for the feasibility of socialism, and political economy since Marx has provided nothing to subvert this conclusion. Whatever solace there is for socialists

*' See 'A survey ofworld banking', The Economist, 22 May 1992. Historically, bank-centred finance has had important advantages in resolving principal-agent problems associated with the corporate structure of capitalist enterprises. However, innovations in information technology, computing power and financial intermediation have combined to erode them. Other features of the keiretsu system seem more robust, and the development of alliances between corporations in all forms of advanced capitalism reflects this. More generally, globalization sets up forces which tend to bring about a convergence between national capitalist economies.

'O See Marx's discussion of credit in Marx (1971a: Chapter XXVII). " In this respect it is sobering to remember Schumpeter's depiction of capitalism as

summarized by Joan Robinson: the 'system is cruel, unjust, turbulent, but it does deliver the goods, and damn it all, it's goods . . . [that people] . . . want,' (Robinson, 1964: 130).

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lies only in the realm of analysis: it is socialist theory, in the form of historical materialism, that provides a powerful account of why this is so.

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