The Misconceptions of the Past - A Critique of "Theses

for The Theory of Socialist Commodity Production"

Dragan Draa
23 February 2002

During the four decades of "the building of socialism" in the former

Yugoslavia there had been formulated more economic theories of
socialism than in all the other self-proclaimed "socialist" countries
of Eastern Europe and elsewhere. Dragan Draca explains the
bureaucratic motives behind this to justify every U-turn in economic
policy during that period. (February 23, 2002) This is the English
version of the Serbo-croatian original ZABLUDE PROLOSTI
published by the Yugoslavian Marxist website Pobunjeni Um.

During the four decades of "the building of socialism" in the former SFRJ
(Socialist Federal Republic of Yugoslavia), during the second half of the
twentieth century, there had been formulated more economic theories of
socialism than in all the other self-proclaimed "socialist" countries of
Eastern Europe and elsewhere. One should seek an explanation for this in
the particular geographic position and historical context within which the
ex-SFRJ existed - on the border between capitalism in the West and
Stalinism in the East, and enjoying the strong support that the Titoist
bureaucracy did enjoy among the masses, which enabled it to "build it's
own way in socialism", a model different from the one dictated by Moscow
to other countries of Eastern Bloc. The frequent ideological U-turns of the
State and Party apparatus were sometimes motivated by changes in
political relations with the Eastern Bloc and the imperialist powers, and
were sometimes forced by internal economic problems; and these, in turn,
produced similar U-turns in economic and legislative theory. So, in the
'50s, in the minds of the Yugoslav economists, the socialist economy was
conceived as one that was centralized, and directed by the state and the
planning institutions; in the '60s as a market-orientated one; in the '70s
as "self-managing"; and, in the end, the complete ideological capitulation
of the bureaucracy found its statement in the theory of "a mixed
economy" (the co-existence of state, common and private ownership) and
the complete restoration of capitalism. The absurdity of the claim that
such theoretical leaps were a statement of the logical phases of "the
building of socialism" and that they were in accordance with advances in
the development of productive forces (the claim that was used to justify
every new inconsistency or complete contradiction of the new theory in
relation to the old one) is shown by the fact that the last element of that
"logical chain of events" ended with the propagation of the restoration of
capitalism itself!

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The Misconceptions of the Past Draa (2002) Halaman 2

It is true that there had been some theories that did not advocate
continuity with the previous fantastic grand theories of the Yugoslav
economists but declared themselves to be the immediate and logical
continuation of Marx's own theory. So, it sometimes occurred, as in the
famous debate over the nature of prices in the socialist economy, that two,
three and sometimes even more theories produced contradictory
conclusions, all deduced from the same quotes of Marx's Capital.
Referring to Marx was not only a prestigious act in itself, but was also a
statement of the striving to find, in his critique of the capitalist system
and in his deduction of the inevitability of the socialist transformation of
society, solutions for the construction of this new, socialist, system that
was to be built in practice. Marx's explicit warnings that it would not be in
accordance with his scientific method for him to propose such solutions
did not in the least prevent these economists from 'finding' these
solutions in his writings anyway. And it is precisely that which is the
fundamental defect of all of their theories!
One can properly begin to tackle the problems of the organization of a
socialist economy only after the issue of the POLITICAL character of the
socialist revolution has been settled. By the act of expropriation of the
capitalist class, all resources of society are put under the political control
of the working class. Therefore, the democratic participation of the
workers in the governing of society is the indispensable mechanism for
ensuring that resources will be used in the interests of society as a whole.
This is the only way that the real needs of society can be identified, and
the only way in which to harmonize the planning of production,
distribution and consumption. Without the continuous democratic
participation of the working class, those who are ruling in the name of the
working class - as one can see in the examples of Stalinism and Titoism -
necessarily become alienated from the working class, try to subordinate
the economy to their own private interests, and attempt to turn their
bureaucratic privileges into their own private ownership. The objection
that socialism cannot be built immediately, or that the immediate
complete abolition of private property is impossible, implying that the
revolution must be conducted in phases, does not change the essence of
things - that each and every one of these phases must be directed by the
active participation of the workers, that is, democratically.
Therefore, the Yugoslav economists were given an impossible task in that
they were being forced to find solutions inside the existing bureaucratized
political system, while one of the most fundamental solutions to all the
problems facing the Yugoslav economy was precisely in the abolition of
the existing bureaucratized political system: through a political revolution
by the working class.
The planning of production should be one of the fundamental features of
the socialist economy. Indeed, if we look at the post-World War II
economy of Yugoslavia, even before the fighting was over, the
nationalization of property and the building of state planning institutions
The Misconceptions of the Past Draa (2002) Halaman 3

was underway. The state regulated all the important elements of the
process of social reproduction. Already in mid-'50s, however,
paradoxically, the thesis that commodity production is not incompatible
with socialism began to gain in importance, and it progressed to the thesis
that commodity production is necessary in socialism. This is
"paradoxical" only at a first glance, because it was inevitably caused by
bureaucratization. The bureaucracy, alienated from the real conditions of
life of the majority of society, proved incompetent in successfully
producing the detailed plans of the process of social reproduction, and
sooner or later it had to declare that events, over which it had completely
lost control, were the "objective development" of the socialist economy
and to leave the running of the economy to the economy itself by re-
introducing some form of market mechanism. Or, as Vladimir Bakaric put
it at the Fifth Congress of the SSRNH: "We have confessed long ago that,
in our economy, it is the law of value that reigns supreme."
This thesis of the necessity of the commodity character of production
under socialism turned into the fundamental premise of all the economic
theories of the '60s. One of the many theories of the Yugoslav economists
based on this premise, and one that is especially interesting, is: Theses for
The Theory of Socialist Commodity Production by Miladin Korac, that,
"analyses the pure form of socialist production". He writes: "Therefore,
the real line of development of Yugoslavia can be used as a basis from
which we can, for the final goal of theoretical analysis, derive the basic
relation of socialist commodity production, and use it - on the basis of
the law of value - to deduce the other concrete categories of socialist
commodity production. When this fact is established, it is possible, using
Marx's method, to determine a framework within which the law of value
works in socialism and to analyze the objective tendencies of the
movement of socialist commodity production, i.e. tendencies that work
independently of the conscious actions of people within the planned
direction of the economy as a whole. And this analysis is all the more
necessary because the knowledge of the objective tendencies of the
development of commodity production is a required condition for
successful planning."
The complete further theoretical construction is based on the claim that
the basic relation of socialist production can be derived from the
development in reality of the Yugoslav economy. And this whole
theoretical construction falls to the ground because this initial claim is
wrong. As it turned out several decades later, this "real line of the
development" of the Yugoslav economy ended in the restoration of
capitalism. Mr Korac made a major error in the deduction of this
fundamental (for his theory, and for the thesis of the necessity of
commodity production in socialism) conclusion. This error is caused by
the complete exclusion of Yugoslavia from the international context, that
is, by its complete isolation from the rest of the world, as if it was self-
sufficient and separate from the economic and political development and
The Misconceptions of the Past Draa (2002) Halaman 4

influences of mighty world capitalism, as well as from Stalinism. The

Yugoslav economy did not develop in a vacuum, but through interactions
with these external factors, which were sometimes of decisive importance,
as, for example, were the events of 1948. Already in this, Mr Korac
abandoned Marx's dialectical method - this was no longer historical
materialism, which observes its phenomenon of interest in the totality of
relations with other phenomena, not in isolation from them. In addition
to this, the line of development of the economy of Yugoslavia was
substantially different from the line of development of other "socialist"
countries, so one has to ask oneself a question - why should conclusions
about the objective tendencies of the development of socialism be
extracted from the Yugoslav experience, and not the Russian, Chinese or
Cuban? According to Mr Korac, it was, "precisely," because, "the reality of
Yugoslavia serves as a model to modern Marxist economic thought almost
in the same way as England served as a model to Marx, in his own time,
for his own analysis of the capitalist mode of production." In other words,
the economy of Yugoslavia was already then in the phase in which the
other "socialist" countries would find themselves in the future, because
"even partial changes of the old system of management caused the
significant rise in importance of the market mechanism in socialist
countries", and Yugoslavia already had more developed market relations
than they did. But, once again events in subsequent decades proved Mr
Korac wrong - not only in that the Eastern Bloc did not follow the path of
Yugoslavia, but also in that it collapsed before Yugoslavia did. There is, in
his ideas, no trace of the application of Marx's method of analysis, there is
only the schematic copying of Marx's conclusions. Every one of these
countries had its own specific place in the international division of labor,
a different potential to influence events on a world scale or to resist them,
and most importantly, there was a different role of the subjective factor in
each of them. The forms of "socialism" that developed within them, and
their transformations, therefore, must be analyzed in a global context as
elements of a unique historical process (the dialectical connection of the
development of these and capitalist countries), and not as successive
schematic phases through which socialism would have to pass.
Since nowhere in the text is it clarified what this basic relation of socialist
commodity production really is, which is, supposedly, deduced from the
development of the Yugoslav economy using the above-described
erroneous analytical method, Mr Korac deprives us of the opportunity of
checking his deduction of "the form of the functioning of the law of value
under socialism, and the concrete categories of socialist commodity
production." Instead, he turns to "the socialist enterprise" as the basic
economic unit of socialist commodity production: "Using this approach,
our starting point must be the socialist enterprise (factory) as a
commodity producer - an enterprise in which the socialist relations of
production are fully established, i.e. in which the workers' collective as a
whole is at the same time the producer and first appropriator of
products."
The Misconceptions of the Past Draa (2002) Halaman 5

"If, similarly to what Marx did, we assume that this enterprise has the
necessary factors for production (i.e. that the working collective manages
the means of production given to it for use, or that it can buy them on the
market), and that it can sell what it makes, then our problem is reduced to
the analysis of the process of the production of commodities and of the
conditions for the permanent reproduction of both the material goods and
the relations that exist within this company. Since, however, Marx's
analysis of the process of the production of commodities (as a unique
process of the production of use values and values) is valid for every
historical form of commodity production, we can use it as an axiom in
considering the second question, i.e. in the analysis of the process of
reproduction within the socialist commodity enterprise."
To define the socialist ("self-managed") enterprise in this way implies a
definite legal and institutional context which is not, and cannot be, an
objective and universal feature of socialist society. On the contrary, it was
only one in a row of the ideological experiments of the state bureaucracy,
with its corresponding legal and economic elements. Sometimes, this
"socialist enterprise" was denied ownership over the means of production
it used, sometimes its earnings were appropriated by the state, and
sometimes its activities on the market were severely limited. Mr Korac
raises this imaginary enterprise to the pedestal of the universal mode of
the organization of labor in socialism, unconsciously depriving the laws of
socialist commodity production - which he wishes to explore - of their
historical character! And yet, this does not prevent him from "confirming
the validity of the thesis of the classics of Marxism: that socialism is only
the transitory, lower phase of communism."
He needed to invent this "self-managed" enterprise because it was,
notionally, a solution to the riddle of socialism. If expropriation of surplus
value through profit on capital was the fundamental problem of
capitalism, then giving equal managing rights to everyone in the
enterprise puts this surplus value into the hands of the immediate
producers. And, voila' - there is no more exploitation.
On the other hand, this socialist enterprise is now identical to today's
capitalist corporation, because the criteria for the distribution of income
is internalised in both cases (although on a different basis) - by the
number of shares in capitalism, and by the legal position of the worker in
socialism. Why is this of significance? Primarily because all the external
relations between enterprises remain identical to those in capitalism,
since all the laws of commodity production from Marx's analysis are
transferred in identical form to Mr Korac's socialism. Price mechanisms
remain intact, so Mr Korac can conclude that, since price oscillates
around the value of a commodity in socialism too:
V = PV + NV
(value = transferred value from the means of production + newly added
value through labor)
The Misconceptions of the Past Draa (2002) Halaman 6

and thus: V = MTP + D

(value = material cost of production + earnings*)
[* - earnings are often defined in "socialist" economic theory in
Yugoslavia as the sum of both necessary and surplus value created by
workers during production. This term was devised to express the idea
that workers inside the enterprise fully own what they produce, so that
there is, allegedly, no exploitation. It refers to the total sum of the income
of the enterprise after the material costs are deduced, and not to the
individual earning of a single worker. This was a very popular concept
among theoreticians. Basically, earnings = wages + profit.]
So, instead of the capitalist division of newly-produced value to workers'
wages and owners' profit, it (newly-produced value) is fully in the hands
of the workers, in the form of earnings, which they can divide between
accumulation and spending according to their will. And since greater
accumulation allows for greater income in the future, workers will be
motivated to save under socialism - which allows for further progress.
Now Mr Korac can proudly say that he has proved that "the system of
socialist commodity production is self-perpetuating". At the same time,
though, he has created a set of the same problems for his model that every
capitalist corporation has. For example, the different composition of the
means of production (capital intensivity) forces enterprises to move from
one to another branch of industry, which Mr Korac "solves" by renaming
the law of equalization of profit margins "the law of the equalization of
earning rates", and by reintroducing Marx's concept of cost of production.
Further deduction, of course, leads him to the discovery of the tendency
for the rate of profit to fall as inevitable. And then he can do nothing else,
but postpone the remedy for this incurable disease of capitalism, with
which he has infected his own socialist model, to some future, communist
society: "We could say that the tendency of earning rate to fall is evident
in the manifestation of the historical and transitory character of socialism
based on commodity production."
But he could not shake off as easily the tendencies of the concentration
and the centralization of capital, as well as the problem of
monopolization, which are also the by-products of the market
mechanism:
"Socialist commodity production, however, because of its imminent
internal driving forces... also shows this tendency of the further
concentration of the means of production. And this concentration and
its uneven distribution make the productive and market structure of
socialist commodity production 'imperfect' - because of its internal
competitive forces. This 'imperfection' produces, even independently of
the subjective inclinations of agents in production and exchange,
'monopolist tendencies', which, through higher prices, lead to the
distribution of national income.... differently to the way that this would
be achieved if market prices were regulated by the law of [socialist] cost
of production."
The Misconceptions of the Past Draa (2002) Halaman 7

And, as if this has not sufficiently undermined his model of the socialist
economy, the problem of the further redistribution of the national income
emerges: "The existence of commodity production implies trading...The
engagement of material and human resources in this non-productive
area means, in the final analysis, the reduction of social productive
capacity."
Essentially, none of the problems of capitalism that Marx pointed to in his
analysis, was solved in Mr Korac's theory. For this reason, he makes
excuses for himself by claiming that he is only analysing "the objective
economic tendencies" of socialism. But, these were not objective
tendencies, these were the consequences of the formal copying of Marx's
critique of capitalism. As stated before, by declaring the socialist
enterprise (factory) in which the working collective was "the first
appropriator of produce", Mr Korac formally solved the problem of the
exploitation of the workers and put surplus value back in the hands of the
workers. But, this cannot be the true solution for socialism, because his
"socialist collective" remained the market agent exposed to the laws of
commodity production - in the same way, one can formally solve the
problem of exploitation by putting the means of production in the hands
of every worker (making them his own property), i.e. by restoring the
system of individual commodity production. And although it occurred to
no one who was sane to propose this, since everyone knows that
competition in this system necessarily leads to capitalism as a more
developed system of commodity production, there were theoreticians who
proposed the system of "collectivist" commodity production exposed to
the same mechanism of competition. Would not this system produce
exactly the same results - the concentration of the means of production in
the hands of a constantly decreasing number of market agents, and the
PROLETARIANISATION of those who lose on the market?! In other
words, the atomization of market agents - even if they are "socialist
enterprises", which is presupposed by Mr Korac in his theory, and which
was the unrealistic presumption even of his own time (not to mention in
today's fantastic levels of the concentration and centralization of capital) -
must sooner or later produce monopolization - a tendency of which he
was aware - and by this, the destruction of the laws of commodity
production. Then market prices are no longer the statement of the value
of the product, and surplus value redistribution and exploitation emerge
once again, despite the fact that the workers are formally the owners of
the means of production.
Thus it is clear that Mr Korac's model cannot be the model of a genuine
socialist economy, nor can it be rescued by his claim that the planned
activities of society must be based on the acknowledgement of his "laws of
socialist commodity production". This kind of commodity production
cannot be incorporated into socialism. And since mankind still has not
dealt with decadent capitalism, which it must do unless it wants to be
thrown back to barbarism - as the history of the twentieth century
The Misconceptions of the Past Draa (2002) Halaman 8

illustrated to us that it is on the verge of doing - the question of socialist

revolution is still very relevant. The future socialist revolution must be
international, with the democratic participation of the working class in
the governing of society. Only in this way will it be possible to create a
genuine socialist society, which is able to rationally manage the resources
it has; which uses planning - and that must be its fundamental feature,
not a mechanism for the correction of commodity production - for the
rational management of a highly developed and concentrated means of
production that would have to continue to be developed further in order
to increase the material wealth of society.