Our essay on ‘Socialist Accounting’1 has been subjected to more or less detailed critiques from various sides.2 As an introduction to this short note of response, it will perhaps be helpful to briefly summarize our position with respect to the ongoing discussion of the problem of socialist accounting.
The significance of the problem for the socialist economy has now become generally acknowledged.3 There are basically three contending groups of viewpoints – two of which represent the traditional opposition between market and marketless economies,4 while the third group, which is still coalescing, takes its point of departure from reasoning independent of the traditional dichotomy. The advocates of this third position are less numerous to be sure; we refer to them as representatives of positive socialist theories.
Between the first two contending groups, there is unanimity concerning the problematic. Both sides identify the opposition between market and marketless economies with the opposition between capitalism and socialism, and thus from the outset define the socialist economy not only in a collectivist and state-socialist sense, but moreover as an economy without exchange or markets, as a centrally administered economy. However hotly the contending positions are debated by their respective advocates, both sides to the dispute form a common front against the more recently constituted third group in this debate, which we termed the positive socialist theorists. In the latter we would include the pioneers of functional socialism in England, particularly the advocates of functional guild socialism, as well as socialist theoreticians who share the convictions of E. Heimann and J. Marschak.5 Our own essay originated in pronounced opposition to the two conventional positions and should be interpreted as a first attempt to respond to the need to create a positive socialist theory of economics (Wirtschaftslehre) as distinct from what, in our view, is a somewhat stale scholastic debate between orthodox Marxists and their ‘bourgeois’ enemies.6 Thus to the meat of the matter.
To call for creation of a positive socialist economics implies, it goes without saying, the admission that such a body of knowledge does not, as yet, exist. Our article addressed itself extensively to the methodological implications of this state of affairs for our treatment of the problem of socialist accounting. On the other hand, we also constructed our definitions and other assumptions in a fashion intended to leave the way clear for the development of a positive theory of the economics of socialism. Specifically, this was done in three instances. Firstly, with respect to the definition of a socialist economy; secondly, with respect to the mutual relationship between the legal and the economic order; and thirdly, with respect to the analysis of economic motives. We defined a socialist economy in such a way as to leave untouched questions of the organization of the communal economy, in the widest sense of the word. All that the concept of a socialist economy encompasses for us is the realization of two requirements – of maximum productivity on the one hand, and of the rule of social justice (as manifested in the distribution of production as well as its orientation to social benefit) on the other.7 We approach the concepts of law and economy in the same spirit: not statically, as two manifestations of the same social substrate (property relations = relations of production), but dynamically, as two relatively independent determinants of societal reality. This enabled us to distinguish between ‘framework effects’ and ‘intervention effects’ of law on the economy, a distinction that nullifies the conventional opposition between the administered economy, understood as a legally regulated economy, and the free economy, understood as an economy free of legal regulation.8 Finally, we related the problem of differentiating between ‘natural’ and ‘social’ costs of a product9 to the analysis of the ‘unified economic will’ in terms of the motives from which it proceeds. This analysis showed the concrete relation between the internal organization of economic actors and the way their economic will is determined.
All of this is but a starting point toward the construction of a positive theory of socialist economics. It is, however, not difficult to show that the above-mentioned definitions and assumptions must be made if a positive theory of socialist economics is to be possible. The English functionalists proceeded in similar fashion to overcome the supposedly inevitable choice between collectivism and syndicalism.10 In our essay we attempted to explain that our definitions and assumptions can bear fruit only in the intellectual soil of a functionalist approach to society.11 In summary, our attempted solution depends on a dual premise: neither ‘market versus marketless economy’, for economic theory, nor ‘collectivism versus syndicalism’, for the theory of socialism's economic organization, represents a necessary choice.
In his critique, Mises unquestionably went to the heart of the matter in attacking the functionalist position itself: ‘Between syndicalism and socialism there can be no compromise and no reconciliation,’ says Mises. (Socialism in this context is always to be understood as collectivist socialism.) The error of our model, according to Mises, lies in the indeterminacy with which it ‘seeks to evade the key issue: syndicalism or socialism’. This particularly applies to the assumption of a constitutional structure which places joint direction of society in the hands of two functionally defined main associations – the commune and the production association.12 As substantiation of his argument Mises offers the following line of thought:
He quotes from our article: ‘The fundamental idea of every functional constitutional form is that distinct functional representative organs (associations) of the same individuals can never fall into irresolvable conflict with one another.’13 He elaborates
This fundamental idea of the functional form of constitution is, however, wrong. If the political parliament is to be formed by the votes of all citizens, with equal voting rights for each – and this condition is implied by Polanyi and all other similar systems – then the parliament and the congress of producers’ associations, which is the result of an electoral structure quite differently built up, may, easily, conflict. … If the final decision rests with neither the Commune nor the Congress of Producers’ Associations, the system cannot live at all. If ultimate decision lies with the Commune, we have to deal with a ‘central administrative economy’, and this, as even Polanyi admits, could not calculate economically. If the Producers’ Associations decide, then we have a syndicalist community.
This line of argument would indeed be convincing if the implicit starting point on which it is predicated were valid. It is, however, invalid. Mises's starting point would have to be that ‘the constitutional model cannot be viable unless ultimate decision powers rest with one of the two constitutionally recognized associations’. There is no lack of evidence, however, that in the overwhelming number of constitutional systems which are acknowledged to be perfectly viable, the opposite is true: the ultimate decision rests not with one but at least with two legislative actors.
Mises's erroneous conclusion is explained by his failure to note the distinction between two senses of a society's ‘constitutional form’ (Verfassungsform), one pertaining to a mere actual power relationship (Machtverhältnis), the other to a relationship of mutual recognition (Anerkennungsverhältnis). Only for the first sense, as a power relationship, is it true that to be effective a society's constitutional form must establish supremacy in power relations, i.e. that the decision must rest with one of the parties. If we consider the constitutional form in the second sense, as a relationship of mutual recognition, this thesis no longer holds. Because Mises does not see this difference, he reaches his erroneous conclusion that a constitutional order cannot be viable unless decision-making powers rest with one of the two constitutionally recognized actors. Mises's error is perhaps veiled in the ambiguity of the expression ‘final decision’, in so far as the adjective ‘final’ may mean ultimate in the sense of the power relations which lie behind relations of mutual recognition or it may refer to the highest agency in terms of recognized societal relations as such.
But even an erroneous line of reasoning may conceal a pertinent objection to an argument. For this reason, we will attempt to address Mises's critique again after we have briefly dealt with the problem of the teleological necessity of a unified ultimate decision organ in a constitutional form, understood both as a power relationship and as a relationship of mutual recognition.
In pure power relations, a conflict between two parties can only be resolved by the permanently superior power of one party over the other. In this case, the decision will indeed always rest with one of the two parties. In the case of equal or changeable relative power of the two parties, power relations fail conceptually: the settlement of the conflict based on power relations is fundamentally ruled out. In so far as a conflict is in fact resolved in such a case, it can only be because the parties enter into relations of mutual recognition (e.g. by drafting a constitution, or by law, or custom, etc.). It is possible even in this case – albeit more in appearance than reality – that the decision is assigned to one of the two parties (for instance via taking turns or decision by lot). This, however, is not required and will be the exception rather than the rule. In the general case the parties have mutually recognized the duty to reach an accord, which fundamentally ensures the settlement of their possible conflict. Which side on a given occasion will hold the superior influence – as opposed to the superior power, which would annul the relationship of mutual recognition itself – is a matter of minor importance, which only shifts the point of compromise, but cannot annul the duty to find a mutually agreeable settlement of the conflict. By identifying superior influence (Übergewicht) with superior power (Übermacht), Mises seems to us to have slipped into another confusion.
To be true to relations of this sort, then, Mises's objection should be reformulated as follows: ‘The permanent superiority of the commune vis-à-vis the production association (or the reverse) rules out relations of mutual recognition between the two bodies; in this case, the relationship must remain one of pure power, which can only be effective if final decisions rest with one or the other association. Ergo: collectivism or syndicalism.’
To give evidence for his objection to our thesis, Mises would have to explain which of the two associations would capture the purported permanent superiority of power. (As explained above, the issue here can only be permanent superiority of power, in so far as the continual rise and fall of superiority would permit, and indeed require, relations of mutual recognition between the parties.) Mises cannot evade this question, as this would amount to admitting that it is impossible to theoretically demonstrate that either one or the other of these functionally based associations will have priority. This impossibility, though, is precisely what we claimed to follow from the functional principle, and what Mises intended to refute in favour of his unproved claim that either collectivism or syndicalism must be chosen.
This question [of whether the commune or the production association will necessarily come to dominate] has no answer. Man as producer and man as consumer represent two fundamental human motivations which are determined by a single life process – the economic activity of the individual. The interests which arise from these motives thus find themselves fundamentally in equilibrium. In so far as the commune and the production association constitute, as we have assumed, separate representatives of these motivational tendencies, the functional associations counterpoise interests of fundamentally equal strength. Swings towards one interest, which thereby acquires superior influence, do remain as likely as they would be in the case of an individual within himself. But the inevitable effect of such a swing on the other, temporarily suppressed interest, which has a polar link to the first, must lead automatically to a restoration of equilibrium. Equilibrium in power relations, which implies their annulment and the foundation of relations of mutual recognition, thus follows from the functional principle itself, ruling out an immanent argument against the possibility of functional equilibrium. In any event Mises makes no attempt to provide such an argument.14
To return to the involuntarily misleading form of Mises's critique, we note that we obviously have never stated that there could not be conflict between the commune and the production association. Such conflicts are indeed an element of the life of a functionally conceived socialist society. In place of conflicts between analogously constituted interests of various groups of people, as is the case in a class society, in socialism conflict between variously constituted interests of the same group of people becomes the fundamental driving force (Bewegungsprinzip) of the society and thus also the economy. Conflict between the main functional associations, which we and Mises emphasize in equal measure, is thus implied not by different preference orderings alone, as he suggests, but rather by the functional principle itself. What we propose as the fundamental idea of a functional constitutional form is, moreover, that these inevitable conflicts are never irreconcilable. Given the transparency (Durchsichtigkeit) of functional organizations, the conflict between differently oriented interests of the same individuals must find resolution, just as is the case with respect to differently oriented interests within a single individual. Via their functional representation, individuals should be confronted with themselves. The inevitability of the reconciliation of functional interests is, thus, based on the physical and psychic unity of the individual and requires no further proof, and is indeed not capable of such proof. In order to prove that this confronting [of individuals with themselves] could not occur, Mises (lacking an immanent objection against the functional principle) would have had to turn his argument against the functional model of social organization. He would have had to prove either that the functional representation system is ineffective in representing the separate motivational tendencies of individuals [as consumers and producers], or that the functional democratic model is not sufficiently transparent (durchsichtig) to ensure that the individuals involved on both sides become conscious that they are one and the same. In his brief and scantily expounded critique, Mises did not assert either of these arguments, nor speak of proving them.
While Mises pushes the conflict between the interests of functional organs to the fore, prying it from its place in functionalism properly apprehended, and goes so far as to claim that collisions between the opposed interests of consumers and producers show the impracticability of the functionalist constitutional form, Weil asserts that the commune and guilds ‘have no real conflicting interests at all’!15 Small wonder then that all of the essential conclusions we draw from the functional structure of our assumed socialist economy appear to him to rest on ‘mere imagination’16 and a ‘curious fantasy’17 of ‘mystical powers’,18 which we ascribe to this organizational form! We need not look very far to discover the sources of this sweeping failure of Weil's critical endeavours. It is his misfortune to have misunderstood two key concepts of our argument. Our model designates the assumed constitutional design of society as a ‘functionalist’ one. For the socialist economy of this functionally organized society we adopted a precisely described system of fixed prices (Festpreise), which are legally set, and negotiated prices (Vereinbarungspreise). It is on this dichotomy, which is incidentally quite common, that the description of our postulated economy rests. Weil has misinterpreted these negotiated prices19 as a type of fixed price and has consistently ignored the fundamental nature of the difference. He has similarly misunderstood the central concept of our essay, the term ‘functional’. He consistently identifies ‘functional’ with ‘guild socialist’,20 which explains the title of his critique, ‘Guild Socialist Accounting’. Although our work assumes a guild socialist organization of production, we have set this within the framework of a functional organization of society. Our principal propositions, however, derive from the functional organization of society and not from the guild socialist model of production!
Weil equates the term ‘functional’, whose meaning within the recent socialist literature is evidently not familiar to him, with the term ‘guild socialist’. This crucial error dooms to failure his honest efforts to understand our work.21 Our entire line of argument thus must appear to him as a chaos of contradictions. These ‘contradictions’22 are easily resolved if one does not misinterpret negotiated prices to mean their opposite, and confuse the organizational model of guild-based production with the very different concept of a functional constitutional model of society.23
Given this context, any substantive points of contact between Weil's critical comments and our line of argument could only be coincidental. We have found only one such instance, where Weil suggests that the determination of quasi-social costs is not feasible because it involves subtracting from the new costs of production ‘an entirely imaginary quantity, namely those costs which would be incurred absent the effects of the social justice considerations in question, for instance if a particular product were not produced at all and another made in its place.’24 These comments are accurate in so far as, in particular marginal cases, a range of indeterminacy attends conjectures about the costs of social justice considerations, namely when these mandate quite new production conditions that cannot be compared with previous ones.25 This is a dynamic phenomenon that occurs repeatedly, whereby certain ‘social costs’ become ‘natural costs’. Indeed, this happens regularly as soon as these social costs become general production conditions for society. In such a case, what were interventions in the economy are consolidated into the framework of the economy, transforming the associated costs from intervention to framework costs, which now may be interpreted as natural rather than social costs. Accounting for this transition constitutes accounting for economic dynamics, without which a long-term quantitative overview would be fundamentally impossible. In our functional model of society, the transition from ‘social’ to ‘natural’ costs would have to be determined by agreement between the commune and the production association. The objection raised by Weil thus relates to a dynamic phenomenon, which we could not address in our static treatment and alluded to in a footnote, which Weil likewise misunderstood.26