State capitalism in the preliminary phase of socialism

by Sal, Seattle, March 1999 (1)
(from Communist Voice #22,. October 9, 1999)


. First my apologies. I seem to stand convicted of the very accusation I leveled at Phil: I myself misrepresented the minutes of Dec. 6. However, my crime is my punishment, as I have distorted my own position. I refer, of course, to the discussion regarding affirmative action.

. The actual discussion itself centered around a question Phil had raised at the meeting. He had mentioned an article about a white male university applicant who was suing a university after having been refused admittance on the basis of race. The university had an admissions quota policy in order to honor affirmative action rulings and had passed this applicant over in favor of an admittedly less qualified minority. The query raised was what position we should take concerning this. My position was that the very question of quotas admits to the limited opportunities for education that capitalism necessarily entails. I thought that while it may be allowed that proportionate quotas for higher academic positions might be beneficial in that it helps to dispel myths about gender, ethnic and racial inferiorities, it merely begs the question to ask whether or not they are fair. Only under socialism could the needs of all those seeking higher education be satisfied, and we would be remiss if we neglected to point this out. From this it had been reported that affirmative action "makes no difference to Sal."

. There is, of course, another aspect to the affirmative action question: that of anti-discrimination.Laws which prohibit discrimination for employment, public service, etc., are of course advantageous to the proletariat, just as [Mark] has stated. (2) I hardly feel it necessary to declare that I am not at all ambivalent about this position; if fact, I support additional laws prohibiting discrimination on the basis of sexual orientation and age, as I am sure we all do.

. Apparently my other objection to Phil's report of my reflections on the economic structure of socialism has not been any better represented. I had tried to express my opinion that it is imperative that we understand the fundamental economic basis of socialism, and had presented an obviously clumsy effort to that purpose. I expressed my objection to what I felt was Phil's distortion of my position respecting the transition period between capitalism and communism, to which [Mark] replied: "What's striking is that Sal doesn't really reply to the issue raised by Phil of what is the difference between a society really run by the workers or one in which a bunch of corrupt bureaucrats lord over the workers." What is even more striking is that I should be expected to respond to a remark that had yet to be made. In fact, it was Phil and [Mark] that failed to address the point that was being raised: that (again): ". . . at bottom any economic system that relies on commodity production and distribution has as its economic basis the production and distribution of value." The question of the difference between bureaucracy and democracy was not on the table--I was not addressing the political aspects of socialism at all, but was endeavoring to point out the necessity of understanding its underlying economic structure.To drag in the question of bureaucracy vs. democracy was to disregard my argument entirely. To substitute the question was to deform it.

. [Mark] states: "Sal remarks that in the transitional society profit will be used to 'focus on the needs of the proletariat' rather than 'for the sake of profit.' But by leaving things at this level, Sal draws no distinction between revisionist state-capitalism where 'the needs of the proletariat' are decided by a new class of parasites, or one in which the workers really decide things." This is a truly disingenuous objection. [Mark] himself has long maintained, and emphatically affirmed, that the revisionist cliques do not meet the needs of the proletariat; yet when I alluded to "the needs of the proletariat" he accused me of embracing in that phrase an acceptance of the claims of the revisionists. If I refer to a conditional it is hardly an honest criticism to insist that I must thereby include in that reference its own denial.

. [Mark's] objection is also evasive. I called for the clarification of a fundamental level of economics, and [Mark] remonstrates me for "leaving things at this level". He does not wish to deal with this level--indeed, he seems not to understand this level--and so, with a flick of the pen, attempts to avoid it; which is precisely what Phil has done. But my point is that before we can deal with socialism at another level--at the political level--at the secondary level--we must first understand it at this one: at the economic level--at the primary level. For I submit that if we don't know what we mean by socialism then we don't know what we mean by revisionism

. [Mark] has consistently treated the question of revisionism by contrasting it with democracy. Of course socialism must be democratic; or, more specifically, it must be the democratic dictatorship of the proletariat. But what is this democracy to do? What form will it take? How will the democratic proletariat manage its economy? And, specifically, how will it manage it's economy in the initial, commodity-producing stage? To discuss a political system without addressing its fundamental economic basis is to engage in an exercise in sterile and empty rhetoric. Neither term "bureaucracy" nor "democracy" can have real meaning divorced from their economic foundations.

. [Mark] continues: "In trying to explain his views about the transition period, Sal deals with various questions of economic theory." (in fact I deal with but one). "To begin with, he contrasts profit from employing constant and variable capital to 'money (not necessarily value) obtained from investment,' and 'influenced hitherto by all the variable effects of competition, interest, etc.--that is to say, bourgeois capitalism.' " [Mark] confuses (or rather, accuses me of confusing) not apples and oranges, but apples and orchards. Money, "obtained from investment," which at least ostensibly represents surplus value, is not to be contrasted with "profit from employing constant and variable capital" at all--indeed, the latter is precisely from whence the former is derived. The contrast (if one can contrast across levels of abstraction) lies in the fact that at its most basic, fundamental foundation, profit is equivalent to surplus value, and is expressed as the ratio of surplus value to constant capital: p'=s/c+v (the rate of profit equals surplus value divided by constant plus variable capital), which is not the profit (or is only coincidentally the profit) which is expressed in the ledger of the capitalist. The profit--the tangible profit which the capitalist seeks--is represented by the formula: profit = cost price minus the price of production; the latter two functions influenced by secondary forces. The former formula represents profit in its most abstract, fundamental sense and expresses the underlying law of capitalism; that is to say, of a system of commodity production in which money serves as the means of distribution (in contradistinction to commodity exchange by barter, for instance). The formula p = s/v+c betrays the profit in the abstract which is the parent of that profit which appears at the specific level and which is the profit which is the obsession of the capitalist, and which is the profit which is influenced by many outside factors: competition, interest, monopoly, etc., and which is determined ultimately by the average rate of profit. The one is the abstraction; the other (relatively), the specific. The latter is derived from the former.

. [Mark] goes on: "So in bourgeois capitalism," (he would have me say) "investment of money and competition lead to profits, whereas Marx also talks about another type of profit that originates in the production process which evidently is not really at the heart of bourgeois capitalism." Whether or not [Mark] is being ironic, I can't say, but it must be obvious that Marx does not maintain, nor do I portray him as maintaining, that there is any other "type of profit that originates in the production process which evidently is not really at the heart of bourgeois capitalism." Quite the contrary (and to reiterate): this "other type of profit" is none other than "the very heart" of capitalism itself; not only of bourgeois capitalism, but of any economic system that relies on commodity production and circulation through the medium of money, and in which labor-power is a commodity. There is ultimately only one "type" of profit, but that profit can be understood on two levels--as a function of the underlying, basic fundamental mechanism of commodity production; or as it is immediately perceived: as a result of a number of countervailing forces such as the prevailing rate of profit, competition or monopoly, interest, rent, etc. These are the two senses of the same entity.

. And that is the point. For the former--the abstract--is capitalism in its fundamental significance.This is the set of which bourgeois capitalism and (if I may so put it) proletarian capitalism--the initial stage of socialism--are subsets. And it must be remembered: when we speak of exchange value in the abstract, we are not here speaking of merely a mental or an ideal abstraction; but of an actual, social, material abstraction. For value (and its offspring, profit) existed long before its recognition, and continues to enforce its edicts supremely indifferent to the cognizance (or lack thereof) of any and all the members of the society of which it is the material foundation. It is a true abstraction created and maintained faithfully but blindly--in concert--by those who are at once both its masters and its servants; by those who, while they produce it, are in turn produced by it; and by those who, while they sustain it, are sustained by it. It is neither a convention nor a habit, but the expression of a social law, a material law; and, as such, cannot be simply willed away.

. It must by now be seen that I am defining "capitalism" in its strictest sense: that is, that economic system which produces commodities, and in which labor-power is itself a commodity (which is precisely the case when the principle: "from each according to his ability, to each according to his work" is in effect). It is the system whereby labor produces commodities, and where laborers sell their labor-power in order to live. Within this definition it is immaterial if this labor-power is sold to individuals, to corporations, or to the state--or even if in the latter case the laborers individually sell their labor-power to themselves collectively. This is admittedly a consciously selective definition; one that is intended to eliminate the ancient slave-societies as well as those commodity-producing societies which rely on barter as a means of exchange; and is obviously intended to include the commodity-producing aspects of socialism. The distinction, however, is neither arbitrary nor willful; it reflects historical and therefore material differences.By "capitalist system" I understand capitalism in its customary, literal sense: the socio-economic commodity producing system which is by and for the bourgeoisie, and thereby a system which may be strictly denoted as "bourgeois capitalism". By "proletarian capitalism" I mean state capitalism which is not only "under the hegemony of the proletariat", but a system in which all, or almost all, capital is owned by the proletariat. By "state capitalism" I mean a system whereby commodity-producing enterprises are owned and operated (and not just "controlled") by the state, and which may therefore be common to socialism and to the capitalist system alike. Insofar as the system is state capitalist the profits accrue to the state.

. Which brings us to socialism:

. By "socialism" I understand only that system that lies intermediary between--and is transitional between--capitalism and communism: it is a hybrid of the two. I do not employ the term "socialism" as a synonym for "communism." Implicit in the description of socialism is the concept: "from each according to his ability, to each according to his work", and that of communism: "from each according to his ability, to each according to his needs".

. It is generally admitted that the socialist state will expropriate all businesses. But to do what? To run them or close them down? If to run them, how? To produce and sell commodities? To sell these commodities at cost, or to realize a surplus? From whence this surplus, if not from labor? And what can this surplus be, but profit? And what can an economic system be--technically speaking--which produces commodities and realizes a surplus but capitalist (once again, speaking in the purely technical sense)? And what can a capitalist system which expropriates and runs all (or nearly all) businesses be but . . . state capitalism? And should that state be proletarian, what then can that economic system be but proletarian state capitalism? And the latter, I submit, is precisely what socialism, in its initial phase, must be. It is true that when I employ the term "proletarian capitalism" I beg the question with the term "capitalism." If Communists find the term unsettling--fine, let them give it another name. Their objections are understandable--perhaps laudable; but nonetheless this rose by any name will still bear its thorns.My own personal inclination is to label it "state capitalism": it would appear the more honest appellation and less prone to obfuscation. What is of the essence, of course, is not the designation but the function.

. It is agreed that it is of the utmost importance for the proletarian state to expropriate as many of the businesses as it can. It is obviously possible for the state to confiscate all businesses legally, by fiat; but whereas this may be nobler in the mind, it can be somewhat less effective in the flesh.Without the proletariat's active and intelligent control and direction such legal declarations will remain empty embellishments: provocative for the bourgeoisie yet unavailing for the workers--an ultimately dangerous situation (which is why a country with a large petty-bourgeoisie in the form of the peasantry presents so difficult a path). Nonetheless, for most businesses in more advanced countries proletarian expropriation can be material and private ownership can be abolished, which means that former owners of small and medium-sized businesses would no longer receive their revenues directly from the surplus value of their former companies even if they themselves are retained as managers. All surplus value--that is to say, all profits--would accrue to the state, and managers (who would be employees of the state) would receive their pay from the government. That in itself will not immediately remove all the former owners from the rosters of the bourgeoisie (it will, in a sense, reduce them to the petty-bourgeoisie), but it would be the first step in granting the proletarians power over their own collective (and at the same time, to some degree, individual) fate. As for larger establishments, the owners would simply be dismissed as superfluous: to be shot, imprisoned, or introduced to useful labor; depending upon the temper of the times and the behavior of the bourgeoisie.

. Commodity production implies values, which must embody, as their constituent parts: constant capital, variable capital, and surplus value. In a capitalist system the surplus value belongs to the capitalists while during the initial phase of socialism in which commodity production exists the surplus value belongs to the proletariat--not individually, but collectively. In socialism the surplus value accrues to the proletarian state. Preobrazhensky was wrong when he protested that the proletariat cannot exploit itself. In fact, the proletariat can indeed exploit itself, if we understand that term in the strictly objective sense (as when we might say that one "exploits" a resource, or an opportunity.) To deny, based on the equivocation of a term, that the proletariat cannot operate a state capitalist system to its own advantage is mere sophistry.

. I should like to attempt to clarify the concept of value in relation to the socialist and the communist system. When Marx employs the term "value" he in general uses it in relation to commodity production; i.e., exchange value. It is then a term which expresses by implication a specific relationship between commodities. But Marx also refers occasionally to value in a looser and broader sense:

". . . after the abolition of the capitalist mode of production, but still retaining social production, the determination of value continues to prevail in the sense that the regulation of labour-time and the distribution of social labour among the various production groups, ultimately the book-keeping encompassing all this, become more essential than ever."--Marx, Das Kapital, International Publishers, Vol. III., p. 851.

. The distinction can be illustrated with a simple metaphor: We imagine an informal office Christmas party in which each guest is asked to bring a small gift worth no more than, say, five dollars. Everyone is also expected to donate a dish for the dinner, which will be buffet style, or pot-luck. At the party, each person draws the name of a guest from a hat; the name then is that of the person from whom he will receive a present. The gifts will then obviously be exchanged, and exchanged on a one-to-one basis, although only coincidentally should any two guests mutually exchange their gifts. The offerings for the buffet will also represent exchange, although in an entirely different manner. Everyone is expected to contribute, but there is no expectation that anyone will restrict themselves to some preconceived moiety from the table. However, to stretch the analogy to conform to Marx's latter quote we will ask the guests beforehand about their preferences, how much they expect to eat, what they intend to bring, and suggest that they limit their donation to the table to harmonize with the tastes of the participants. The first example then, (that of the gifts) represents commodity exchange in which products are exchanged on the basis of equal value; that is, the exchange experienced by the capitalist system and by the initial stage of socialism. The second example--that of the buffet dinner--represents the "exchange" of products manifested in the communist society. Here there is exchange to be sure, but not directlyon the basis of equal value, or of equal labor. In this example it is obvious that the totality of the products consumed cannot exceed that of those produced; in practice, in fact, they must be somewhat less. In order that there be no unacceptable surplus--or dearth--of any given product, the production and the consumption of these products must be regulated. The relationship of the two contradictions (production and consumption) must be carefully planned and carefully monitored; but value--exchange value--will not enter into the calculations. The amount of labor in any product relative to any other single product will be of no consequence. Only the total labor relative to the total consumption (taking into consideration the needs of reserve and accumulation) will be of consequence to communist society.

. Therefore, if we are to characterize the economic functions of that society which engages in commodity production--direct exchange, and those of that society which engages in the creation and distribution of mere use values--indirect exchange (employing the term "exchange" in its broadest sense) then we are faced with the primary question: How is the transformation of the one to the other brought about? That must first and foremost be an economic question; a question that is answered economically, but which is to be decided politically. It is my contention that the economic method for the transition must be that of state capitalism; the political engine for that transition must be that of the dictatorship of the proletariat.

. When I refer to phases of socialism it must not be assumed that I intend to designate any strict demarcation in its evolution. In its inception socialism must necessarily be predominately capitalist, but as it evolves its capitalist features--that is to say, the commodity-relation aspects (together with their subjective, and therefore political, manifestations)--will gradually be transformed into increasingly communist methods of production and distribution. There are only two possible economic methods available to a technologically advanced society--capitalist and communist; an intermediate system can be only a hybrid of the two. One can no more envision a third economic system than one can imagine a circle with square corners. When commodities no longer exist--that is to say when products are no longer produced for sale, and therefore when money no longer exists, the proletariat--the class which sells its labor-power--will no longer exist. Classes will no longer exist. Socialism will no longer exist. The society will necessarily be a communist one.

. I have hope (if not faith) that this will elucidate some of the ambiguities which seem to prevail on the question of socialism and state capitalism. I entertain no illusions as to the depth of the analysis the foregoing illustrates, but I believe it may perhaps serve something of an impetus towards a serious study of the problems and principles of socialist economy. There are a great many questions to be answered--indeed, to be asked; but to continue to ascribe the present indifference and antipathy of the proletariat to the communist call to the successes of bourgeois propaganda and the consequence of conditions is, in my view, simply the self-serving rationalization of the innocently arrogant who expect of the workers a frivolousness which they themselves too often exhibit. Revolution is a solemn and deadly business which requires far more than sentiment to initiate it, much less to sustain it; and sans serious study, sentiment is all that remains. To deny to the proletariat the necessity of socialist state-capitalism on the basis of subjective aversion is to demand that it burn its bridges before it. <>


(1) The original, untitled document of March has been changed by a few minor modifications requested by Sal as well as by the addition of a title suggested by Sal. However, the previous lack of a title resulted in this statement by Sal being referred to by such names as his "March 1999 document". -- CV. (Return to text)

(2) This is actually a reference to Mark's comments of January 17. In "State capitalism in the preliminary phase of socialism", Sal doesn't distinguish between Joseph Green and Mark, and attributes anything Mark said to Joseph. Since all the quotes Sal uses are from Mark, not Joseph, in the rest of this text the word "Joseph" is replaced by "[Mark]", where the square brackets indicate that the text has been corrected. --CV. (Text)

The October 1999 issue of CV contained the following other contributions to this debate:
* Debating the significance of the state sector in the transition to socialism -- Iintroduction by Joseph Green
* On affirmative action and on the economics of socialism (an extract from Sal's report of Jan. 15, 1999 on the discussion of the Seattle Marxist-Leninist Study Group of Dec. 6).
* Two issues: affirmative action and the transition between capitalism and communism (A reply to Sal's report by Mark, Detroit, Jan. 17, 1999)
* The transitional society and profit by Pete Brown (Jan. 19, 1999)
* State ownership is not sufficient to define the transitional economy (Reply to Sal) by Joseph Green, July 11, 1999

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