Referring to one of my previous articles,1 a blog commenter made the statement that, in his view, one of the problems with participatory economics (parecon) is that it “continues with prices and wages and money, instead of abolishing them all.” This view of wages, prices, and money is flawed, however. It is impossible to have an economy which excludes these things. That is, in any society, that society’s economy is necessarily going to include wages, prices, and money. Perhaps they will go by different names, but the concepts themselves are necessarily going to be part of any economy.
Why is this so? To understand this, we must look at what the concepts really mean. In any economy, there are workers and consumers, and there are goods produced. Most people are both workers and consumers; their roles as workers entitled them to a share of goods produced, and their roles as consumers obligate them to a certain percentage of production. And in all of this, the goods produced and consumed have some intrinsic value (which must be determined by the allocation system).
What does any of this mean, in simpler terms? Let’s take a person at random in our economy (whatever economy that might be — capitalism, socialism, or parecon); call her Jane. Jane is a worker and a consumer. Every year, in her role as a worker, Jane produces a small pile of stuff. (All workers together produce a big of stuff.) And every year, in her role as a consumer, Jane consumes a small pile of stuff. (And all consumers together consume a big pile of stuff.)
The work Jane does in the economy to produce the small pile of stuff that she produces entitles her to consume a small pile of stuff. To use an analogy from a children’s story, since Jane has helped to bake the cookies, she’s entitled to eat a few of the cookies. But how many cookies is Jane entitled to eat? That is, how do we measure Jane’s contribution to the cookie baking process? For if we have no way to measure Jane’s contribution, we really have no way of knowing whether or not Jane is entitled to a few cookies, or nearly all the cookies.
This valuation of how many cookies Jane is entitled to is done by the economy’s allocation system. Different economic models have different allocation systems, so different allocation models will determine differently how many cookies Jane is entitled to eat.
Under capitalism, if Jane owns the oven in which the cookies are baked, she gets to eat many many many cookies — perhaps most of the batch. Under capitalism, this is true even if Jane does literally none of the work in baking the cookies. Simply by virtue of her owning the oven, she gets to dictate the terms under which cookie distribution occurs. Not surprisingly, Jane’s owning of the oven means she’s going to take most of the cookies for herself.
Okay, well, how does socialism work? In a socialist economy, no one owns the oven (or perhaps the oven is owned by the state. But no private individual owns the oven). But if Jane keeps the cookie recipe in her office, doesn’t let others have access to it, procures the ingredients herself, and delegates responsibility for cookie preparation in such a way as to de-skill and disempower the people doing the actual work (so one person cracks eggs all day, another only adds water, while someone else only uses the mixer), she will again be able to take the lion’s share of cookies for herself.
Actually, before going on, it is worth pointing out that this last example is going to occur in any economy which is either capitalist, centrally-planned socialist, or market socialist. It is worth taking a few moments here to briefly explain the differences and similarities between the three aforementioned models.
At the first level of approximation, those of us who are not economists can most easily classify economies by looking at three aspects of a given economic model: ownership, production, and allocation. That is, if we know who owns the productive resources, how workplaces are structured, and how resource allocation occurs, we can uniquely classify a various economic model.2 But it’s important enough to review and highlight some of it here.
In capitalist economies, ownership is private (i.e., private individuals own the means of production), workplace structure is corporate (i.e., workers and de-skilled and jobs are organized hierarchically), and allocation is by competitive markets (with buyers and sellers wrangling over resources, sellers attempting to sell dear and buyers attempting to buy cheap). An example of a capitalist economy is the United States.
In market socialist economies, there are no capitalists. So productive resources are owned by the state. Further, workplace structure is corporate, and allocation is by competitive markets. An example of a market socialist economy is the former Yugoslavia.
In centrally planned socialist economies, there are still no capitalists. Workplace structure is still corporate. But here, allocation is by central planning, not by markets. In centrally planned economies, a relatively small group of people makes decisions about how resources will be distributed throughout the economy (though highly truncated markets might be used for resource distribution at the economy’s lowest levels).
This is not to suggest that every capitalist economy is identical to every other capitalist economy, or that every centrally planned economy is identical to every other centrally planned economy. Capitalism, for example, takes on a different flavor in the U.S. than it does in, say, Sweden. But the broad institution features of both U.S. and Swedish capitalism are the same, and can be compared and contrasted to the broad institutional features of socialism between the former Soviet Union and Cuba.
The real point I wish to make here is that, in every variety of capitalism or socialism, workplaces were and are structured with workers de-skilled and disempowered, dominated above by a coordinator class which monopolizes decision-making tasks. Once cultural and language differences are accounted for, an auto worker would very likely to unable to distinguish between work in a U.S. Ford factory versus a Soviet Lada plant versus a Yugoslav Yugo plant. However, the real reasons why these workplaces look the same varies from economy to economy.
In capitalist economies, workplaces are too large and complex for capitalists to run the workplaces themselves. So the capitalists hire a skilled and well-educated class of people — the coordinator class — to run the workplaces for them. The competitive pressures of a market economy force firms to fight with one another over resources, lest firms go out of business. So naturally, the coordinators seek to cut wages and benefits for workers below, increase the workload, and so on, in order to gain a competitive edge and save the firm from bankruptcy.
In a market socialist economy, there are no capitalists. Workers have formal control over their firm. But the firm still has to compete or die. Therefore, wages and benefits still have to be cut, workload has to be increased, and so on — otherwise there will be no firm. This is an unpleasant task, though, and workers would understandably prefer not to perform it themselves. So they hire a coordinator class of workers to do it for them. Once in place, coordinators will naturally seek to protect and enhance their privileged position within the firm, further deskilling and disempowering workers. And the whole thing snowballs, with worker power continually under attack.
In a centrally planned economy, planners make decisions. Those decisions, naturally, they expect to be carried out as they have instructed. Therefore, overwhelming power is given to managers to punish employees as they see fit, in order to control the operations of the workplaces to planners’ dictates. Hence, the entire economy becomes highly authoritarian. Since the larger society exists inseparably from its economy, the entire society necessarily takes on an authoritarian cast.
But from a worker’s standpoint, the differences between capitalism, market socialism, and centrally-planned socialism really aren’t that great. You go to work, a boss tells you what to do, and you go home — not uncommonly tired, angry, and/or depressed.
However, what we really want to do here is understand wages, prices, and money, and how they are necessarily part of any economy. So, returning to Jane, is she is an oven-owning capitalist, she overwhelmingly determines how many cookies she gets to eat. If she is workplace-managing coordinator, she still has a large say in her take of cookies — though the amount of cookies she gets to eat herself will naturally vary depending on whether or not someone above her owns the oven.
What about the workers who are doing the real work of baking the cookies? We know what happens there. Whether or not someone owns the oven, the workers are going to be left with whatever crumbs they are able to eke out. And in case it’s not yet obvious, the analogy is this: In an economy with market-based allocation or centrally-planned allocation, the workers are going to get screwed. They’re going to do most of the work, and see comparatively none of the rewards.
What we really need is an economy where people are rewarded — or remunerated, to use the technical term — based on their effort and sacrifice in baking the cookies. But the only way this can ultimately be determined is through wages and prices.
The real issue is not that an economy has wages and prices. Workers don’t get screwed because an economy has wages and prices. Workers get screwed because they labor under an economic model whose method of allocation sets wages and prices unfairly. That is, when the economy’s mode of allocation rewards the ownership of productive property (as in capitalism) or the monopolization of decision-making tasks (as in socialism), then the workers are necessarily going to get short-shrift.
Let’s return to Jane, only now let’s assume she’s just a worker, and not a capitalist or coordinator. Jane does some amount of work as part of her job. She makes a small pile of stuff in her role as a worker. Her labors entitled to consume a small pile of stuff. The size of the small pile of stuff she’s entitled to consume is represented by her wage. Now, if you don’t like the term “wage,” well, okay. Call it something else, if you must. But the concept is necessarily there, regardless of what you call it.
That is, during the year, Jane works. She makes a small pile of stuff. She is entitled, by virtue of her effort and sacrifice, to consume a small pile of stuff, is she not? Well, how do you know how much stuff she is entitled to consume? Something has to indicate that. That is, there must be some way of quantifying the amount of consumption Jane is entitled to.
If you could really wave a magic wand, and completely eliminate the concept of wages, how would you know how much stuff Jane could consume? Put another way, let’s say Jane wants to consume a clock radio. Is she entitled to do that? Perhaps your answer is, “Yes, certainly.” Well, okay, suppose Jane wants to consume a car. Is she entitled to do that? Perhaps your answer is, “Well, maybe.” Okay, now suppose Jane wants to consume something larger — say, Montana. Is Jane entitled to have all of Montana?
Your answer is probably, “Of course not.” But how do you know? If you’ve eliminated wages as a yardstick of consumption entitlement, you have no way of knowing whether Jane is entitled to have Montana or not.
You might say, “Yes, but Montana is obviously too much. It’s obviously too valuable for any one person to have.” But, if you’re like many of the socialists I’ve seen discuss this topic, not only have you eliminated wages, you’ve eliminated prices too. But the “value” of Montana is indicated by its price. Or the value of a car. Or a clock radio.
Understand it this way: With every product a society’s economy makes, resources go into making that product — resources that necessarily can’t be used to make some other product. Whether we are talking about material resources or labor resources, any resources an economy puts into the production of clock radios can’t be put into the production of automobiles.
Society has to make decisions about what it wants to produce. That is, an economy can’t just make everything. The Earth’s resources are limited. As a society, we have to make choices. Do we want more clock radios or more cars? Or perhaps neither. Maybe we want books instead. Or maybe we want some radios, but we’d also like some milk and cheese too. Or whatever.
Any economy has to decide how to allocate its resources to bring these outcomes about. In a centrally planned economy, the planners simply decide that that society’s economy will produce X number of clock radios, Y number of books, Z gallons of milk, and so on. In a market economy, firms compete with one another based on what level of profit they believe they can attain. An electronics firm will base its decision on whether to make more clock radios or more television sets (as well as what type of each) based on whatever it thinks will make it the most money.
But in neither a market economy nor a centrally-planned economy are resources allocated with any notion of what we might call “wise use” or “fair use” in mind. In a market economy, power and profit drive all calculations. In a centrally-planned economy, planners look to preserve and enhance their status, and their decisions are made with these ends in mind.
Participatory (or horizontal) planning, as described in the work on participatory economics done by Michael Albert and Robin Hahnel, is a new way for an economy to allocate resources.3 Participatory planning enables an economy to allocate resources based on the true social opportunity costs of goods. What is a good’s social opportunity cost?
Society derives benefits from making a certain number of radios. Society derives benefits from producing a certain number of books. But do we want more books and fewer radios? Or more radios and fewer books? How about less of both, and more milk instead? How about more of both, and less milk?
An item’s social opportunity cost represents its ideal level of production. If we produce so many radios that we end up losing out on the production of something society considers more valuable than the extra radios we’re making, then the social opportunity cost of radios exceeds their benefit.
That is, we can surely make radios. We can make lots and lots of radios. And keep making radios, until they pile up to the sky. We can do that. But if society thinks a certain amount of milk is more valuable than the extra radios we’re piling up, then those extra resources we’re dumping into making all those radios are being wasted. We’re making radios, yes, but society really doesn’t want all those radios. It would rather have a little bit of milk instead.
Of course, there is a certain level of radio production that makes sense. We don’t need to make radios until they pile all the way up to the moon, but if we only make, say, three radios for the entire economy for the entire year, that’s not necessarily a better outcome. Ideally, we’ll produce radios until the level of radio production meets some “reasonable” level of demand, without stupidly making so many radios that (a) we have no resources left over for milk, and (b) no one wants the extra radios we’re making anyway.
This “ideal” level of the production of an item (like radios) is the item’s social opportunity cost. It’s sort of like Goldilocks and the three bowls of porridge — we don’t want the level of an item’s production to be too much or too little, we want it to be just right.
The issue is complicated by the fact that we have all these items we’d like our economy to make, but only so much in the way of resources with which to do it all. Deciding how much of everything to produce is a big selection process. Some resources are easier to come by than others. Salt used in the production of tomato sauce might be easy to come by, but a particularly rare metal used in the construction of pacemakers might not be. And then, certain products like automobiles or cigarettes have pollution or health issues that really need to be accounted for in their cost, otherwise their social opportunity costs can’t be properly determined.
There’s a lot to keep track of when doing economic allocation. It is complicated, but not incomprehensible. A full treatment of participatory planning is beyond the scope of this essay. The point I wish to make here is simply that a good allocation system must be able to keep track of several variables. It must be transparent, and it must allow society to manage its own economic affairs without a small group of central planners making decisions, or the market forcing decisions on people solely in the interests of profitability and the survival of economic firms.
A good allocation system should allow us to determine the size of the small pile of stuff Jane can consume in a way that is fair. That is, Jane’s wage should be based on the effort and sacrifice she expends in her labors. On the other hand, a good allocation system should accurately value goods at the level of their true costs and benefits to society. That is, the prices of the items Jane consumes should reflect their true social opportunity costs.
These two concepts — wages and prices — necessarily exist in any economy. They are intrinsic to society-wide economic activity. The challenge is not to pretend they can be eliminated from an economy, any more than oxygen can be eliminated from the living human body. The challenge is devise an economic model that determines wages and prices accurately fairly. My claim is that parecon does this, while capitalism and socialism do not.4
One final note on the subject of money. “Money” means different things to different people. To some people, money means coins and dollar bills (and so on). Will this type of money exist in a post-capitalist economy? Maybe, maybe not. It depends on the technological level of the society, most likely. In the U.S., it is reasonable to think that an implementation of parecon would probably not use coins and dollar bills. People’s day-to-day consumption could more be easily tracked using computer databases very similar to the ones used currently by the credit card industry. In less technologically advanced societies, perhaps coins and bills will be retained as markers of day-to-day economic activity.
This conception of money though is not particularly important to those who are considering questions of economic vision. That is, one when considers what to replace capitalism with, thinking about whether or not to retain coins isn’t really very deserving of one’s time. It’s not the important way in which to understand the concept of money.
The important way is the way I just described: wages and prices. When thinking about economic theory and post-capitalist options, this is the conception of money you want to keep in mind. Whether or not people use coins (the other, more popular conception of money) is probably, at best, a third-order concern.
- Eric Patton, “An Introduction to Participatory Economics,” Dissident Voice. [↩]
- Eric Patton, “Assessing Economic Options,” Dissident Voice. [↩]
- See, for example, Albert and Hahnel’s The Political Economy of Participatory Economics, Princeton University Press, 1991. [↩]
- Parties interested in further assessing this claim’s validity are recommended to read Michael Albert’s Parecon: Life After Capitalism, Verso Press, 2003. [↩]